Profits were doubling yearly. Forecasts were being overshot. Before Lehman Brothers folded, the construction sector seemed set on a permanent trajectory of huge growth.

Even after the credit crisis hit in September, SA's construction firms seemed confident of their prospects. After all, they had built up order books that were bulging at the seams. Murray & Roberts's order book was sitting at R60bn at the end of February this year. Revenue for the half-year was R17,6bn. Group Five managed to post record interim revenue of R6bn for the six months to December, with an order book of R13bn.

As the FM put it in the 2008 Top Companies survey, businesses in the sector were firing on all cylinders.

Epitomising the confidence in the industry was the bustling hub of activity at number one Exchange Square in Sandton. Journalists were getting invited to new listings of construction-related companies almost on a weekly basis from the latter part of 2007 and the beginning of 2008. The AltX had a record year in 2007, with 39 new companies joining it, many of them involved in the construction industry. Things were going well.

Though a higher interest rate environment was starting to take its toll on residential building, and to a lesser extent on commercial construction, infrastructure spending continued apace. The mining sector and government continued to splash out more money on SA's biggest ever infrastructure investment programme.

Projects linked to the soccer World Cup were keeping the bigger firms such as Murray & Roberts, Aveng, Group Five and WBHO busy, while providing plenty of work for the smaller players too.

World-class stadiums have sprouted up across the country. The Gautrain is racing towards the completion of its first phase, linking the shopping and hotel hub of Sandton to OR Tambo International Airport. But a snag has emerged here. The Bombela consortium building the 80 km rail system, including Murray & Roberts and Canadian company Bombardier Transportation, says the contract it signed with government does not stipulate the first phase must be completed by the start of the soccer tournament.

Bombela says the contract will have to be renegotiated if government wants spectators to be able to catch the train from OR Tambo before the first match kicks off at Soccer City in Soweto. Government will have to pay more for this.

The SA National Roads Agency is set to spend about R25bn over the next two years, four-fifths of it going to the Gauteng freeway improvement project.

Talk in the construction sector was all about expansion - both organic and through acquisitions.

Aveng, which owns Grinaker-LTA, managed to grow its turnover for the year ended June 2008 to just shy of R30bn. That's compared with the R22bn revenue for the previous year. Profit for the 2008 financial year came in at R2,2bn. In the year ended June 2008, Murray & Roberts managed to grow its turnover to R28bn, posting a profit of R1,4bn.

WBHO also put in a solid performance, pushing up revenue to R10,7bn for the same period, from the R8,1bn figure posted the year before. For the year ended June 2008, Group Five lifted turnover to R8,8bn, compared with R7,6bn for the 2007 financial year.

Basil Read, a smaller participant in the construction sector, grew revenue to more than R2bn for the year to December 2007.

Soaring costs in the sector even prompted the sector's biggest steel supplier, ArcelorMittal SA, to go hunting for raw material acquisitions. CEO Nku Nyembezi-Heita this year bought 16% in Coal of Africa from its parent to secure coking coal supplies.

When the world in earnest began heading towards recession with the collapse of Lehman Brothers in September, equity markets took a smack, listed construction outfits included. The JSE's heavy construction index fell 42% from a high of 84,13 points just before equities began to tumble, to less than 50. In the 12 months to May, the sector's average p:e, at 8,32, has almost halved.

Behind the falloff in construction stocks was the contracts that were being cancelled or delayed in places such as the Middle East. As at December 2008, 28% of Murray & Roberts's total order book was in that region. That's after R5,4bn of work had already been cancelled in the Middle East, including projects such as Trump Towers and the Al Salam resort. Since then, Murray & Roberts has announced it withdrew from another project, the Dubai International Airport Concourse Three, because it couldn't finalise acceptable contract terms with Dubai Civil Aviation. Murray & Roberts's 40% share of the contract was worth R5bn over three years in revenue.

In total, the company has lost about R15bn of work since the economic crisis hit. Group Five has also not emerged unscathed. The company's R3,3bn contract to build accommodation and logistics infrastructure at the Jebel Ali trade port was cancelled. A R654m contract to build houses for the Dubai police department was suspended.

There have also been contract cancellations in Australia, where Murray & Roberts and Aveng have exposure. Murray & Roberts, for example, has lost R2,8bn worth of contracts in the region. Aveng had contracts worth R4,2bn cancelled since the economic crisis struck, mainly in the commodities sector.

Plunging commodity demand and prices, coupled with the freeze in credit markets, have led to companies cutting back their planned capital spending drastically.

Anglo American has cut its 2009 capital spending by more than half to US$4,5bn. Majority-owned Anglo Platinum is taking out a third of its planned spend for the year, reducing the figure to R9,1bn. Smaller rival Impala Platinum (Implats) has deferred projects worth R10bn scheduled over the medium term.

SA's biggest investor, Sasol, has cut its planned capital spending budget for the three years by 40% to R48bn.

Further north, companies have had to cut back significantly on copper and cobalt projects in the Democratic Republic of Congo and Zambia, while Botswana's diamond sector has also been affected.

On the residential side, companies had already been squeezed before the economic crisis hit, as a higher interest rate environment continued to take its toll. Commercial and industrial construction began to feel the pinch too.

All this leads to a very different business environment for the sector. As Murray & Roberts CEO Brian Bruce says: "This is not the time to trumpet past achievements." Rather, he says, the company needs to preserve its capital and "work to ensure that we emerge strong and ready into a new world order that lies in the uncertain time ahead". The company expects gross fixed capital formation growth in SA, particularly construction spend, will remain resilient - above 10% for the foreseeable future, despite slowing economic growth.

The problem for companies such as Murray & Roberts is the increasing evidence of softening tender prices on the expectation of a tighter future market and lower input prices. This means margins will come under pressure.

Aveng CEO Roger Jardine says his company "is under no illusion, we are in the worst economic slump in our lifetime and margins will come under pressure". But he's hoping that government infrastructure spending in the countries where the company operates - mainly SA and Australia - will keep its order book ticking over.

As more companies gun for government projects, margins are already being squeezed. WBHO chairman Mike Wylie says this is inevitable. Basil Read chief operations officer Eugene du Toit says it's already underway. "The few public-sector contracts out there are generally small and fiercely contested. We are finding that margins on new work are getting tighter."

There are also doubts over whether government will be able to fund its R787bn medium-term infrastructure spend as revenues shrink with the slowing economy. Eskom has already postponed the construction of the nuclear power station it's planning to build. This was estimated to cost more than R100bn.

One positive of the global crisis and the contracts of SA's construction giants getting cancelled in places such as the Middle East is that it has eased the skills crisis. According to government's Joint Initiative for Priority Skills Acquisition, the country needs to produce at least 12 500 artisans every year for four years to meet demand. Research firm Landelahni Business Leaders pegs the required amount of training spend to meet this target at nearly R14,4bn.

But the crisis resulted in skills returning to SA. Group Five says it has repatriated and reassigned 3 700 employees because of cancellations and suspensions in its Middle Eastern order book.

Construction companies will be watching closely whether government will be able to stick to its committed infrastructure spend. Any marked increase in commodity prices will also encourage mining companies to consider pushing ahead with projects they have put on ice.