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The Strauss Group's global expansion is grinding on, with the purchase yesterday of Brazilian coffee company Fino Grão.

According to Strauss, Fino Grão is second only to Três Corações Alimentos, a 50% Strauss subsidiary, in market share in the Minas Gerais province of Brazil.

The acquisition will be made through Três Corações, at a price around the equivalent of one year of the company's sales - approximately NIS 70 million for 2010, and is conditional on receiving all required approvals from authorities in Brazil.

Fino Grão sells mostly roast and ground coffee, as well as cappuccino and espresso products. Strauss Group CEO Gadi Lesin said that synergies between Fino Grão and Três Corações among their operations in Minas Gerais and its capital Belo Horizonte can be beneficial.

Sales for Strauss Coffee in 2010 totaled NIS 3.4 billion. The division focuses mainly on roasted and ground products, as well as complementary coffee products. In addition to supplying the retail market, it caters to hotels, restaurants and cafes, also providing coffee service to offices.

Três Corações engages mainly in manufacturing and distributing roasted and ground coffee. The company, ranked second in coffee sales in Brazil, also produces and sells related products such as filters, cappuccino, chocolate and espresso.

The Strauss Group reported that its coffee sales in international markets remained stable at NIS 773 million in the fourth quarter of 2010, but did not grow because of the shekel's strengthening against other currencies. The division's operating profits, however, fell 37% against those of the parallel quarter to NIS 42 million, representing 5.3% of turnover versus 8.5% in the corresponding quarter.

Strauss Group's CFO Shahar Florentz explained that the coffee division's drop in profitability was due to a 103% rise in the price of the coffee beans over the past 12 months and that price increases of this magnitude cannot be fully passed on to consumers, so margins were narrowed.

He also said he expects operating margins in the first quarter of 2011 to remain low as sales in this quarter are based on stock purchased the previous quarter at high prices.

On the positive side Florentz pointed out that the company's coffee operations did well in Israel and in Russia, where they grew 9%, and noted the group's 26% growth in Brazil. Sales in the Balkan countries, however, plummeted by 47%, mainly due to recession in the area and falling market share in Romania, he said, adding that Strauss was hurt by the weakening of currencies in Poland and the former Yugoslav countries.

Shares of Strauss Group lost 0.7% on turnover of NIS 6.7 million yesterday.