One of the UK’s biggest discount retailers is lining up tens of millions of pounds in new funding from its controlling shareholder after tough trading and one-off costs saw it plunge into the red last year.
Sky News has learnt that Poundworld is in advanced talks with TPG Capital, which took control of the company three years ago, about injecting between £30m and £40m in the coming weeks.
The investment into the 355-store chain was positioned by sources close to TPG (Taiwan OTC: 6521.TWO - news) as a necessary step in the transformation of a family-run business into a nationwide retailer with the necessary infrastructure to support future growth.
One source said, however, that recent trading had been "brutal".
A TPG spokeswoman declined to comment on the chain's festive sales performance.
Poundworld, which competes with rivals Poundland and Poundstretcher, was set up in the 1970s by Chris Edwards, who left the company last year.
Mr Edwards, who pocketed an estimated £75m from the deal with TPG, has since been appointed to run Poundstretcher, which is also understood to have experienced difficult trading conditions.
Impairments on fixed assets and leases, as well as restructuring costs, saw Poundworld slip to a £17.1m pre-tax loss for the year to March 31.
The company has opened a distribution centre in west Yorkshire which consolidated its logistics functions into a single 500,000 square foot facility.
Poundworld has also expanded its product range in a bid to keep pace with rivals.
While Poundland appeared to have enjoyed a robust festive period, with like-for-like sales up 6% in the three weeks to Christmas Day, it has faced other challenges.
Poundland is ultimately owned by the South African holding company Steinhoff, which has been hit by a massive accounting scandal and has been left scrambling for cash.
Pepkor Europe, Poundland's immediate parent company, has turned to the US hedge fund Davidson Kempner for a £180m loan facility to fund its investment plans.
The enthusiasm of investors for value retailers has grown as pricing competition on the high street has intensified.
In the grocery sector, Aldi and Lidl have accelerated their expansion in the UK to in order to capture a bigger market share as they seek to capitalise on this trend.
TPG, one of the world's biggest private equity groups, has backed other consumer-facing UK businesses, including Victoria Plumb, the bathroom retailer, and Prezzo, the restaurant group.
It is thought to have paid about £150m for Poundworld in 2015.
TPG and Poundworld both declined to comment on the new capital injection.