UPDATE 2-Continental "feeling strong" for more acquisitions after Veyance

Thu Mar 6, 2014 7:39am EST

* Liquidity up 13 pct in 2013 to 5.9 bln euros

* Sees Q1 adjusted EBIT above year-earlier 796.2 mln euros

* Continental to pay higher 2013 dividend of 2.50 euros

* Says currency effects to slow Q1 sales growth

By Andreas Cremer

FRANKFURT, March 6 (Reuters) - German auto parts and tyre maker Continental is considering further acquisitions, weeks after announcing the purchase of U.S. rubber firm Veyance Technologies for 1.4 billion euros ($1.92 billion).

Buoyed by 5.9 billion euros of liquidity, Continental is seeking deals in the rubber industry and other non-automotive segments to trim reliance on volatile car markets.

Following the Veyance deal, smaller-scale acquisitions in the automotive sector are also possible, Continental Chief Executive Elmar Degenhart said on Thursday.

He added such deals could happen in the next 12-18 months, without providing details.

"We have many ideas," Degenhart said at a news conference about annual results. "We're feeling strong enough."

After a six-year sales slump to a two-decade low, Continental's core European auto market is finally showing signs of a steady recovery as even the countries hardest hit by the euro zone debt crisis move out of recession.

The purchase of Veyance from U.S. private equity investor Carlyle Group was one of Continental's biggest deals to date. It will raise its share of non-automotive sales to 32 percent of group revenue from 28 percent, still short of a 35-40 percent goal, finance chief Wolfgang Schaefer said.

CEO Degenhart said he expected the deal to be closed by October.

SEES SALES GROWTH

The Hanover-based company's 5.9 billion euros of liquidity consists of 2.05 billion euros of cash reserves and 3.83 billion in available credit lines.

Its plans for further expansion reflect growing optimism about its business.

First-quarter sales may grow by between 3 and 4 percent as world car production picks up, Degenhart said. Without headwinds from the strong euro, which last year shaved almost 800 million euros off group sales, the sales gain could be as high as 8 percent in the first three months, he added.

"Our business has already been encouraging at the start of the year," the CEO said.

Continental plans to pay shareholders a dividend of 2.50 euros per share for 2013 business, compared with 2.25 euros in 2012. Its share price was up 5.3 percent at 182.35 euros at 1225 GMT, among the biggest gainers on Germany's benchmark DAX index which was up 0.3 percent.

First-quarter adjusted earnings before interest and tax (EBIT) will be above the year-ago level of 796.2 million euros, the company said. The adjusted EBIT margin will stay well above 10 percent this year after the 11.2 percent in 2013, it said.

Continental reaffirmed its 2014 guidance for sales to grow by 5 percent this year to about 35 billion euros, after climbing almost 2 percent to 33.3 billion euros in 2013.

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