Good day, welcome to the Q3 2018 Trading Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Richard Joyce, Head of Investor Relations. Please go ahead, sir.
Good morning, and welcome to RB's Q3 trading update. As usual, we'll say a few prepared remarks, and then we'll go straight over to Q&A. Without any further ado, I'll hand over to Rakesh Kapoor, our CEO.
Good morning, and welcome to RB's Q3 trading update conference call. I understand today is a busy day for trading updates, and hopefully our slightly later than usual start has helped avoid any conference call conflicts. I will take you through a summary of today's announcement, and then Adrian, our CFO, and I will be pleased to take your questions. I would like to remind you that this is a trading update only rather than a full set of results. I have three key messages for you today. Firstly, our new, more focused and accountable operating structure aimed at delivering growth and value creation, which we call RB 2.0, is firmly embedded within the organization. We are starting to see some good momentum from this, as you would have seen from our base Health and Hygiene Home performance in Q3.
Secondly, the integration of Mead Johnson remains on track, as does our confidence in delivering on the medium-term metrics to which we committed at the time of acquisition. I will provide you with some more details about the disappointing temporary manufacturing disruption we saw in Q3, this does not change our confidence in the long-term value creation opportunity that will be delivered. Lastly, I want to give you a quick update on full-year targets, which we are reiterating given the good momentum in our base Health and Hygiene Home business units. Let me give you some color around these messages. It was almost a year ago that we announced internally and then externally that we were working to create two focused and agile and fully P&L accountable business units, Health and Hygiene Home, to become effective from Q1 2018.
As you know, we have achieved a huge change program involving almost the entire organization in under three months, such that RB 2.0 was operational from January 1st, 2018. This is now our third quarter of results operating under RB 2.0. While we have much more to do, I feel that we are making good progress on both improving our operating performance and creating strategic flexibility of two structurally independent business units. You will have seen from our trading update published this morning that we delivered +4% like-for-like growth in both our base Health business as well as from Hygiene Home. Our top-line growth is not where our ambition is, but Q3 was another quarter of progress, and I am seeing good momentum returning to the business.
I am particularly pleased that the increased focus and accountability from Rob and his passionate team is showing better results with our business performing ahead of underlying market growth rates. On the base Health BU, we also continue to make progress. Our +4% growth in the quarter was a further improvement on previous quarters. We have seen good growth from a number of our innovations, like our recently launched 24-hour Nurofen patch and further progress in e-commerce, including direct-to-consumer and cross-border. The Health BU has undergone a bigger change agenda with the integration of Mead Johnson. We have Mead Johnson people getting used to the RB portfolio and the RB way of performance management. In the heritage RB, we are having to learn more about infant nutrition. Overall, another quarter of progress, but we are not performing as we should within our Health portfolio.
I have every confidence that we have the right structure, the right management teams in place to deliver our ambitions. Turning to my second key message around Mead Johnson, I remain tremendously excited about the value creation opportunity in this hugely important category where we can play a role in nurturing the best start in life. We are well on track in terms of both the integration of our business into Health BU, as well as on delivering the financial model and returns that we outlined to you in February 2017. Year-to-date pro forma growth in the IFCN business is +3%, a significant turnaround on the -1% decline we saw in 2017.
Market growth this year has certainly been strong, particularly in China, but more importantly, we've undertaken a number of actions to address the share decline, improve operational performance, and we have made significant investments in infrastructure, innovation, and people to provide a sustainable platform for long-term growth and outperformance. I've shared many of these with you already, whilst we have, again, so much more to achieve, I'm very pleased with our progress so far around improved in-market execution, our acceleration of the pipeline, and our success in new channels, including e-commerce. Let's turn to Q3. You will have seen from our announcement today that our IFCN business declined by -6% on a like-for-like basis in the quarter.
I want to take a few minutes to explain the issue and our corrective actions. Our North American business had a good quarter with some solid growth of around low to mid-single digits, where we have seen improving share trends, innovation success with our recent launches of Enfamil NeuroPro, and good progress on the new channels. We knew when we took on this category that we have work to do to build additional capabilities, including innovation and supply chain. We knew that we took on a very concentrated supply chain, and as a result, we approved significant CapEx to diversify the supply chain, increase capacity at existing factories, and upgrade quality. During the quarter, we experienced a temporary disruption in manufacturing at our European manufacturing facility, which caused materially lower production and supply into several markets served from this factory.
This principally affected Asian and European markets, with the largest impact in Greater China. This was more of a supply issue rather than an on-shelf consumer availability issue. The restocking timetables begun in Q4 imply there will be some shelf availability constraints and consumer losses in Q4. Clearly, I'm very disappointed. Q3 would otherwise have been another very good quarter of growth for our IFCN business. We are working hard with our channel partners to minimize this disruption for parents and babies. The issue was resolved in the quarter and manufacturing resumed. You will have seen from today's results that the impact of around GBP 70 million in Q3 to our net revenue. The bulk of this impact has occurred in Q3, but there will be some residual impact in Q4 and into early 2019.
At the same time as achieving the promised synergies, we've increased investments in infrastructure, innovation, and capabilities, including the approval for the purchase of a spray dryer and manufacturing facility in Australia last year to increase capacity to key Asian markets. We are doing the right thing to create a sustainable platform for long-term quality, growth, and outperformance, and we remain confident we can deliver the medium-term financials as explained at the time of the acquisition. Onto my final message. My final message is that we are reiterating our full-year net revenue target of 14%-15%. There is better momentum in both the U.S. IFCN business and in our base Health and Hygiene Home businesses. We remain confident with our target for the year, and therefore reiterating it today.
To conclude, while we have still a significant amount of work to do, we are for sure making progress, and we have some good momentum in the business under RB 2.0. The Mead Johnson integration is progressing well, and from an operational perspective, we are on track for delivery of our medium-term objectives. In the nearer term, we have reiterated our increased full-year net revenue target of 14%-15%, as we see good progress and momentum throughout the business. With that, Adrian and I will be pleased to take your questions. Let's have the first one, please.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.
Okay, thanks very much. We've got a few questions here lined up. First one's from Celine Pannuti at JPMorgan. Please go ahead, Celine.
Yes, thank you. Good morning, everyone. My first question on IFCN. You said that you had increased market share in North America, so good, versus the minus seven number that you have produced today. Would you be able to tell us what is the sellout number in the quarter? And specifically, could you tell us what has been your performance in China? My second question relates to that and to the full-year outlook. You had GBP 70 million lost sales in the quarter. How much of a drag should we pencil in for Q4 and presumably the first half of next year? And having done 2% year to date like-for-like, you said that you want to be at the top end of the two to three for the year. It seems there should be an acceleration in the fourth quarter.
Could you give us a bit of a building block behind that? If you could also reiterate that you're happy with the consensus, which I think stands at 26.7% margin for the year. Thank you.
Right. I think you asked the questions, Celine, as usual, which would last the whole call. Let me try and see if we can decompose it. First of all, we said there is an improving market share trend in the U.S. Clearly, when we acquired the business in the U.S., we were losing market share, and we were quite open about that, and we have slowly but surely reversed that trend. Now the trend in the latest period is a bit positive, which is very pleasing. A lot of work still to do, but as you've seen, we've accelerated innovation, we've improved our performance in growth channels, and that seems to bode well for the future. That part is clear.
In terms of your other question on what is the sellout performance in the quarter, and in particular in Greater China, as we said, that the quarter was more impacted by sell-in because of the stock issues that we had from a production point of view, from a technical supply disruption point of view, and less of a sellout problem. Because there was channel inventory, let's say, in the whole channel, in both warehouse channels, but also in our customers. Therefore, in terms of consumer disruption, it was less of a consumer disruption in Q3. As we restock in Q4, clearly there will be some sales benefit in Q4. Clearly also there will be temporary disruption issues on shelf availability and from a consumer point of view.
This we want to flag as we consider that there are cohorts in this category, and if we do not fulfill consumer supply needs, there could be disruption into Q4 and into potentially 2019, which is what we've called out. You asked how it impacts our, what it means in terms of Q4 guidance or what it means in terms of the, as I said, the guidance that we've indicated for the year, which is reiterating our 14%-15% bakes in all these factors clearly. You asked also a question in terms of what it means in terms of like-for-like, and we said that our full year guidance implies the upper end of 2%-3% in like-for-like, and we are also reiterating that. How do we get to that?
Clearly, as I pointed out, we have improved momentum in our base business, both Health and Hygiene Home. Also there is some restocking impact from a channel point of view. I do feel that we are comfortable in our guidance for the full year. Your last question was around margin, and maybe Adrian should explain that so that maybe-
Surely, Rakesh. Yeah. Obviously, Celine, this is a trading update, we haven't actually formally given any quantified guidance for the year. That said, as your question implied, this issue is clearly harmful to revenue growth, it's clearly not helpful to margin in a way we had not expected in the year. Of course, it does come on top of some pressure from rising input costs that you've heard from elsewhere. Frankly, there are also positives in the business for margin. The progression of the underlying business, or the main part of most of the business is going very well. You will have seen in the decomposition of particularly the HyHo growth between price mix on the one hand and volume. Some early encouraging, I emphasize early, but encouraging signs on price, which is also helpful.
Taking that in the round, frankly, our broad view on margin for the year has not changed.
All right. Thank you.
Thanks, Celine. Okay, next in the queue, we've got Robert Waldschmidt from Liberum. Go ahead, Robert.
Good morning. Just wanted to ask a little bit more about infant and supply chain, if I may. Firstly, can you give a little bit more detail as to the nature of the disruption? Secondly, you mentioned that you license plants or there are licenses for manufacturing in different markets. Can you tell us a little bit more about the nature of these licenses? Are you saying that it's contract manufacturing or not? Lastly, with respect to this, is there any business interruption insurance as well, which if there is, could offset some of the GBP 70 million loss in the period? Thank you.
Robert, the nature of the disruption, it was a technical engineering issue at our Netherlands facility, which is our main European facility. It does supply Europe, although as you know, our infant nutrition business in Europe is quite small. It also is a significant supplier to the Far East, China in particular. The reference to licenses is around there are many markets in the world where you have to license a specific plant, which of course means you're not completely fungible in your sourcing of supply to a particular market. That was the reference to licenses. When we had a disruption at the Netherlands facility, it had a knock on effect on the specific markets that were licensed for that facility. Just on the question of business interruption insurance, there is nothing material that we have that will mitigate that issue.
Okay. Just to clarify, you have a technical engineering issue. Is that now resolved?
Yes, absolutely. Just again, maybe just slightly expand on Rakesh's answer to the previous question and yes. The issue is now completely resolved, supply back up to normal. Just to sort of, again, fully decompose the impact on the numbers. The impact in Q3 was the result of a reduction in sales to the channel. We had the technical disruption. We did not have the supply available to sell to the channel. Therefore, you saw the GBP 70 million of lower revenue. In Q3, much of that was absorbed by the channel reducing its inventory. There was limited impact in Q3 on the consumer offtake on the shelf.
As we get into Q4, certainly we're there now and have been for much of the month of October, we are in a position where although we are supplying and restocking the channel, up to the ability of our supply to do it, and the pace and extent we can do that is supply constrained. We are now in a phase because there is some absence of product on shelves, where we are losing customer demand. Why we flagged for Q4 and a little bit into 2019 is that in Q4, we'll have the net of the positive of the restocking of the channel, clearly and unequivocally positive. At the same time, there will be some consumer loss. That's clearly a loss the first time a parent comes in and tries to buy our brand and can't get it.
Of course, there's the question, what does that do for the repeat purchasing? Which is too early to tell, which is why we want to be completely transparent. We set out that we do expect some impact on that demand knocking on. Of course, we're doing huge numbers of things in all the markets that have been disrupted, in particular China, to make contact with the mothers and parents in general and to mitigate that, but we do expect there to be some effect. That's, Robert, what we're trying to say in the fullness, obviously, of transparency.
Good. Thanks, Rob.
Thank you.
Right. Next on the line is Martin Deboo at Jefferies. Go ahead, Martin.
Yeah, morning, everybody. Martin Deboo at Jefferies. I'm sorry, and I slightly regret doing that. But I think given the pressure you're under, it's understandable. The simple maths are, first of all, can I confirm the full year target is an LFL, not pro forma target? Assuming it is, you need 5%-6% sales growth in Q4 against a tougher comp and with the issues in IFCN you flagged. I'm just trying to use plain language here, gentlemen. I'm just trying to understand the difference between the restock effect and the falling demand effect. Are you essentially saying that you expect a big swing back in IFCN in Q4 from the restock that will be greater than any underlying diminution in consumer sales? Is that the sort of logic of the guidance?
I observe that the comps in OTC get tougher, and the comps in wellness and hygiene and HyHo are broadly similar. I'm just sort of struggling a bit to understand the moving parts of Q4. Sorry for-
All right. Maybe just take a step back. First of all, it is like-to-like guidance, and clearly that was the guidance we set at the start of the year. That's the guidance we're reiterating. I don't quite see the sort of numbers that you just quoted of 5% or 6%. We see a first half which had a 3% like-to-like growth. We've delivered a disappointingly low 2% for the reasons you described, and I hope we've given you the best sense we can of the Q4 dynamic. We've said we're going to be at the higher end of 2%-3%. I don't quite see the issue that you're referring to, Martin. Again, if I-
Adrian, it is based on nine months LFL of 2%. That was what lay behind the comment.
Right. Of course, we do integer reporting, you've got to go behind it. When you look at three years, three months, 3% for the half year and 2% for the quarter, you can take a view, perhaps, I hate to say this, but on the strength of the two. I really don't quite see the level of angst in your question, Martin. If I'm missing something, again, please come back or maybe come back to Richard afterwards.
Okay. All right.
Martin's question about whether Q4 is driven by a big uplift in IFCN.
Well, again, that is a very good question, Martin. Not that the rest of it wasn't, that is a very good question. We are signaling the two. There will be channel restocking. There has been a significant channel restock. We are in full supply. There is channel restocking going on as we speak. There is also a loss of consumer demand. We can see the first month's impact. We are going to have to see exactly how it plays out.
I think the full impact of this is only going to be felt during the course of the quarter because as we said, the last quarter did not see much of a on-shelves availability issue. It's going to be much more in this month and maybe to an extent in the first couple of weeks in November. Therefore, how the two forces play out will be seen. I think, like I said, we are not going to give you a target by category, by quarter. We've given you the whole picture as we see it, and we are comfortable with where we are with the whole picture.
Okay. Thank you.
Okay. Thanks, Martin. Next on the line, we've got Karel from Kepler Cheuvreux. I'm not going to say your surname, Karel, because I might mispronounce it. Apologies. Go ahead.
Yes. Good morning. It's Karel Zoete speaking. Thanks for taking the question. I got two questions. The first one is on the supply chain issues in infant nutrition. According to local press, there was some ammonia leakage in a freezer. Is this the incident you're referring to? And also in 2017, there was an incident at the Nijmegen facility. A more broader question is how do you kind of assess the quality of the safety systems at this facility? The second question is on pricing in Health. That is nicely positive during the third quarter. Can you talk a bit there what you see in terms of where pricing is actually improving expectations from here onwards? Thank you.
Right. I think the first one is quite simple. It has got nothing to do with the ammonia leakage, there's no connection to 2017 issues that you might be flagging, which I'm not aware of, by the way. There's no quality and safety issue here. I would say it's just a supply technical disruption of supply. On your second question on Health, I would say that you might have seen from our previous reporting also, there was modest pricing in Health in the first six months too. The last quarter, we've indicated on base Health about a split of price mix and volume. I would not take anything more in the trends of pricing on Health. On Hygiene Home, clearly there has been a material change from the first six months of the year on pricing to the last quarter.
Again, I don't want you to read too much from the price mix combination in third quarter because the third quarter, I think from a 4% growth, we had 2% volume and 2% price mix. We do see, I did flag that a number of times actually in previous quarters, that I did expect to see in the second half of the year some pricing return in the market as a whole. Clearly we will be carefully looking at our pricing and our competitive situation in that context and make the right calls. I'm not saying that therefore there is full-blown price increasing going forward, but clearly that evidence of early pricing in the market and where we have also participated seems to have happened in Q3 as we've shown in our results.
All right. Thank you. Very helpful.
Sure. Right. Now we've got Richard Taylor from Morgan Stanley. Go ahead, Richard.
Good morning. A few questions from me. The first one, it would be really helpful for us to understand a little bit more about the nature of the issue in the manufacturing facility, just so that we can judge a little bit more about the impact. We're obviously a full month after the end of the quarter, so I'd be really curious to know when exactly the issue came up. How long did it last, or what exactly was the nature of the issue? I know you said it wasn't to do with ammonia. Given the impact we're seeing on the share price today, how you thought about the timing of announcing the issue. That's my first question. The second one, obviously another strong quarter of growth from OTC.
Maybe if you give us a little bit more color around how you're thinking about that and the sustainability of that growth. Thirdly, just on pricing, can you give us some color around pricing discussions, and how you're thinking about pricing going forward? You've previously been a little bit more cautious than perhaps some of your peers, who are sounding a little bit more optimistic.
Let's address your first question first, Richard. It was a technical engineering issue at our Netherlands plant, at the Nijmegen plant, as the previous questioner referred to. The issue developed over time. It took a while to investigate thoroughly. You'd absolutely expect us to investigate something like this extremely thoroughly. It then took us a while to develop remedial actions, both in terms of within the facility, but also in terms of within the supply chain to make sure our customers were served as best as we could, given the difficulties. Indeed, there still is some uncertainty today about exactly how consumers will respond to stock outages when they return for their next purchase.
This was developing through Q3 in terms of identifying the issue, identifying the root cause and making sure we have proper remediation in place and can start up full production again, and working with customers with the inventory we did have. As we spelled out actually, because we have a substantial new facility coming available in Australia at the end of the year. The growth in the market served by this plant in Netherlands has been strong. It's been a tight supply chain. We've had less inventory than was ideal, so that also meant we needed to manage it particularly carefully. I think very importantly, we're reaffirming our full-year revenue guidance.
I think those were the sort of issues that we've been working on since this time and felt that in that context, the absolutely appropriate thing was to bring it to investors' attention along with these numbers, Richard. That was our logic as we went through first identifying and then remediating and then ameliorating, dealing with this issue.
I think there were a couple of other questions, Richard, from you. One was about pricing going forward. Clearly, as I said, we should see modest price increases in the market going forward, which we saw some evidence of in Q3, and I would imagine that over the next several quarters, you would see some more trending of pricing in the market. This is my expectation. Clearly, we operate in a competitive market, and we operate in a market which has many other factors to be seen. I do expect better pricing environment in the next several quarters than we've seen in previous several quarters if you take the last quarter out of the discussion. In terms of OTC growth, generally speaking, actually over the last many years, we've had good growth on OTC.
Many of the Health growth rates have actually been swung around by the negative performance of Scholl in the past. You're seeing that OTC has generally performed well ahead of the market, and clearly 6% is materially ahead of the market because we are making good market share progress here. I would not say that OTC growth rates at 6% is something that you can write in a model because clearly there are lots of changes that happen in quarters and over maybe sometimes years based on seasonality, based on innovation, and based on several other factors including, for example, the Mucinex factor of private label entry or reentry rather in this case. I'm not giving you any specific target or guidance for OTC growth rate except to say that the underlying performance of our OTC brands remains very solid, very good and ahead of the market.
Okay. Thank you.
Thanks, Richard. Right. Now we've got Guillaume Delmas at BAML. Go ahead, Guillaume.
Good morning, gentlemen. Couple of questions from me. The first one on the HyHo division. In the press release, you're again saying that the category growth is toward the lower end of the 2%-3% range. For the third consecutive quarter, you've reported 4% like-for-like sales growth. You're basically growing at twice the pace of your categories. Wondering what's supporting these substantial share gains and whether this is sustainable or not. The second question is on rest of Health and within this, the other subdivision. We've seen 2% like-for-like, a small improvement relative to Q2, where it was flat organic sales growth. I thought with Scholl now in the base and some relatively easy comps for Dettol in the Middle East, we would have seen a stronger acceleration in that third quarter.
What are the key moving parts there, and is Scholl really out of the woods? Thank you.
Right. Okay. On the first question, I think, Guillaume, you're right. HyHo performance has been very consistent this year, actually. I'm very pleased with this, really. First of all, this is a business that we always believed had the potential of growth. We had good innovation going into this year. We have indicated those. Air Wick had a strong pipeline of innovations with a mist product. On Finish, we've had a new launch in the U.S. I think the innovation going into this year has been very good. I personally judge that the increased focus and passion from Rob and his team has actually made sure that the innovations have been maximized to their fullest, that we've actually got the wins that we needed to get behind these brands.
We've invested more in some cases, you can see some of that showing into slightly better, we're gaining modest market shares, too. I can't write this again as a trend because clearly these are early days. Nine months is not a lifetime. We are very encouraged by the performance of HyHo, and I think that I did not, I would say I knew that the intrinsic opportunity in HyHo to do better was absolutely in front of us, and RB 2.0 unleashes that, and that makes me happy because obviously this is what I wanted to see. On the rest of Health, I think you're talking about the non-OTC part.
Non-OTC.
Non-OTC. Yeah. It's a very, very big success. Clearly, there are some moving parts here, and some parts doing better than others. Scholl is less of a drag in the quarter than it is not out of the woods. I would not say it's in growth. It's not a tailwind, but it's not a material headwind. I think that is the one thing I would want you to take out of this. Slightly better trends on wellness and so on. I would not on the rest of Health, I would say they're better trends.
Okay.
Yeah, better, also better trends in Q3. Middle East is still, I would say, is still a drag. It's not as much of a drag, but it's still a drag. I don't think they were favorable comps in Middle East in Q3. They might have been in Q4, but not in Q3.
Thank you very much.
Okay. Thanks, Guillaume. We've got Mariam from Raymond James. Go ahead, Mariam.
Hi, everyone. Thanks for the question, actually, they're all been answered already.
All been answered. Excellent. Okay. Thanks a lot. I've got Eddy Hargreaves from Investec. Eddy, go ahead.
Good morning. Returning to the full year guidance on sales of upper end of 2%-3%. I am taking it that by definition, that means 2.6% or above. It would be really helpful to get some idea of the 2% year to date reported, whether that is closer to 1.6% or to 2.4% or somewhere in the middle. I know you do not like talking decimals, given obvious uncertainty about what you need to do in Q4, it would be really helpful if you could give us some color at least on where you stand within that range year to date.
I mean, we are not going to go into the decimal places, as you can imagine. Given that you and Martin earlier, and others I am sure are focused on this. I think what we can point out is look at the half year number, it was a three, then we have got a two here. I think you can reasonably infer it is a strong two in the year to date. Therefore, I think you can see perhaps why we have not come to the same conclusions that Martin's maths was doing, which was maybe rounding in other ways. In fact, with a business excluding IFCN growing at 4% as we have just been discussing, with an IFCN in Q4 as we have described, I do not think we see the maintenance of guidance as being a remarkable thing for us to be doing at all.
Okay. Thank you.
Good. Thanks, Eddy. We have got James Edwardes Jones from RBC. Go ahead, James.
Yeah. Good morning, guys. I have to say, the sort of repeating of the technical engineering issue, it isn't very helpful. On the basis that's all we're going to get, can I ask if the disruption to the Netherlands plant was a result of work you've been doing to take costs out of Mead Johnson? How confident are you that it won't happen elsewhere?
James, an extremely fair question. I would say we are absolutely clear this had nothing to do with cost savings at the Nijmegen plant or anywhere else. As you can imagine, as this thing came to light, that was one of the questions firmly on our mind. It's very, very clear this would have happened under previous ownership. We are very, very clear that actually in the period since we've owned this, we have been investing in capacity and for actually quality and other aspects, and in particular, the significant new capacity that's coming online in Australia at the end of this year. We couldn't be more categoric. Very, very fair and legitimate question, James. We could not be more categoric that the answer is wholly unconnected with that.
Can I just remind everyone on the call that the synergies that we had targeted at the time of the Mead Johnson acquisition had much more to do with procurement synergies and back office synergies. Procurement synergies in the form of raw material, packaging material. We buy cardboard boxes, we buy tins, we buy media together. On back offices, also head office synergies, which tend to be quite significant actually in nature. We did not put a huge synergy target. We have been emphasizing over the last many quarters, as soon as we got the Mead Johnson, that we've been investing more in this business in terms of innovation capabilities, in terms of supply chain, in terms of other quality and capabilities.
This has been a business unlike any other that we have taken, both in the magnitude of the savings that we've targeted from a synergy point of view and the extra investments we've made to actually bring back the business from where it was, trading at -1% last year, actually -3% in the first 6 months of last year, to where it is now, which in 9 months has been +9%, with a desperately disappointing third quarter. With a desperately disappointing. I cannot tell you how disappointed I am. I'm really disappointed. This is something we need to do well. This is a category where we need to handle even the smallest technical issue with the greatest responsibility. This is what we want to do.
If it means that there is a technical thing to be taken care of, so be it. As disappointed I am that all the great work we've been doing in this category and the momentum we've created does not show in the third quarter, equally, I feel that if we do not take these things as seriously as we do, it's not also the right thing for the long term of this business. That's what we have done, James.
Just to be clear, sorry to harp on about this, can you categorically assure us that the issues in the Netherlands plant are not issues in any other Mead Johnson plants?
Absolutely yes.
Thank you.
We looked at the specific issues, looked at them technically. We looked at all the other plants for something similar. Yes, huge amount of work has been done on that.
Got it. Thank you.
Thanks, James. Right. We've got Rosie Edwards from Berenberg. Go ahead, Rosie.
Good morning. infant nutrition, but maybe slightly a different angle. Is the Australian plant approved to supply into the Chinese market? Does it have the required regulatory approval?
I think the Australian plant comes on stream in Q4, towards the end of this year, and will be, in time, approved for China supply. Although what we are going to do is to take some parts of the Asia supply that we are doing from the current Dutch facility off into the new plant, and therefore create more supply chain optionality.
Okay, sure. You say in the press release market growth in China moderated. I think in the first half you were referencing mid-teens. Is it still in double-digit levels, or are we into single digit in terms of the market growth now?
I don't think we were referencing mid-teens market growth rate in Did we? Richard, did we? Mid-teens in the first half?
Yeah, we did.
Okay. My memory fades.
Okay.
Certainly in Q3 it has moderated as we expected it to. Actually there are some predictors of market growth rate, again, to reference what I said at the July call. Stage 1 growth. Stage 1 is zero to six months. Stage 1 growth is the lead indicator for what might happen into Stage 2 and 3, and we see Stage 1 growth rate to be flat to modestly declining. That's a full reflection of birth rates that over 2017, were a decline over 2016. How can we judge exactly what the birthrates in 2018 are going to be and how that impacts 2019 is, of course, something to be seen, but there is still pricing/premiumization in the market. RB Mead Johnson plays in the premium segment of the market, what we call the high premium and super high premium segment of the market.
The markets or the segments in which we are operating basically do show good growth. We know that the Chinese government on the other side is also working on relaxing the opening up of the one-child policy, and looking at whether incentives need to be given. I'm not so sure what exactly the end game out from this will likely to be, but I know that the Chinese government is not happy with the progress that they have made in encouraging birthrates with the opening up of the one-child policy, and whether they are going to do more to boost growth rates going forward is something to be seen. Clearly, China remains an important opportunity. We should not forget that we are still under, how to say, under leverage in new growth channels like mom and baby stores and e-commerce versus our traditional channels.
There's a huge amount of work we are doing to gather pace here. For example, as I spoke about potentially in our half-year call, we partnered JD.com to go into many more cities. I think in the third quarter I saw the data. We are nearly in 250 more cities than where we were at the start of the year. That's significantly higher than what we would otherwise have achieved. There's a plan to ramp that up going forward. There is a huge amount of underlying work that looks very good even in a very desperately disappointing quarter that we've seen on IFCN, which of course, we have to move out of and get back to our positive momentum in this category.
Great. Thank you very much.
Thanks, Rosie. Just a reminder, if you want to ask a question, you need to push star one on your phones. Right. We've got a question from Pinar at UBS. Go ahead, Pinar.
Hi. Thank you, Richard. I have two questions. The first is a very quick technical follow-up. I believe last year the cyberattack was around a 2% drag on your Q3 growth. Could you please remind us whether it disproportionately impacted any of your divisions? When we look at the 4% growth rates in the HyHo and Base Health in Q3, should we bear the easy comps from cyber in mind when we think about the growth run rate as we go into 2019? My second question is on IFCN.
You've indicated in H1 that you've had a bit of trade loading in this division this year as you rolled out new products. Today you've made some comments about moderating market growth rates. Do you think consensus expectations for more than 4% growth in IFCN next year are aligned with your expectations for market growth and your own performance? Thank you.
Let me take the first one, Pinar, on the impact of cyber last year flowing through to this year. There's no doubt Q2 and Q3 last year were clearly harmed by the cyber experience, and therefore, yes, as you look at the numbers in Q3 this year, and particularly when we talk about high growth, why was it 4% when we think the markets are at the lower end of 2%-3%, and we are growing a little bit more than market? The difference is essentially cyber. Q3 did have a cyber tailwind involved in it. I'm not quite sure about what you mean by 2018 to 2019. I'm not sure that by the time we get to 2019, that any cyber effect going to be left in the year-on-year numbers.
You're quite right to point out that that does exist in the Q3 numbers, yes. In terms of the growth rate in IFCN-
For 2019?
Yes.
I think, Pinar, clearly, we are not talking about 2019 targets today. There will be a time for doing that, and I'm not convinced we are going to give you targets by category, by business unit. We will give you aggregate targets for 2019 as we come into 2019.
I would also say that our view of 3%-5% medium-term range for IFCN growth is completely unaffected. Clearly, China's going through some gyrations at the moment and is coming down from some extraordinarily high growth in the last year. That does not affect our confidence of 3%-5% medium-term IFCN market growth.
Okay. Thank you.
Thanks, Pinar. Well, there's no more people in the queue, thank you very much. Goodbye.
Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.