ICM Computer Group prompted a sell-off in shares across the information technology sector yesterday by appearing to issue a profits warning, though it fiercely denied this later in the day.

The software services company which specialises in disaster recovery centres, used by firms when their premises suffer fires or power failures, included a passage in its annual results admitting "profits at the interim stage will be lower than the comparative period".

The City interpreted this as a warning, because ICM also commented that the industry was "yet to return to 'normal' trading patterns" following the millennium slowdown. ICM's shares slumped 35p to 360p in the morning, recovering slightly to close at 370p.

ICM's chief executive, Barry Roberts, said he was stunned by the fall: "They're interpreting it as a warning for the whole year. That is not the case. We're reasonably optimistic about the outcome, without being over-zealous."

He said ICM anticipated sluggish first-half profits because it was investing heavily in new disaster recovery centres. He expected the shortfall to be made up later in the year. Mr Roberts added: "If we were a dot.com company nobody would bat an eyelid at us if we invested millions in a new venture and made a loss."

He admitted he was concerned at the fall. "It's very important to us to have the share price reflecting the true value of the business. If it doesn't, acquisitions which involve an exchange of shares can be much more expensive than they ought to be."

The confusion affected companies across the sector - Computacenter, Sage and Guardian IT saw their shares slip sharply. Traders have been jumpy about computer services companies since a number of groups, including ICM, warned in the spring that demand from clients was patchy.

ICM's year-end profits edged up 4.1% to £4.51m before tax, with a solid performance from its IT support and solutions arms. The company invested £5.8m last year in three disaster recovery centres. It announced yesterday that it was constructing a new centre in East Anglia.

Analyst Max Worton of Williams de Broe said the market had over-reacted: "They put in a cautiously worded statement and it scared people."

Pressure on profits

Profits warnings from computer services companies this year:

• Parity Disclosed in May that the demand for IT had not picked up in the new millennium

• Computacenter Said in June it had suffered from slow take-up of Microsoft Windows 2000 and the lag in IT spending

• Synstar Warned in June of a slowdown in the market for short-term project contracts, particularly in data management and networking, and a setback at its Italian subsidiary

• Lynx Admitted in July that earnings would fall short due to poor demand for software from the auto sales and financial services sectors