Notes on the accounts

Capital and reserves - reconciliation of movement in total equity

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 2011	506	3,910	1,600	3,190	9,206	342	9,548
Comprehensive income and expense
Profit for the year				3,095	3,095	280	3,375
Differences on exchange
– subsidiaries			(377)		(377)	(34)	(411)
– associates			(109)		(109)		(109)
Differences on exchange reclassified and reported in profit for the year			(4)		(4)		(4)
Cash flow hedges
– net fair value losses			(19)		(19)	(2)	(21)
– reclassified and reported in profit for the year			38		38		38
– reclassified and reported in net assets			(5)		(5)		(5)
Available-for-sale investments
– net fair value gains			26		26		26
– reclassified and reported in profit for the year			(1)		(1)		(1)
Net investment hedges
– net fair value gains			62		62		62
– differences on exchange on borrowings			(104)		(104)		(104)
Retirement benefit schemes
– actuarial losses in respect of subsidiaries (note 12)				(461)	(461)	(1)	(462)
– surplus recognition and minimum funding obligations in respect of subsidiaries (note 12)				3	3	(1)	2
– actuarial losses in respect of associates net of tax (note 11)				(67)	(67)		(67)
Tax on other items recognised directly in other comprehensive income (note 6(d))			5	12	17	3	20
Other changes in equity
Employee share options
– value of employee services				76	76		76
– proceeds from shares issued		3		2	5		5
Dividends and other appropriations
– ordinary shares				(2,358)	(2,358)		(2,358)
– to non-controlling interests						(279)	(279)
Purchase of own shares
– held in employee share ownership trusts				(123)	(123)		(123)
– share buy-back programme				(755)	(755)		(755)
Non-controlling interests – acquisitions				(10)	(10)		(10)
Other movements				32	32	(1)	31
31 December 2011	506	3,913	1,112	2,636	8,167	307	8,474

	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				(12)	(12)		(12)
Other movements				26	26		26
31 December 2010	506	3,910	1,600	3,190	9,206	342	9,548

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 2010	58	101	3,748	3,907
31 December 2010	61	101	3,748	3,910
31 December 2011	64	101	3,748	3,913

The share premium account includes the difference between the value of shares issued and their nominal value. The increase of £3 million (2010: £3 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 £1,278 million (2010: £523 million) for shares repurchased and not cancelled and £261 million (2010: £227 million) in respect of the cost of own shares held in employee share ownership trusts.

Transaction costs deducted from equity for the year ended 31 December 2011 were £5 million (2010: £nil).

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 2011	868	(35)	15	179	573	1,600	(750)	3,940
Comprehensive income and expense
Profit for the year								3,095
Differences on exchange
– subsidiaries	(377)					(377)
– associates	(109)					(109)
Differences on exchange reclassified and reported in profit for the year	(4)					(4)
Cash flow hedges
– net fair value losses		(19)				(19)
– reclassified and reported in profit for the year		38				38
– reclassified and reported in net assets		(5)				(5)
Available-for-sale investments
– net fair value gains			26			26
– reclassified and reported in profit for the year			(1)			(1)
Net investment hedges
– net fair value gains	62					62
– differences on exchange on borrowings	(104)					(104)
Retirement benefit schemes
– actuarial losses in respect of subsidiaries (note 12)								(461)
– surplus recognition and minimum funding obligations in respect of subsidiaries (note 12)								3
– actuarial losses in respect of associates net of tax (note 11)								(67)
Tax on items recognised directly in other comprehensive income (note 6(d))	13	(8)				5		12
Other changes in equity
Employee share options
– value of employee services								76
– proceeds from shares issued							2
Dividends and other appropriations
– ordinary shares								(2,358)
Purchase of own shares
– held in employee share ownership trusts							(123)
– share buy-back programme							(755)
Non-controlling interests – acquisitions								(10)
Other movements							87	(55)
31 December 2011	349	(29)	40	179	573	1,112	(1,539)	4,175

							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

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 £5 million (2010: £4 million) and losses of £26 million (2010: £38 million) were reported within revenue and raw materials and consumables respectively, together with a gain of £2 million (2010: £3 million) reported in other operating expenses and a loss of £9 million (2010: £16 million) 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:

	2011 £m	2010 £m
Translation reserve
Differences on exchange	7	(4)
Net investment hedges
– difference on exchange on borrowings	6	(29)
	13	(33)
Hedging reserve
Cash flow hedges
– net fair value losses	8	27
– reclassified and reported in profit for the year	(16)	(8)
	(8)	19
Retained earnings
– actuarial (losses)/gains in respect of subsidiaries	13	31
– surplus recognition and minimum funding obligations in respect of subsidiaries	(1)	(15)
	12	16
Owners of the parent	17	2
Non-controlling interests	3	(1)
Total tax recognised in other comprehensive income for the period (note 6(d))	20	1