Guangzhou Pharmaceutical Co Ltd, South China's leading medicine company, said it would step up its efforts to get its products better known in North China.

"We will press ahead with the expansion of our sales network," said Deputy General Manager He Shuhua.

Last year, 38.3 per cent of the company's turnover came from the northern cities.

He expected that there would be more than 40 per cent growth in the turnover this year.

Known for its herbal medicines, Guangzhou Pharmaceutical, which also trades general medicines, said it would invest more in research and development (R&D).

A considerable part of 2006 capital expenditure, which totals HK$250 million, is earmarked for R&D, He said.

"New products will be the main pillar for business, so we hope that the annual spending in this regard will be no less than 3 per cent of revenue," said He.

The company spent about HK$15 million on R&D last year.

Some new products such as diabetes medicine are expected to hit the markets soon and this would contribute to 10 per cent of the turnover of its manufacturing arm by 2010, He said.

Guangzhou Pharmaceutical, which trades its shares in Hong Kong and Shanghai, last year rebounded from a downturn despite fierce market competition.

The company turned into black by posting a more than threefold leap in profit.

He, however, attributed the jump to the management reshuffle and effective cost control.

Its net profit plunged from 146 million yuan to 42.8 million yuan between 2003 and 2004. The figure was 198 million yuan in 2005.

"Most importantly, the company successfully controlled our profit tax rate from 61.8 per cent in 2004 to 36.52 per cent last year," said He. "The reduction was because the government cut advertisement tax and granted tax exemption for some of the products."

It also prevented the profit margin from dropping. "The profit margin rate for medicines stood at 5.64 per cent last year. This year it will stay somewhere around it," He said.

Mainland medicine makers are vying for a bigger market share. "Medicine prices had gone down sharply with the new comers flooding the market."

The company might consider issuing new H shares as price gap between its Hong Kong and Shanghai traded shares become narrower.

"The share issue may take place in two to three years," He said.

He, however, pointed out that the company didn't have financial problem as it has HK$616 million in cash and HK$910 million in bank loans.

On the investment in a Guangzhou football club, He said it was an effective way of publicity.

"It will give our products more publicity," He said. The football team, now playing in the first division league of Chinese football, will be better than any advertisement if it qualifies Chinese Super League, China's premier football league.

Editor: Yan