Rentokil Initial, the UK's leading pest-controller, said today that it will scrap its dividend to preserve cash as pre-tax profits last year plunged almost 84 per cent from £142 million to £22.8 million.

Alan Brown, the chief executive, who was brought in as part of a team to turn around the rat-catching, rot and damp proofing, washroom cleaning and parcel delivery group, said: “It has clearly been a challenging year but we are making progress fixing our operational problems and improving predictability of profits.

“In the short term, trading conditions will be tough. Though our existing lines of credit extend for the most part until 2012, we have decided not to pay a final dividend in order to preserve and improve our financial headroom and to allow time for the operational recovery to deliver improved profitability."

The group said underlying pre-tax profit fell 49 per cent to £107.9 million in 2008 at current exchange rates. That was slightly ahead of the company’s outlook issued in November, but down from £211.4 million in 2007.

City Link, Rentokil’s troubled parcel delivery service, posted losses of £43.5 million in the year — driving the poor results overall. Rentokil has implemented a seven-point recovery plan to turn around the division’s fortunes. It has shed 1,000 jobs from City Link, or 15 per cent of the workforce, in expectation of decreased demand in the gloomy economic outlook.

Rentokil’s UK washroom business made a loss of £5.2 million in 2008 while profits from its Pest Control division fell by 9 per cent.

Last March, Rentokil’s shares soared after it hired a trio of managers who formerly ran ICI, the chemicals company, to turn around Rentokil after a series of profit warnings led to a halving of its share price in three months.

Mr Brown, as the new chief executive, was offered an incentive package worth up to £31.5 million and a £775,000 salary if he could triple Rentokil’s share price in five years.

Rentokil shares were at 85.5p when Mr Brown was appointed in March. After today’s announcement, they dropped just over 6 per cent to 42.25p.

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