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The SNC-Lavalin offices in downtown Montreal.

Mario Beauregard/The Canadian Press

SNC-Lavalin Group Inc. posted a $37.3-million second-quarter loss, as the engineering giant booked unexpected charges related to projects in Africa and warned of a "challenging" year.

Montreal-based SNC said it took a $70.1-million charge in its oil and gas division related to litigation over construction delays on a plant in Algeria that was in the vicinity of a terrorist attack in January. SNC also took a $47-million "risk provision" in its infrastructure unit after an unnamed client in Libya attempted to draw on a line of credit related to a project SNC was involved with.

"It's an evolving political situation in both environments," SNC president and CEO Robert Card said on a conference call. "We were surprised at the action but we weren't surprised at the risk."

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SNC also cut its earnings outlook for the year, forecasting net income to be in the range of $220-million to $235-million.

"Due to a variety of unexpected factors, such as the ones we have experienced in the second quarter in North Africa, 2013 is proving to be a very challenging year for the company, but also a year of important transition," Mr. Card said.

SNC shares fell 6 per cent Friday, closing at $40.38 in Toronto.

"In Algeria we continue to discuss the issue with the client and intend to deploy all necessary actions to challenge any penalties. In Libya we are actively seeking to clarify the situation surrounding an attempt to draw letters of credit and use all legal and other means available to prevent a draw from being executed," Mr. Card said.

The company would not disclose what the Libya project was, but said that all work had been halted since the beginning of the civil war in 2011.

At the time SNC had three Libyan projects on the go including a prison, an airport and a water-line network, according to the company's 2010 annual report.

"I can't sit here right now and promise you everything is smooth sailing from here on out," Mr. Card said. "We have large amounts of upside and still significant downside opportunity out there. We're moving heaven and earth to make sure that we can try to bring some of this over onto the right side of the income statement and balance sheet."

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Mr. Card took over the embattled engineering firm last October after corruption and bribery scandals involving several top executives rocked the company and forced the resignation of then CEO Pierre Duhaime.

"Although we are on track in terms of operational execution throughout the company, this unforeseen situation, related to an evolving political context, is obliging us to reduce our 2013 outlook," said Mr. Card.

With $117.1-million in charges taken in the quarter SNC now expects its 2013 net income to be in the range of $220-million to $235-million.

One bright spot for SNC was its Infrastructure Concession Investments (ICI) segment, which saw its quarterly income increase to $67.0-million, more than double the $30.5-million it earned in the same period a year earlier.

If it wasn't for the surge in investment income, which was buoyed by higher net income from AltaLink and a higher dividend from its 16.8-per-cent stake in Highway 407, a Toronto-area toll road, the total net loss would have been $104.7-million. With engineering revenue down 1.9 per cent year over year SNC said it expects its ICI segment will be the main contributor to net income in the near term.

SNC's second-quarter per-share loss was 25 cents. In the quarter last year net income was $31.7-million or 21 cents a share.

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