Calcol has acquired the 20% stake of its local partner China National Food Industry Corp. in their Beijing-based joint venture concentrate manufacturing and bottling plant, Calcol Chairman Norman Kaplan said. Kaplan declined to reveal the cost of acquiring the 20% stake in Sanhe Meile Soft Drinks Co., but said the buyout allows the company the opportunity to
boost its soft drink production in China.

“In the coming year we should be selling pretty widely in Beijing and we are going to expand pretty rapidly after the WOFE (wholly owned foreign enterprise) conversion is completed,”he told Dow Jones Newswires in an interview.

Kaplan expects a second bottling plant in Shenzhen across the border from Hong Kong to be opened before the end of 2004, and a third plant in Shanghai will follow in early 2005.

“We don't want to stretch ourselves too thin,”Kaplan said. “So we are concentrating on the three major cities.”

All three plants will source their concentrate from Beijing which can supply enough syrup each year to make 2 billion liters of soft drink, he said.

The addition of two new bottling plants in Shanghai and Shenzhen will also allow Malibu brands to be sold in the fast-growing Yangtze and Pearl River deltas, two of the booming regions of China.

Kaplan expects both plants to be up and running within 18 months, bringing Sanhe Meihe's total soft drink production up to 25 million cases a year.

Nationwide Mkt For Malibu

Kaplan, who is also chairman of Sanhe Meile Soft Drinks, said the decision to enter into a joint venture with the state-owned China National Food Industry Corp. reflected the foreign investment laws at the time the agreement was concluded in 1995.

Those laws required a minority local ownership in beverage manufacturing plants in China.

But Kaplan said those investment laws have since been relaxed, allowing foreign companies to own a 100% of a local soft drink business.

“To my knowledge the other soft drink companies are still joint ventures,”Kaplan said. “And I think almost all of them (the joint ventures) have some component of government ownership.”

Sanhe Meile currently makes Malibu brand soft drinks almost exclusively for the Beijing market.

But its expansion plans will allow Malibu to take on global names such as Coca-Cola Co. (KO) and Pepsico Inc.'s (PEP) Pepsi Cola, as well as local players such as Future Cola made by Hangzhou Wahaha Group Co. as an almost nationally available brand.

But even with three bottling plants in China, the company's spending plans are still pretty much small beer compared with the billion-dollar investments by the global giants.

Rivals Pour In Billions

Coca-Cola has spent $1.1 billion in China since 1979 and expects to invest an additional $150 million to build six more plants in the next five years to add to its existing 28 bottling plants.

PepsiCo has invested $1 billion in China to set up 14 bottling plants andmore than 20 joint ventures across the country.

While Coca Cola and Pepsi are available throughout most parts of China, sales of Malibu Cola, Malibu Diet Cola, Malibu Sunrise orange drink and Malibu Surfs Up lemon-lime drink are limited to Beijing and the surrounding areas such as Tianjin and Hebei province.

Cherry cola flavored Malibu Verry Cherry is due to be launched soon.

About 400 supermarket stores throughout Beijing and the surrounding region already stock Malibu brand soft drinks, Kaplan said.

Sanhe Meile's production so far has been limited to 600 milliliter and 1.25 liter bottles.

The Beijing bottling plant is currently producing 6 million standard cases a year, Kaplan said.

The opening this year of a canning line at the Beijing plant will add 7 million cases a year of canned soft drink to the existing bottled capacity, he said. Shenzhen will also have a canning line to assist shipping the product across the region to markets in Hong Kong and Macau.

“We are going to be putting out an awful lot of soda,”Kaplan said.

Calcol Inc. is a vehicle for foreign investment in China and also has a stake in a pharmaceutical company in Shenzhen, an industrial city in southern China near Hong Kong.

Shares of Calcol Inc. trade on the over-the-counter Bulletin Board in the U.S.

Company Web site: http://www.calcol.com

-By Owen Brown, Dow Jones Newswires -Edited by John Viljoen

(END) Dow Jones Newswires
01-02-04 0500ET
*** end of story ***

(DOW JONES) DJN: DJ CORRECTION: Calcol Output At 75M Cases In 18 Mos, Not 25M
DJN: DJ CORRECTION: Calcol Output At 75M Cases In 18 Mos, Not 25M

Calcol Inc. Chairman Norman Kaplan expects both [additional] plants to be up and running within 18 months, bringing Sanhe Meihe's total soft drink production up to 75 million cases a year.

(In an item timed at 1001 GMT on Jan 2, 2004 the company's estimated total output within 18 months was misstated.)