Dunelm Regulatory News (DNLM)

Latest time and date for receipt of Form of Proxy or CREST Proxy Instruction for General Meeting

10.00 am 26 February 2015

General Meeting

 10.00 am 2 March 2015

Ordinary Share Record Date for participation in the Return of Capital

6.00 pm 2 March 2015

Latest time for receipt of Election Forms from certificated Shareholders and TTE Instructions from CREST holders in relation to the Share Alternatives

4.30 pm 9 March 2015

B Share Dividend declared and conversion of B Shares in respect of which the B Share Dividend is payable into Deferred Shares

by 10 March 2015

Purchase Offer made

By 11 March 2015

Dispatch of cheques or mandated bank accounts or CREST accounts credited (as appropriate) in respect of the B Share Dividend and the proceeds under the Capital Option

By 24 March 2015

Interim (ordinary) dividend record date

13 March 2015

Dispatch of cheques or mandated bank accounts credited (as appropriate) in respect of the interim ordinary dividend

by 10 April 2015

2. Background to and reasons for the Return of Capital

Dunelm has consistently generated significant cashflow and has built up material cash balances in recent years. Dunelm returned £42.2 million of surplus cash to its shareholders in 2010, £65.8 million in 2012 and £50.7 million in 2013, and has continued to generate further cash balances since then in the ordinary course of its trading activities. In the financial year ended 28 June 2014, the Group's average net cash position was £48.3 million, with net cleared funds at the end of the period being £46.8 million. During the half year ended 27 December 2014, daily average cleared funds across the half year amounted to £49.4m, with net cleared funds at the end of the half year of £61.4 million. In the absence of the proposed Return of Capital the Board would expect the Group's positive cash position to continue to increase further.

The Board has also reviewed its policy on capital structure and dividends. The original policy was established at the time of the floatation of the Company and in the Board's opinion has ceased to reflect the scale of the business and its consistent track record of cash generation over many years. Accordingly, the Board has determined that, henceforward, the Group will operate with a modest amount of leverage such that net debt, measured as daily average liquid funds over the most recent six month period, should fall within the range of 0.25 to 0.75 times last 12 months EBITDA. Furthermore, the Board intends that ordinary dividend cover should in future be between 2.0 and 2.5 times on a full year basis. The Board currently anticipates holding cover towards the middle of this range.

In order to fund the intended ongoing debt, the Group has entered into an arrangement with a syndicate of three major banks for the provision of a £150 million revolving credit facility, expiring on 9 February 2020.

Reflecting these policies the Company will pay an interim dividend of 5.5 pence per share (a 10 per cent. increase year on year) payable on 10 April 2015 to Shareholders on the register at 13 March 2015, and the Board proposes, subject to Shareholder approval, to make a Return of Capital to Shareholders on the terms set out in the Circular.

3. Summary of the proposals

The Board is mindful of the fact that it has a range of institutional, corporate and individual shareholders and, as such, proposes a flexible mechanism by which the capital is returned. As with the return of capital in 2012, and having considered the available options, the Board is proposing that the Return of Capital is effected via a B/C share scheme under which Shareholders will receive a bonus issue of a newly created class of shares, either B Shares or C Shares, pro-rata to their holding of Ordinary Shares.

This method of return has been chosen as it allows Shareholders (save for certain Overseas Shareholders) to be treated equally irrespective of the size of their investment in Dunelm and gives each such Shareholder flexibility to elect to receive all or part of the Return of Capital in a dividend form, if preferred. Whichever alternative is chosen, the Return of Capital will amount to 70 pence per Ordinary Share and, based upon the number of Ordinary Shares in issue (excluding any Ordinary Shares held by Dunelm in treasury, which will not participate in the Return of Capital), the Return of Capital will total approximately £142 million.

4. Return of Capital

4.1 B Shares/C Shares

Under the Return of Capital, Shareholders will receive a bonus issue of:

One B Share or One C Share for each Ordinary Share held on the Ordinary Share Record Date.

At the closing middle-market price of 929.5 pence per Ordinary Share on 11 February 2015 (being the latest practicable date prior to the publication of the Circular), the proposed Return of Capital to Shareholders represents approximately 7.55 per cent. of Dunelm's market capitalisation at that date and 70 pence per Ordinary Share.

4.2 Share Alternatives

Under the B/C Share Scheme, Shareholders (other than certain Overseas Shareholders) will have the following alternatives. The two alternatives will each have different UK tax consequences.

Shareholders who are in any doubt as to their tax position should consult an appropriate professional adviser.

In the event that a Shareholder fails to make a valid election for one or more of the alternatives, such Shareholder will be deemed (unless the Company determines otherwise) to have elected for the Income Option in respect of his entire holding.

Except in the case of an Overseas Shareholder in a Restricted Territory, a Shareholder may elect to receive any one of, or a combination of, the two Share Alternatives set out below. The Capital Option is not available to Overseas Shareholders in Restricted Territories who are only entitled to elect for the Income Option.

If a Shareholder does not properly complete and return the Election Form or if they are a CREST holder and do not send a valid TTE Instruction, unless the Company determines otherwise, they will be deemed to have elected for the Income Option in respect of all of their entitlement.

Alternative 1: Income Option

Shareholders who choose this alternative (or are deemed to have chosen this alternative) will receive one B Share for each corresponding Ordinary Share held at the Ordinary Share Record Date. Shareholders will receive a single dividend of 70 pence per B Share in respect of those B Shares. A Shareholder's aggregate entitlement will be rounded down to the nearest penny. It is expected that this will be declared by 10 March 2015. Following the declaration of the B Share Dividend, the B Shares will be automatically converted into Deferred Shares. The Deferred Shares will not be listed, and will carry extremely limited rights as Shareholders will have already received a cash pay-out in relation to those shares. It is intended that the Deferred Shares will be purchased by UBS under the Purchase Offer and subsequently purchased from UBS by the Company, in each case for an aggregate sum of 1 penny, and cancelled.

It is expected that the B Share Dividend will be treated as income for United Kingdom tax purposes.

It is also expected that Shareholders who choose (or are deemed to have chosen) this alternative will have their cheques dispatched or mandated bank accounts credited (as appropriate) by 24 March 2015.

Alternative 2: Capital Option

Shareholders who choose this alternative will receive one C Share for each corresponding Ordinary Share held at the Ordinary Share Record Date. It is intended that such C Shares will be purchased by UBS as principal under the Purchase Offer by 11 March 2015 for 70 pence per C Share, free and clear from all dealing expenses and commissions, with the proceeds of such sale being sent to relevant Shareholders by 24 March 2015 and it is intended that any such C Shares purchased by UBS would in turn be purchased from UBS by the Company and then cancelled.

It is expected that the proceeds from this sale will be treated as capital for United Kingdom tax purposes.

The making of the Purchase Offer is subject to certain conditions and Shareholders' attention is drawn to paragraph 2 of Part 10 of the Circular, where the Purchase Offer Deed is summarised.

It is also expected that Shareholders who choose this alternative will have their cheques dispatched or CREST accounts credited (as appropriate) by 24 March 2015.

4.3 Information Relating to the B Shares, C Shares and Deferred Shares

None of the B Shares, C Shares or Deferred Shares will be admitted to the Official List or to trading on the London Stock Exchange's main market for listed securities, nor will the B Shares, C Shares or Deferred Shares be listed or admitted to trading on any other recognised investment exchange.

The B Shares, C Shares and Deferred Shares will have limited rights. The rights and restrictions attached to the B Shares, C Shares and Deferred Shares are set out more fully in Parts 5, 6 and 7 of the Circular respectively.

5. General Meeting

Shareholder approval is being sought for the proposed Return of Capital.

A General Meeting has been convened for 10.00 am on 2 March 2015 for this purpose, notice of which, together with a Form of Proxy to be used in connection with the General Meeting, will be sent out with the Circular.

The General Meeting is being convened on not less than 14 days' clear notice, in accordance with the Company's articles of association and the authority granted by the Shareholders at the Company's last annual general meeting, to ensure that the Return of Capital is effected as soon as possible.

6. Summary explanation of the Resolution to be put to the General Meeting

The Return of Capital is conditional upon the Resolution being passed. The Resolution is a special resolution and will be passed if at least 75 per cent. of the votes cast are in favour.

The Resolution proposes to:

· authorise the Directors to:

(i) capitalise a sum not exceeding £2,028.34 standing to the credit of the Company's share premium account to pay up in full the B Shares and C Shares; and

(ii) allot and issue B Shares and C Shares up to an aggregate nominal amount of £2,028.34 to Shareholders on the basis of one B Share or one C Share for each Ordinary Share held at 6.00 pm on 2 March 2015. The authority granted to the Directors will expire on the earlier of the conclusion of the next annual general meeting of the Company after the passing of this Resolution and 31 December 2015; and

(iii) carry out any other act necessary in relation to the Return of Capital; and

· approve the terms of the Option Agreement to be entered into between the Company and UBS described in paragraph 2 of Part 10 of the Circular; and

· adopt new articles of association that incorporate the terms of the B Shares and C Shares and the Deferred Shares.

If the Resolution is not passed at the General Meeting, the Return of Capital will not proceed and any Election Forms received by Equiniti will lapse and shall have no effect.

The Return of Capital will have no effect on the number of Ordinary Shares held by any Shareholder and accordingly on the voting share capital of the Company. As a result, the provisions of Rule 9 of the Takeover Code do not apply to the Return of Capital and no approval is being sought from Shareholders for a waiver of these provisions in the context of the Return of Capital.

7. United Kingdom taxation in relation to the Return of Capital

A tax liability may arise for Shareholders resident in the UK (for tax purposes) in respect of the capital and/or income received under the Return of Capital depending upon a Shareholder's individual circumstances. A guide to certain UK tax consequences of the Return of Capital under current UK law for United Kingdom Shareholders is set out in the Circular.

8. Overseas Shareholders

The attention of those Shareholders who are not resident in the United Kingdom or who are citizens, residents or nationals of other countries is drawn to the information set out in paragraph 6 of Part 3 of the Circular.

In particular, Overseas Shareholders should note that, by making a valid election for the Capital Option, such Shareholders will be deemed to represent, warrant, undertake and/or agree (as applicable) in the terms set out in paragraph 6 of Part 3 of the Circular. Furthermore, Overseas Shareholders with a registered address in a Restricted Territory will be deemed to have elected for the Income Option in respect of all of their B/C Share Entitlement. The tax consequences of the B/C Share Scheme may vary for Overseas Shareholders and, accordingly, Overseas Shareholders should consult their own independent professional adviser without delay.

9. Share Option Schemes

Holders of options under the Share Option Schemes are not the beneficial owners of Ordinary Shares and so will not be entitled to participate in the Return of Capital.

In previous returns of capital, no adjustments have been made to options. However, in view of the size of the Return of Capital on this occasion it is intended that appropriate adjustments will be made to options outstanding under the Share Option Schemes in accordance with the rules of the relevant scheme, in order to maintain the holders' economic position following the completion of the Return of Capital. Details of the adjustments will be sent to holders of options under the Share Option Schemes in due course.

10. Interim announcement and no significant change

11. Action to be taken

General meeting

A Form of Proxy for use at the General Meeting will be sent to Shareholders with the Circular. Whether or not the Shareholder intends to be present at the meeting, they are requested to complete, sign and return the Form of Proxy to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, as soon as possible but in any event so as to be received no later than 10.00 am on 26 February 2015.

Shareholders who hold their Ordinary Shares in CREST may appoint a proxy by completing and transmitting a CREST Proxy Instruction to Equiniti so that it is received no later than 10.00 am on 26 February 2015.

Completion and return of the Form of Proxy or the transmission of a CREST Proxy Instruction will not preclude Shareholders from attending and voting in person at the General Meeting should they so wish.

B/C Share Scheme

The Circular contains instructions on the completion of the Election Form sent to Shareholders with the Circular if their shares are in certificated form, or if their shares are held in uncertificated form (that is in CREST), how to make their election through CREST. The Election Form must be received or the TTE Instruction must be sent through CREST as soon as possible but in any event so as to be received no later than 4.30pm on Monday 9 March 2015.

13. Recommendation

In the opinion of the Board, which has received financial advice from UBS, the Return of Capital and the Resolution to be proposed at the General Meeting are in the best interests of Shareholders as a whole. In providing advice to the Directors, UBS has relied upon the Directors' commercial assessment of the Return of Capital.

Accordingly the Board unanimously recommends that you vote in favour of the Resolution to be proposed at the General Meeting as the Directors intend to do in respect of their beneficial holdings amounting to 63,005,738 Ordinary Shares in aggregate, representing approximately 31.1 per cent. of the current voting share capital of Dunelm.

14. Shareholders' elections

The Board makes no recommendation to Shareholders in relation to elections for the B/C Share Scheme itself. Shareholders need to take their own decision in this regard and are recommended to consult their own independent professional adviser.

Terms used in this announcement shall have the meanings given to them in the Circular and are incorporated into this announcement by reference.

Dunelm Group plc

Will Adderley, Chief Executive

David Stead, Finance Director

0116 2644 356

MHP Communications

John Olsen

Simon Hockridge

Naomi Lane

020 3128 8100

Equiniti Shareholder helpline

0871 384 2919 (from inside the UK)

+44 121 415 0263 (from outside the UK)

Shareholder helpline available between the hours of 8.30 am and 5.30 pm Monday to Friday (except UK public holidays). Please note that calls to the helpline may be recorded or monitored. Calls to 0871 384 2919 cost 8 pence per minute (excluding VAT) plus network extras. Different charges may apply to calls from mobile telephone. Calls from outside the UK will be charged at applicable international rates.

Please note that for legal reasons the Shareholder helpline will only be able to provide information contained in this announcement, the Circular and the Election Form and will be unable to give advice on the merits of the B/C Share Scheme, the Share Alternatives or to provide financial, legal or tax advice.

This announcement does not constitute an offer to sell or the solicitation of an offer to buy any security, nor the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of the securities referred to in any jurisdiction in contravention of applicable law.

No application will be made to the UK Listing Authority or to the London Stock Exchange for any of the B Shares, C Shares or Deferred Shares to be admitted to the Official List or to trading on the London Stock Exchange's main market for listed securities, nor will the B Shares or the C Shares or the Deferred Shares be admitted to trading on any other recognised investment exchange.

None of the B Shares, the C Shares or the Deferred Shares have been or will be registered under the US Securities Act or the state securities laws of the United States and none of them may be offered or sold in the United States unless pursuant to a transaction which has been registered under the US Securities Act and/or relevant state securities laws or which is not subject to the registration requirements of the US Securities Act or such laws, either because of an exemption therefrom or otherwise.

None of the B Shares, the C Shares or the Deferred Shares or this announcement or the Circular has been approved, disapproved or otherwise recommended by any US federal or state securities commission or other regulatory authority or any non-US securities commission or regulatory authority nor have any such authorities confirmed the accuracy or determined the adequacy of this announcement or the Circular. Any representation to the contrary is a criminal offence in the United States.

This announcement includes forward-looking statements concerning the Group. Forward-looking statements are based on current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about the Group. The Group undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise save to the extent required in accordance with the Company's continuing obligations under the Listing Rules, the Disclosure and Transparency Rules, applicable laws and regulations.

UBS Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and is acting as financial adviser to Dunelm in connection with the Return of Capital and for no one else and will not be responsible to anyone other than Dunelm (whether or not a recipient of this announcement or the Circular) for providing the protections afforded to clients of UBS Limited nor for providing advice in relation to the proposals described in this announcement or the Circular or any other matter referred to in this announcement or the Circular. Persons other than Dunelm are recommended to seek their own financial and professional advice.

Apart from the responsibilities and liabilities, if any, which may be imposed on UBS Limited by the FSMA or the regulatory regime established thereunder, UBS Limited accepts no responsibility or liability whatsoever for the contents of this announcement or the Circular or for any other statement made or purported to be made in connection with the Company, the proposed Return of Capital or the Resolutions. UBS Limited accordingly disclaims all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this announcement, the Circular or any such statement.