Rentokil Initial, the pest control and parcel delivery group, shocked the City yesterday as it gave its second profit warning in barely two months and announced the departure of Brian McGowan, the chairman, by May 14.

Amid calls in the City to break up the group, the future of Doug Flynn as Rentokil’s chief executive was in the balance after he admitted that he may leave the company once a new chairman is appointed. Mr McGowan hired Mr Flynn in spring of 2005 to oversee a three-year turnaround plan.

Asked whether he would resign, Mr Flynn said: “It is not appropriate for me to throw the towel in now – we have got to get the new chairman in and he and I will talk about the leadership of the company. If he thinks that I am an impediment, then that is what will happen.”

Mr Flynn yesterday said that the profitability of the City Link parcel delivery business, accounting for a fifth of Rentokil’s £2.2 billion revenues last year, was “unclear”. He said: “It is possible that the business may not trade better than breakeven levels in 2008.”

On December 13 Rentokil gave warning that fourth-quarter profits of City Link would be £10 million below expectations, but blamed a weakening deliveries market. Yesterday, however, after a two-month study, the group admitted that its decisions and management were largely to blame for City Link’s downturn. Rentokil has ousted Michael Cooke as managing director of its City Link divison. Mr Flynn said that new management was in place to improve its fortunes. City Link grew rapidly last year after the £210 million takeover of Target Express in 2006.

Fourth-quarter figures yesterday showed that City Link had operating losses of £13.4 million, compared with profits of £14.3 million the year before.

Group adjusted pre-tax profits for 2007 rose 1.1 per cent to £211.4 million, missing analyst forecasts by £5 million.

Rentokil shares fell 23 per cent to a long-time low of 80½p.

Rentokil profits crushed by City Link debacle

14% Percentage fall in annual pre-tax profit

21% Reduction in free cash flow, dividend pegged

— Forced to pay compensation to customers after botched takeover

£13m Amount City Link lost in fourth quarter

23% Decline in shares yesterday

— Chairman Brian McGowan to quit

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