Associated British Foods PLC on Tuesday said interim earnings and revenue have returned to their pre-Covid level, but it warned that its Primark discount fashion stores will need to raise prices in order to offset cost inflation.

Shares were down 4.9% at 1,551.00 pence each on Tuesday morning in London.

The London-based food processing and retailing company said revenue in the financial half year that ended March 5 rose 25% to £7.88 billion from £6.31 billion a year prior. Pretax profit more than doubled to £635 million from £275 million.

Two years ago, in half year that ended February 29, 2020, so before the pandemic struck the UK with full force, pretax profit was £298 million on revenue of £7.65 billion.

On the back of its strong results, the company more than doubled its interim payout to 13.8 pence from 6.2p.

AB credited its performance to a strong recovery in sales and operating profit margin at Primark. It noted that the trading conditions for the store chain were much improved during the period, due to the relaxing of most government restrictions on store operations.

‘Primark delivered a significant increase in sales and profit, with stores now open and trading largely free of restrictions,’ Chief Executive George Weston said.

‘This half year sales and operating profit for the group returned to pre-Covid levels. Our people have responded well to the many challenges we faced. Our food businesses have once again proved their operational resilience and Sugar had another strong period, building on its recent track record of recovery,’ he added.

However, the company said that all its businesses are experiencing logistics challenges, Covid-related labour absences and significant inflationary pressures in raw materials, supply chains and energy.

It added that inflationary pressures increased further with the invasion of Ukraine at the end of the period.

‘Action has been taken to offset these higher input costs through operational cost savings and, where necessary, the implementation of price increases. However, the benefit of price increases inevitably lags input cost inflation. While we have no businesses in either country, commodity and energy prices have increased further following the Russian invasion of Ukraine. As a result, we now expect a greater margin reduction in these businesses than previously expected for the full year,’ the company said.

Chief Executive George Weston warned that Primark will need to raise prices to customers in order to offset rampant cost increases.

‘Looking further ahead, inflationary pressures are such that we are unable to offset them all with cost savings, and so Primark will implement selective price increases across some of the autumn and winter stock. However, we are committed to ensuring our price leadership and everyday affordability,’ he said.

The company said it expects significant progress in adjusted operating profit and adjusted earnings per share for the year.

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