Inchcape, the international upmarket car dealer, has set its sights on further expansion in eastern Europe and China after announcing interim profits up a third to £88.1m.

The group, which had record sales in Singapore and Australia in the first six months, benefited in Britain from reforms to the EU's block exemption scheme, de-coupling car dealerships from manufacturers.

UK first-half operating profits surged 38.5% to £13.3m after a change of face in 2003 when Inchcape took on 13 new dealerships and sold or closed a dozen. It acquired five Mercedes dealerships in the Midlands for £20m in June.

The group, which bought six BMW/Mini dealerships last year, specialises in premium cars such as Lexus, Ferrari and Land Rover and said the recent interest rate rises should not hamper UK earnings growth.

Inchcape, which saw a 45.3% rise in operating profits in Singapore to £29.2m and 39% in Hong Kong after the Sars epidemic of 2003, more than doubled earnings in the Balkans.

Bulgaria and Romania, its main markets there, are yet to enter the EU but Inchcape said economic growth and the rise of an indigenous middle class had already led to a 65% increase in sales. The group, also active in the Baltics, wants to benefit from the 8% annual growth in the east European market compared with sluggish activity in the west.

Chief executive Peter Johnson, who is talking to Jaguar, Mercedes and BMW about dealerships in China, said Inchcape was generating sufficient cash flow to fund further acquisitions. It would return cash to shareholders if investment opportunities flagged. He pointed to weaker growth in the second half. The interim dividend will rise 25% to 15p.