Birmingham-based engineering giant IMI yesterday warned shareholders that its performance next year could suffer due to the ongoing investigation into possible irregular payments at an American subsidiary.

The firm, which moved its headquarters from Witton to Birmingham Business Park some years ago, said in a trading update that its performance for the year ending December 31 would be in line with expectations.

In anticipates posting a pre-tax profit - before the costs of the investigation - between £202 million and £206 million compared to £194.9 million last year.

At a constant currency basis this would represent year-on-year growth of around eight per cent.

However, IMI added that the CCI investigation will disrupt revenue growth prospects for 2008 to a degree, reducing anticipated growth for the group as a whole by around two percentage points.

In a statement it added: "The investigation by independent counsel into the CCI business is well advanced and should be largely completed by the end of the first quarter of 2008.

"Costs of the investigation incurred in 2007 will be around £5 million, as previously indicated.

"Additional costs in 2008 are not expected to be material, but will be dependent on how the US Department of Justice decides to proceed.

"At this stage it is not possible to assess the level of any fines or defence costs arising from any action which may be taken by the regulatory authorities."

In reaction, Merrill Lynch kept 'neutral' on IMI, saying the CCI investigation costs were so far as expected, with further costs possible.

Valuing the stock on a 2008 estimated EV/EBIT of 7.2 times and a price/earnings ratio of 8.7 times, the broker said the statement was worse than thought and expects a downgrade of consensus forecasts by five to 10 per cent.

Meanwhile, WH Ireland kept 'market perform' on the stock, leaving unchanged its bottom-of-the-range EPS estimates of 39.2 pence and 44.2 pence for 2007 and 2008 respectively.

In a note, the broker said IMI indicated its Fluid Controls and Retail Dispense businesses remained comparatively buoyant, although the US auto market was described as being sharply down but expected to recover.

WH Ireland said it thinks the full-year 2008 outlook remains positive, despite a potential slight adverse affect from the investigation.

Looking ahead, IMI said its order intake remained positive.

The group added that the forecasted deterioration in economic growth stemming from the financial and housing markets has yet to be seen, but it said it remained alert to the risks.

A healthy new product pipeline and an increasingly significant presence in the emerging markets of Asia and East Europe continued to underpin that momentum, the company said.

Founded in 1862, IMI was one of the four founders of industrial giant ICI in 1926, until separating from the group in 1978. It currently employs around 14,600 staff worldwide.

Shares closed down 27.25p at 387.25p.