Industrial wheel maker Balkancar Zarya says it has signed a long-term supply contract with one of the world's top five forklift manufacturers. The Bulgarian company will supply complete wheels from its current product range during the three-year term.

Without naming the forklift manufacturer, Balkancar Zarya says the new customer's account represents more than 10% of the company's revenues for the financial year ended December 2008.

"The management of Balkancar Zarya considers this contract as an important one to the company. It is viewed as a vote of confidence in our company, products and ability to deliver in a reliable, flexible and cost-efficient way," a company statement says.

Balkancar Zarya adds that the contract win renews the company's belief in its short-term sales strategy of achieving a higher sales volume at the expense of lower profitability.

Balkancar Zarya plans to transition the company from a product to system supplier for original equipment manufacturers (OEM), but it admits that in the medium term, it is better off focusing on supplying products in the current economic climate.

Despite current economic conditions, Balkancar Zarya forecasts BGN11 million (USD7.5 million) in unconsolidated sales for the 2009 financial year, 30% or about BGN4.8 million (USD3.2 million)higher than in 2008. Growth in sales is attributed to higher sales volume as production costs decrease.

"The production prices depend on the steel price. The agreements with the major clients allow production prices to be adjusted in line with steel price fluctuations," the company says.

Balkancar Zarya expects to save BGN600,000 (USD406,243) this financial year from decreased steel prices. However, unconsolidated operating expenses are expected to grow 16% in 2009 over 2008's BGN7.7 million (USD5.2 million).

The company predicts a 19% drop in employees' expenses due to its implementation of lean manufacturing concepts and improved productivity measures.

Balkancar Zarya says the financial crisis hit its sector in the last quarter of 2008 and further intensified in the first quarter of 2009.

"We expect a recovery of the situation and revival to the normal order intake pattern after the second quarter of 2009. The fact that we are working with leading OEMs allows us to make accurate sales plans, leading to better working capital planning."

Balkancar Zarya adds that its prospects of strengthening its position in the aftermarket, "which is less cyclical than the OEM segment (is) fairly positive".

"On the macro level, we consider the element of compulsory capital expenditure as contributing to a faster recovery from the crisis. In the short term, a decline in demand for investment goods like industrial vehicles is observed [but] in the medium term, after a period of insufficient investment in industrial vehicles, their efficiency eventually worsens.

"A rubber band effect appears. The more industrial vehicles deteriorate, the more investment is needed in new vehicles," the company says.

Balkancar Zarya has a joint venture company with UK based-Watts Tyre plc, Watts Zarya Ltd.