December 6, 2017 / 7:58 AM / a year ago

UPDATE 2-Dutch engineer BAM warns cost overruns will hit 2017 earnings

(Updates with share price plunges; quotes from conference call)

By Manon Jacob

AMSTERDAM, Dec 6 (Reuters) - Dutch engineering and construction firm Royal BAM NV warned on Wednesday its 2017 profit will be “substantially lower” than in 2016 following cost overruns on a new sea lock it is building in the town of IJmuiden, near Amsterdam.

The company’s shares slumped more than 20 percent when they started trading 30 minutes after the Amsterdam Stock Exchange opened, on track for their worst day in three-and-a-half years.

BAM shares the 600 million euro ($710 million) contract for the lock on a 50:50 basis with larger rival Royal VolkerWessels NV, which said separately its forecast for an increase in full-year core earnings remained intact despite the setback at IJmuiden.

VolkerWessels shares were off 13 percent at 21.83 euros, making the shares the biggest losers among stocks in Amsterdam’s Mid-Cap index

BAM forecast “an estimated additional project loss of around 55 million euros in the fourth quarter 2017.” VolkerWessels’s loss on the project amounted to 69 million euros, Dutch news agency ANP reported.

The Dutch government awarded the contract to the companies in 2015 to replace the town’s 100-year-old lock which connects it with port traffic from Amsterdam.

The companies said the losses follow then being forced to redesign the lock doors to prevent cracking when they are lowered.

The company had first identified the risk in the first quarter of 2017, but thought then it could be addressed with minimal changes.

“But now, the constructability of the design appears to be a different story and that is the reason why we now go into the details of the project more than we normally would, because we understand this is unavoidable,” CEO Rob van Wingerden said on a conference call.

The new design, scheduled for early 2019, requires more expensive materials and equipment, and adds personnel costs for a longer construction period, the two constructors said. ($1 = 0.8447 euros) (Reporting by Manon Jacob. Additional reporting by Toby Sterling. Editing by Louise Heavens and David Evans)

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