Car dealer Pendragon said the acquisition of rival Reg Vardy had boosted first half profits, despite a slowdown in the UK new car market.

The group reported yesterday that pretax profits before exceptionals in the six months to June 30 had risen to £42.3 million, compared with £36.8 million a year ago.

Pendragon paid £506 million for Reg Vardy in February as part of an expansion plan and said it had already contributed £19.9 million in operating profit.

It subsequently lost out in a £259 million bid for Lookers.

The Nottingham-based company revealed that it had so far booked £3.4 million of exceptional operating costs relating to the integration of Vardy and the abortive bid for Lookers.

That figure is expected to rise to £5 million for the full financial year.

It also sustained an operating loss of £1.2 million from the opening of 12 Cadillac dealerships, including sites in Birmingham and Hagley.

On the opposite of the book, Pendragon generated one off profits of £11.9 million from the sale of three surplus sites, including a £10 million gain from a disposal in Solihull.

As well as its 384 UK franchises, Pendragon sells Jaguars, Land Rovers and Aston Martins in California and in Frankfurt and Munich in Germany.

Chief executive Trevor Finn said yesterday: "Trading performance across the group has been good in the first six months of the year against a backdrop of a weaker UK new car market."

The Varley acquisition boosted revenues by £856.3 million, despite a 4.2 per cent fall in new car registrations across the UK market.

"The first half of 2006 has been a very exciting time for Pendragon," Mr Finn said.

"The acquisition of Reg Vardy has made a significant contribution to the group's first half results and its integration continues to progress well. The underlying performance of the group has been solid despite a falling UK car market. While we expect the UK car market to remain tough for the remainder of 2006, we are confident of further progress with the group as we continue to grow the business and integrate Reg Vardy."

Last week Pendragon was told by the Office of Fair Trading it would not be asking the Competition Commission to consider its acquisition of Reg Vardy.

The OFT was looking at whether the buy-out would impact competitiveness in new car servicing across four areas of the country.

"The new car market continues to suffer from retail consumer weakness, whereas aftersales and used cars have been relatively unaffected," Mr Finn said.

"Current trading remains in line with expectations. Looking ahead to the remainder of the year we do not expect trading conditions to change significantly.

"We are confident that our performance expectations for the year will be met."

Oliver Wynne-James, from Panmure Gordon stockbrokers, said Pendragon had presented a "respectable set of Vardy-influenced numbers".

But he believed the firm needed to exercise another property sale and leaseback deal in a bid to counter rising interest rate concerns.

The company said its interim dividend would increase by ten per cent to 7.25p.