Poundland is seeking to slash rents by a quarter as it renegotiates leases on nearly 90% of its stores over the next five years in a cost-cutting exercise before a potential initial public offering next year.

The company expects to save £20m through lower rents on its 840 stores as it battles against rising costs and heavy competition as well as suppliers’ demands for upfront payment after credit insurers withdrew cover nearly two years ago.

The chain is not expected to reduce its overall number of stores but will shift locations if it cannot get the rent cuts it wants when leases come up for renewal or if it finds better or larger sites nearby.

On Friday Poundland’s parent, Pepco Group, fuelled rumours of a potential sale or IPO by changing its name from Pepkor Europe and laying out plans to open about 300 shops a year across its three retail brands.

The group, which is ultimately owned by South Africa’s Steinhoff, said it would focus expansion on eastern Europe, where it operates the Pepco and Dealz chains.

It also revealed that underlying profits would rise by 18% to about €325m (£289m) in the year to 30 September as sales increased by nearly 13% to €3.4bn, largely thanks to expansion across Europe.

The Pepco chief executive, Andy Bond, a former Asda boss and a shareholder in Pepco, said the company had “an amazing performance given all the crap that has gone on around us”.

The group has refinanced with a €475m loan and further €130m credit facility to increase its independence from Steinhoff, which was hit by an accounting scandal in 2017. Steinhoff has said it wants to sell assets in order to reduce heavy debts and Pepco Group is seen to be a likely contender.

Bond said: “We are an independent high-growth company … We want to be Europe’s largest and most successful discount and variety business and we are confident we can get there.”

The group wants to open 1,000 more Pepco stores, which sell clothing and homewares, across existing territories including Poland, the Czech Republic and Romania, taking the total to more than 2,800. Bond said that Brexit would not affect plans for the group, which has its headquarters in Willenhall near Wolverhampton.

The group is also expanding its European version of Poundland, Dealz, which operates in Spain and Ireland, with plans for 90 outlets in Poland by the end of this financial year and 350 over the next five years, up from just 35 now.

Bond said Poundland was profitable but was looking to save costs and improve profits by selling more high-margin items such as clothing, at a broader array of prices than its traditional £1 products.