British automotive retailer Pendragon reported a better-than-expected annual profit on Wednesday and said profit for the first two months of 2023 was higher than last year as strong volume growth in its new and used cars offset cost pressures.

The London-listed company reported an underlying profit before tax of 57.6 million pounds ($70.62 million) for the year ended Dec. 31, ahead of its expectations, but still lower than the 83 million pounds it reported a year earlier.

It also beat analysts' average expectations of a pretax profit of 48.8 million pounds, according to a company-compiled consensus.

The company, which deals with premium car makers like Mercedes Benz, BMW and Porsche, said there are signs of improvement in the supply of new cars even as it remains cautious about the pipeline of used cars.

"We remain mindful of the potential headwinds from challenging macro-economic conditions," Pendragon CEO Bill Berman said.

"However, we continue to expect our ongoing operational initiatives and growth opportunities to more than offset operating cost inflation within the business this year," Berman said.

Pendragon, which announced in September a partnership with Chinese electric vehicle and battery maker BYD Co Ltd , said it was still exploring strategic options for expansion on top of plans to open six more dealerships this year under the tieup.

As a launch partner for BYD, it opened two showrooms in Milton Keynes and Birmingham this month. ($1 = 0.8157 pounds) (Reporting by Anchal Rana in Bengaluru; Editing by Sohini Goswami)