20 Capital and reserves – reconciliation of movement in total equity

Attributable to owners of the parent
Share
capital
£m 		Share
premium,
capital
redemption
and merger
reserves
£m 		Other
reserves
£m 		Retained
earnings
£m 		Total
attributable to
owners of the
parent
£m 		Non-
controlling
interests
£m 		Total
equity
£m
1 January 2010 506 3,907 1,032 2,168 7,613 299 7,912
Comprehensive income and expense
Profit for the year 2,879 2,879 261 3,140
Differences on exchange
– subsidiaries 484 484 18 502
– associates 105 105 105
Differences on exchange reclassified and reported in profit for the year (3) (3) (3)
Cash flow hedges
– net fair value losses (106) (106) (106)
– reclassified and reported in profit for the year 55 55 55
– reclassified and reported in net assets 3 3 3
Available-for-sale investments
– net fair value gains 4 4 4
Net investment hedges
– net fair value losses (31) (31) (31)
– differences on exchange on borrowings 71 71 3 74
Retirement benefit schemes
– actuarial gains/(losses) in respect of subsidiaries (note 12) 198 198 (5) 193
– surplus recognition and minimum funding obligations in respect of subsidiaries (note 12) 57 57 1 58
– actuarial losses in respect of associates net of tax (note 11) (54) (54) (54)
Tax on other items recognised directly in other comprehensive income (note 6(d)) (14) 16 2 (1) 1
Other changes in equity
Employee share options
– value of employee services 67 67 67
– proceeds from shares issued 3 4 7 7
Dividends and other appropriations
– ordinary shares (2,093) (2,093) (2,093)
– to non-controlling interests (234) (234)
Purchase of own shares
– held in employee share ownership trusts (66) (66) (66)
Non-controlling interests – acquisitions (note 29) (12) (12) (12)
Other movements 26 26 26
31 December 2010 506 3,910 1,600 3,190 9,206 342 9,548

Attributable to owners of the parent
Share
capital
£m		 Share
premium,
capital
redemption
and merger
reserves
£m		 Other
reserves
£m		 Retained
earnings
£m		 Total
attributable to
owners of the
parent
£m		 Non-
controlling
interests
£m		 Total
equity
£m
1 January 2009 506 3,905 955 1,578 6,944 271 7,215
Comprehensive income and expense
Profit for the year 2,713 2,713 243 2,956
Differences on exchange
– subsidiaries 142 142 24 166
– associates (258) (258) (258)
Cash flow hedges
– net fair value losses (72) (72) (72)
– reclassified and reported in profit for the year 67 67 67
– reclassified and reported in net assets (1) (1) (1)
Available-for-sale investments
– net fair value gains 3 3 3
– reclassified and reported in profit for the year (3) (3) (3)
Net investment hedges
– net fair value gains 238 238 238
– differences on exchange on borrowings 12 12 12
Retirement benefit schemes
– actuarial losses in respect of subsidiaries (note 12) (292) (292) (3) (295)
– surplus recognition and minimum funding obligations in respect of subsidiaries (note 12) (75) (75) (1) (76)
– actuarial gains in respect of associates net of tax (note 11) 61 61 61
Tax on other items recognised directly in other comprehensive income (note 6(d)) (51) (8) (59) (12) (71)
Other changes in equity
Employee share options
– value of employee services 61 61 61
– proceeds from shares issued 2 5 7 7
Dividends and other appropriations
– ordinary shares (1,798) (1,798) (1,798)
– to non-controlling interests (240) (240)
Purchase of own shares
– held in employee share ownership trusts (94) (94) (94)
Non-controlling interests – acquisitions (note 26) 1 1
Non-controlling interests – capital injection (note 29) 16 16
Other movements 17 17 17
31 December 2009 506 3,907 1,032 2,168 7,613 299 7,912

Details relating to the allotted share capital, and movements therein, are included in note 4 of the Parent Company financial statements.

Share premium account, capital redemption reserves and merger reserves comprise:

Share
premium
account
£m 		Capital
redemption
reserves
£m 		Merger
reserves
£m 		Total
£m
1 January 2009 56 101 3,748 3,905
31 December 2009 58 101 3,748 3,907
31 December 2010 61 101 3,748 3,910

The share premium account includes the difference between the value of shares issued and their nominal value. The increase of £3 million (2009: £2 million) relates solely to ordinary shares issued under the Company’s share option schemes. These schemes are described in the Remuneration Report.

On the purchase of own shares as part of the share buy-back programme for shares which are cancelled, a transfer is made from retained earnings to the capital redemption reserve equivalent to the nominal value of shares purchased. Purchased shares which are not cancelled are classified as treasury shares and presented as a deduction from total equity.

Total equity attributable to owners of the parent is stated after deducting the cost of treasury shares which include £523 million (2009: £523 million) for shares repurchased and not cancelled and £227 million (2009: £249 million) in respect of the cost of own shares held in employee share ownership trusts.

In 1999, shares were issued for the acquisition of the Rothmans International B.V. Group, and the difference between the fair value of shares issued and their nominal value was credited to merger reserves.

Movements in other reserves and retained earnings (which is after deducting treasury shares) shown above comprise:

Retained earnings
Translation
reserve
£m 		Hedging
reserve
£m 		Available-
for-sale
reserve
£m 		Revaluation
reserve
£m 		Other
£m 		Total other
reserves
£m 		Treasury
shares
£m 		Other
£m
1 January 2010 275 (6) 11 179 573 1,032 (772) 2,940
Comprehensive income and expense
Profit for the year 2,879
Differences on exchange
– subsidiaries 484 484
– associates 105 105
Differences on exchange reclassified and reported in profit for the year (3) (3)
Cash flow hedges
– net fair value losses (106) (106)
– reclassified and reported in profit for the year 55 55
– reclassified and reported in net assets 3 3
Available-for-sale investments
– net fair value gains 4 4
Net investment hedges
– net fair value losses (31) (31)
– differences on exchange on borrowings 71 71
Retirement benefit schemes
– actuarial gains in respect of subsidiaries (note 12) 198
– surplus recognition and minimum funding obligations in respect of subsidiaries (note 12) 57
– actuarial losses in respect of associates net of tax (note 11) (54)
Tax on items recognised directly in other comprehensive income (note 6(d)) (33) 19 (14) 16
Other changes in equity
Employee share options
– value of employee services 67
– proceeds from shares issued 4
Dividends and other appropriations
– ordinary shares (2,093)
Purchase of own shares
– held in employee share ownership trusts (66)
Non-controlling interests – acquisitions (12)
Other movements 84 (58)
31 December 2010 868 (35) 15 179 573 1,600 (750) 3,940

Retained earnings
Translation
reserve
£m 		Hedging
reserve
£m 		Available-
for-sale
reserve
£m 		Revaluation
reserve
£m 		Other
£m 		Total other
reserves
£m 		Treasury
shares
£m 		Other
£m
1 January 2009 188 4 11 179 573 955 (745) 2,323
Comprehensive income and expense
Profit for the year 2,713
Differences on exchange
– subsidiaries 142 142
– associates (258) (258)
Cash flow hedges
– net fair value losses (72) (72)
– reclassified and reported in profit for the year 67 67
– reclassified and reported in net assets (1) (1)
Available-for-sale investments
– net fair value gains 3 3
– reclassified and reported in profit for the year (3) (3)
Net investment hedges
– net fair value gains 238 238
– differences on exchange on borrowings 12 12
Retirement benefit schemes
– actuarial losses in respect of subsidiaries (note 12) (292)
– surplus recognition and minimum funding obligations in respect of subsidiaries (note 12) (75)
– actuarial gains in respect of associates net of tax (note 11) 61
Tax on items recognised directly in other comprehensive income (note 6(d)) (47) (4) (51) (8)
Other changes in equity
Employee share options
– value of employee services 61
– proceeds from shares issued 5
Dividends and other appropriations
– ordinary shares (1,798)
Purchase of own shares
– held in employee share ownership trusts (94)
Other movements 62 (45)
31 December 2009 275 (6) 11 179 573 1,032 (772) 2,940

The translation reserve is as explained in the accounting policy on foreign currencies in note 1.

The hedging reserve and the available-for-sale reserve are as explained in the accounting policy on financial instruments in note 1.

The revaluation reserve relates to the acquisition of the cigarette and snus business of ST in 2008.

Of the amounts released from the hedging reserve during the year, losses of £4 million (2009: £4 million loss) and losses of £38 million (2009: £9 million gain) were reported within revenue and raw materials and consumables respectively, together with a gain of £3 million (2009: £14 million gain) reported in other operating expenses and a loss of £16 million (2009: £86 million loss) reported within net finance costs.

Other reserves comprise:

(a) £483 million which arose in 1998 from merger accounting in a Scheme of Arrangement and Reconstruction whereby British American Tobacco p.l.c. acquired the entire share capital of B.A.T Industries p.l.c. and the share capital of that company’s principal financial services subsidiaries was distributed, so effectively demerging them; and

(b) In the Rothmans transaction, convertible redeemable preference shares were issued as part of the consideration. The discount on these shares was amortised by crediting other reserves and charging retained earnings. The £90 million balance in other reserves comprises the accumulated balance in respect of the preference shares converted during 2004.

The tax attributable to components of other comprehensive income is as follows:

2010
£m 		2009
£m
Translation reserve
Differences on exchange (4) (42)
Net investment hedges
– difference on exchange on borrowings (29) (5)
(33) (47)
Hedging reserve
Cash flow hedges
– net fair value (losses)/gains 27 (4)
– reclassified and reported in profit for the year (8)
19 (4)
Retained earnings
– actuarial (losses)/gains in respect of subsidiaries 31 (31)
– surplus recognition and minimum funding obligations in respect of subsidiaries (15) 23
16 (8)
Owners of the parent 2 (59)
Non-controlling interests (1) (12)
Total tax recognised in other comprehensive income for the period (note 6(d)) 1 (71)