Telefónica S.A.

Individual

Annual Report

2022

Telefónica S.A.

Annual financial statements

and management report

for the year ended

2022

Index

Balance sheet at December 31 ...............................................................................................................................	3
Income statements for the years ended December 31 ...................................................................................	5
Statements of changes in equity for the years ended December 31 ..........................................................	6
Cash flow statements for the years ended December 31 ..............................................................................	7
Note 1. Introduction and general information ............................................................................................................	9
Note 2. Basis of presentation .......................................................................................................................................	10
Note 3. Proposed appropriation of net results ...........................................................................................................	12
Note 4. Recognition and measurement accounting policies ...................................................................................	13
Note 5. Intangible assets ..............................................................................................................................................	16
Note 6. Property, plant and equipment ......................................................................................................................	17
Note 7. Investment properties ......................................................................................................................................	18
Note 8. Investments in group companies and associates ........................................................................................	19
Note 9. Financial investments ......................................................................................................................................	27
Note 10. Trade and other receivables .........................................................................................................................	32
Note 11. Equity .................................................................................................................................................................	33
Note 12. Financial liabilities ...........................................................................................................................................	38
Note 13. Bonds and other marketable debt securities ..............................................................................................	40
Note 14. Interest-bearing debt and derivatives .........................................................................................................	41
Note 15. Payable to group companies and associates .............................................................................................	43
Note 16. Derivative financial instruments and risk management policies ..............................................................	45
Note 17. Income tax ........................................................................................................................................................	55
Note 18. Trade, other payables and provisions ..........................................................................................................	59
Note 19. Revenue and expenses ..................................................................................................................................	61
Note 20. Other information ..........................................................................................................................................	68
Note 21. Cash flow analysis ..........................................................................................................................................	77
Note 22. Events after the reporting period .................................................................................................................	80
Note 23. Additional note for English translation ........................................................................................................	81
Appendix I: Details of subsidiaries and associates at December 31, 2022 .............................................................	82
Appendix II: Board and Senior Management Compensation ..................................................................................	86
Management report 2022 ............................................................................................................................................	92
Business Model .........................................................................................................................................................	92
Economic results of Telefónica, S.A. ......................................................................................................................	94
Investment activity ....................................................................................................................................................	94
Share price performance .........................................................................................................................................	94
Contribution and innovation ....................................................................................................................................	95
Environment, human resources and managing diversity ....................................................................................	97
Liquidity and capital resources ...............................................................................................................................	108
Risks factors associated with the issuer ................................................................................................................	110
Events after the reporting period ............................................................................................................................	123
Annual Corporate Governance Report for Listed Companies ...........................................................................	123
Annual Report on the Remuneration of Directors ................................................................................................	123

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	2

Telefónica, S.A.

Balance sheet at December 31

Millions of euros
ASSETS	Notes	2022	2021
NON-CURRENT ASSETS		59,929	60,476
Intangible assets	5	13	21
Software		7	7
Other intangible assets		6	14
Property, plant and equipment	6	131	136
Land and buildings		77	85
Plant and other property, plant and equipment items		50	49
Property, plant and equipment under construction and prepayments		4	2
Investment property	7	309	314
Land		100	100
Buildings		209	214
Non-current investments in Group companies and associates	8	55,705	55,067
Equity instruments		55,445	54,929
Loans to Group companies and associates		245	131
Other financial assets		15	7
Financial investments	9	3,288	3,890
Equity instruments	9	358	348
Derivatives	16	2,555	2,675
Other financial assets	9	375	867
Deferred tax assets	17	423	1,009
Non current account receivables and other		60	39
CURRENT ASSETS		8,813	11,399
Trade and other receivables	10	474	333
Current investments in Group companies and associates	8	1,530	3,698
Loans to Group companies and associates		1,470	3,641
Derivatives	16	5	9
Other financial assets		55	48
Investments	9	1,814	1,550
Loans to companies		26	53
Derivatives	16	614	751
Other financial assets		1,174	746
Current deferred expenses		6	11
Cash and cash equivalents		4,989	5,807
TOTAL ASSETS		68,742	71,875

The accompanying Notes 1 to 23 and Appendices I and II are an integral part of these balance sheets.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	3

Millions of euros
EQUITY AND LIABILITIES	Notes	2022	2021
EQUITY		20,325	22,754
CAPITAL AND RESERVES		19,793	22,713
Share capital	11	5,775	5,779
Share premium	11	3,825	4,233
Reserves	11	11,414	13,041
Legal & Statutory		1,113	1,096
Other reserves		10,301	11,945
Treasury shares and own equity instruments	11	(341)	(546)
Profit (Loss) for the year	3	(880)	206
UNREALIZED GAINS (LOSSES) RESERVE	11	532	41
Financial assets at fair value with changes though equity		(14)	(52)
Hedging instruments		546	93
NON-CURRENT LIABILITIES		37,659	38,740
Non-current provisions	18	601	660
Non-current borrowings	12	3,438	2,818
Bank borrowings	14	372	415
Derivatives	16	1,908	1,824
Other debts		1,158	579
Non-current borrowings from Group companies and associates	15	33,405	35,141
Deferred tax liabilities	17	189	91
Long term deferred revenues		26	30
CURRENT LIABILITIES		10,758	10,381
Current provisions	18	28	30
Current borrowings	12	458	1,782
Bonds and other marketable debt securities	13	—	30
Bank borrowings	14	181	1,416
Derivatives	16	276	336
Other financial liabilities	14	1	—
Current borrowings from Group companies and associates	15	9,950	8,364
Trade and other payables	18	301	191
Current deferred revenues		21	14
TOTAL EQUITY AND LIABILITIES		68,742	71,875

The accompanying Notes 1 to 23 and Appendices I and II are an integral part of these balance sheets.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	4

Telefónica, S.A.

Income statements for the years ended December 31

Millions of euros	Notes	2022	2021
Revenue	19	1,949	6,426
Rendering of services to Group companies and associates		463	432
Rendering of services to non-group companies		21	15
Dividends from Group companies and associates		1,450	5,943
Interest income on loans to Group companies and associates		15	36
Impairment and gains (losses) on disposal of financial instruments	8	(1,590)	(4,411)
Impairment losses and other losses		(1,590)	(4,574)
Gains (losses) on disposal and other gains and losses		—	163
Other operating income	19	46	55
Non-core and other current operating revenue - Group companies and associates		36	36
Non-core and other current operating revenue - non-group companies		10	19
Employees benefits expense	19	(196)	(212)
Wages, salaries and others		(163)	(180)
Social security costs		(33)	(32)
Other operational expense		(313)	(417)
External services - Group companies and associates	19	(92)	(97)
External services - non-group companies	19	(213)	(292)
Taxes other than income tax		(8)	(28)
Depreciation and amortization	5, 6 and 7	(28)	(27)
Gains (losses) on disposal of fixed assets		(8)	—
OPERATING PROFIT (LOSS)		(140)	1,414
Finance revenue	19	1,429	423
Finance costs	19	(2,650)	(1,544)
Change in fair value of financial instruments		1	(50)
Net result on financial assets at fair value with changes through equity	9 and 11	1	(50)
Exchange rate gains (losses)	19	(181)	5
NET FINANCIAL EXPENSE		(1,401)	(1,166)
PROFIT (LOSS) BEFORE TAX	21	(1,541)	248
Income tax	17	661	(42)
PROFIT (LOSS) FOR THE YEAR		(880)	206

The accompanying Notes 1 to 23 and Appendices I and II are an integral part of these income statements

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	5

Telefónica, S.A.

Statements of changes in equity for the years ended December 31

A) Statement of recognized income and expense
Millions of euros	Notes	2022	2021
Profit (Loss) for the period		(880)	206
Total income and expense recognized directly in equity	11	888	1,218
From valuation of financial assets at fair value with impact in equity		37	122
From cash flow hedges		1,135	1,461
Income tax impact		(284)	(365)
Total amounts transferred to income statement	11	(397)	(562)
From valuation of financial assets at fair value with changes through equity		1	(50)
From cash flow hedges		(531)	(683)
Income tax impact		133	171
TOTAL RECOGNIZED INCOME AND EXPENSE		(389)	862

The accompanying Notes 1 to 23 and Appendices I and II are an integral part of these statements of changes in equity.

B) Statements of total changes in equity for the years ended December 31
Millions of euros	Share capital	Share premium and Reserves	Treasury shares	Profit (Loss) for the year	Net unrealized gains (losses) reserve	Total
Balance at December 31, 2020	5,526	20,198	(476)	(1,685)	(615)	22,948
Total recognized income and expense	—	—	—	206	656	862
Transactions with shareholders and owners	253	(1,239)	(70)	—	—	(1,056)
Capital decreases (Note 11)	(83)	(305)	388	—	—	—
Dividend distributions (Note 11)	336	(935)	—	—	—	(599)
Other transactions with shareholders and owners	—	1	(458)	—	—	(457)
Appropriation of prior year profit (loss)	—	(1,685)	—	1,685	—	—
Balance at December 31, 2021	5,779	17,274	(546)	206	41	22,754
Total recognized income and expense	—	—	—	(880)	491	(389)
Transactions with shareholders and owners	(4)	(1,575)	205	—	—	(1,374)
Capital decreases (Note 11)	(139)	(409)	548	—	—	—
Dividend distributions (Note 11)	135	(1,202)	—	—	—	(1,067)
Other transactions with shareholders and owners (Nota 11)	—	36	(343)	—	—	(307)
Other movements (Note 11)	—	(666)	—	—	—	(666)
Appropriation of prior year profit (loss)	—	206	—	(206)	—	—
Balance at December 31, 2022	5,775	15,239	(341)	(880)	532	20,325

The accompanying Notes 1 to 23 and Appendices I and II are an integral part of these statements of changes in equity.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	6

Telefónica, S.A.

Cash flow statements for the years ended December 31

Millions of euros	Notes	2022	2021
A) CASH FLOWS FROM OPERATING ACTIVITIES		4,194	11,148
Profit (Loss) before tax		(1,541)	248
Adjustments to net results:		1,526	(331)
Depreciation and amortization	5, 6 and 7	28	27
Impairment of investments in Group companies and associates	8	1,590	4,574
Change in long term provisions		(36)	44
Gains on the sale of financial assets	8	—	(163)
Losses on disposal of fixed and intangible assets		8	—
Dividends from Group companies and associates	19	(1,450)	(5,943)
Interest income on loans to Group companies and associates	19	(15)	(36)
Net financial expense		1,401	1,166
Change in working capital		(68)	(26)
Trade and other receivables		43	7
Other current assets		(4)	(28)
Trade and other payables		(107)	(5)
Other cash flows from operating activities	21	4,277	11,257
Net interest paid		(1,062)	(1,431)
Dividends received and other		3,777	12,520
Income tax receipts		1,562	168
B) CASH FLOWS (USED IN) / FROM INVESTING ACTIVITIES	21	(2,769)	865
Payments on investments		(6,290)	(12,410)
Proceeds from disposals		3,521	13,275
C) CASH FLOWS USED IN FINANCING ACTIVITIES		(2,245)	(9,208)
Proceeds from equity instruments		13	—
(Payments) / Proceeds from financial liabilities	21	(934)	(8,113)
Debt issues		4,743	3,518
Repayment and redemption of debt		(5,677)	(11,631)
Acquisition of treasury shares	11	(365)	(478)
Dividends paid	21	(959)	(617)
D) NET FOREIGN EXCHANGE DIFFERENCE		2	(28)
E) NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS		(818)	2,777
Cash and cash equivalents at January 1		5,807	3,030
Cash and cash equivalents at December 31		4,989	5,807

The accompanying Notes 1 to 23 and Appendices I and II are an integral part of these cash flow statements.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	7

Telefónica, S.A.

Annual financial statements

for the ended December 31, 2022

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	8

Note 1. Introduction and

general information

Telefónica, S.A. (“Telefónica” or “the Company”) is a

public limited company incorporated for an indefinite

period on April 19, 1924, under the corporate name of

Compañía Telefónica Nacional de España, S.A. It adopted

its present name in April 1998.

The Company’s registered office is at Gran Vía 28, Madrid

(Spain) and its Employer Identification Number (CIF) is

A-28/015865.

Telefónica’s basic corporate purpose, pursuant to Article

4 of its Bylaws, is the provision of all manner of public or

private telecommunications services, including ancillary

or complementary telecommunications services or

related services. All the business activities that constitute

this stated corporate purpose may be performed either in

Spain or abroad and wholly or partially by the Company,

either through shareholdings or equity interests in other

companies or legal entities with an identical or a similar

corporate purpose.

In keeping with the above, Telefónica is currently the

parent company of a group that offers both fix and mobile

telecommunications with the aim to turn the challenges

of the new digital business into reality and being one of

the most important players. The objective of the

Telefónica Group is positioning as a Company with an

active role in the digital business taking advantage of the

opportunities of its size and industrial and strategic

alliances.

The Company is taxed under the general tax regime

established by the Spanish State, the Spanish

Autonomous Communities and local governments, and

files consolidated tax returns with most of the Spanish

subsidiaries of its Group under the consolidated tax

regime applicable to corporate groups.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	9

Note 2. Basis of presentation

d) True and fair view

These financial statements have been prepared from

Telefónica, S.A.’s accounting records by the Company’s

Directors in accordance with the accounting principles

and standards contained in the Spanish GAAP in force

approved by Royal Decree 1514/2007, on November 16

(PGC 2007), modified by Royal Decree (RD) 602/2016,

dated December 2, 2016, and by Royal Decree (RD)

1/2021, dated January 12, 2021, and other prevailing

legislation at the date of these financial statements, to

give a true and fair view of the Company’s equity,

financial position, income statements and of the cash

flows obtained and applied in 2022.

The accompanying financial statements for the year

ended December 31, 2022 were prepared by the

Company’s Board of Directors at its meeting on February

22, 2023 for submission for approval at the General

Shareholders’ Meeting, which is expected to occur

without modification.

The figures in these financial statements are expressed in

millions of euros, unless indicated otherwise, and

therefore may be rounded. The euro is the Company’s

functional currency.

b) Comparison of information

Accounting policies applied in 2022 are consistent with

those applied in 2021. 2021 figures are included in these

financial statements for comparison purposes.

On October 31, 2022 the Boletín Oficial del Instituto de

Contabilidad y Auditoría de Cuentas nº 131 (BOICAC 131)

was published. Its 2nd question clarifies the valuation

criteria to be used when assessing business units in a

merger or spin-off agreement carried out among Group

companies (see note 4). The impacts generated by the

application of this criteria in 2022 has been detailed in

notes 8 and 11.

c) Materiality

These financial statements do not include any

information or disclosures that, not requiring presentation

due to their qualitative significance, have been

determined as immaterial or of no relevance pursuant to

the concepts of materiality or relevance defined in the

PGC 2007 conceptual framework.

d) Use of estimates

The financial statements have been prepared using

estimates based on historical experience and other

factors considered reasonable under the circumstances.

The carrying value of assets and liabilities, which is not

readily apparent from other sources, was established

based on these estimates. The Company periodically

reviews these estimates.

A significant change in the facts and circumstances on

which these estimates are based could have an impact

on the Company’s results and financial position.

Key assumptions concerning the future and other key

sources of estimation uncertainty at the reporting date

that have a significant risk of causing a material

adjustment to the financial statements of the following

year are discussed below.

Provisions for impairment of investments in

Group companies and associates

Investments in group companies, joint ventures and

associates are tested for impairment at each year end to

determine whether an impairment loss must be

recognized in the income statement or a previously

recognized impairment loss be reversed. The decision to

recognize an impairment loss (or a reversal) involves

estimates of the reasons for the potential impairment (or

recovery), as well as the timing and amount. In note 8.2 it

is assessed the impairment of these investments.

There is a significant element of judgment involved in the

estimates required to determine recoverable amount and

the assumptions regarding the performance of these

investments, since the timing and scope of future

changes in the business are difficult to predict.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	10

Deferred taxes

The Company assesses the recoverability of deferred tax

assets based on estimates of future earnings, and of all

the options available to achieve an outcome, it considers

the most efficient one in terms of tax within the legal

framework the Company is subject to. The ability to

recover these taxes depends ultimately on the

Company’s ability to generate taxable earnings over the

period for which the deferred tax assets remain 

deductible. This analysis is based on the estimated

schedule for reversing deferred tax liabilities, the

expected outcome from pending lawsuits affecting the

estimations as well as estimates of taxable earnings,

which are sourced from internal projections and are

continuously updated to reflect the latest trends.

The appropriate valuation of tax assets and liabilities

depends on a series of factors, including estimates as to

the timing and realization of deferred tax assets and the

projected tax payment schedule. Actual income tax

receipts and payments could differ from the estimates

made by the Company as a result of changes in tax

legislation, the outcome of ongoing tax proceedings or

unforeseen future transactions that could affect tax

balances. The information about deferred tax assets and

unused tax credits for loss carryforwards, whose effect

has been registered when necessary in balance, is

included in note 17.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	11

Note 3. Proposed appropriation

of net results

Telefónica, S.A. obtained 880 million euros of losses in 2022.

Accordingly, the Company’s Board of Directors will

submit the following proposed appropriation of 2022 net

results for approval at the General Shareholders’

Meeting:

Millions of euros
Proposed appropriation:
Loss for the year	(880)
Distribution to:
Unrestricted reserves	(880)

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	12

Note 4. Recognition and measurement

accounting policies

As stated in note 2, the Company’s financial statements

have been prepared in accordance with the accounting

principles and standards contained in the Código de

Comercio, which are further developed in the Plan

General de Contabilidad currently in force (PGC 2007),

modified by RD 602/2016 and RD 1/2021 as well as any

commercial regulation in force at the reporting date.

Accordingly, only the most significant accounting policies

used in preparing the accompanying financial statements

are set out below, in light of the nature of the Company’s

activities as a holding.

a) Intangible assets

Intangible assets are stated at acquisition or production

cost, less any accumulated amortization or any

accumulated impairment losses.

Intangible assets are amortized on a straight-line basis

over their useful lives. The most significant items included

in this caption are computer software, which are

generally amortized on a straight-line basis over three

years.

b) Property, plant and equipment and

investment property

Property, plant and equipment is stated at cost, net of

accumulated depreciation and any accumulated

impairment in value.

The Company depreciates its property, plant and

equipment once the assets are in full working conditions

using the straight-line method based on the assets’

estimated useful lives, calculated in accordance with

technical studies which are revised periodically based on

technological advances and the rate of dismantling, as

follows:

Estimated useful life	Years
Buildings	40
Plant and machinery	3 - 25
Other plant or equipment, furniture and office equipment	10
Other items of property, plant and equipment	4 - 10

Investment property is measured and depreciated using

the same criteria described for land and buildings for own

use.

c) Impairment of non-current assets

Non-current assets are assessed at each reporting date

for indicators of impairment. Where such indicators exist,

or in the case of assets which are subject to an annual

impairment test, the Company estimates the asset’s

recoverable amount as the higher of its fair value less

costs to sell and its value in use. In assessing value in use,

the estimated future post-tax cash flows deriving from

the use of the asset or its cash generating unit, as

applicable, are discounted to their present value, using a

post-tax discount rate reflecting current market

assessments of the time value of money and the risks

specific to the asset, whenever the result obtained is the

same that would be obtained by discounting pre-tax cash

flows at a pre-tax discount rate.

Telefónica bases the calculation of impairment on the

business plans of the various companies to which the

assets are allocated, approved by the Board of Directors’

of Telefónica, S.A. The projected cash flows, based on

strategic business plans, cover a period of five years not

including the present year when the analysis is

calculated. Starting with the sixth year, an expected

constant growth rate is applied.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	13

d) Financial assets and liabilities

The main future assumptions as well as other

uncertainties related to estimations at year end which

could cause a significant effect in the financial

statements are disclosed below.

Financial investments

"Investments in group companies, joint ventures and

associates” are classified into a category of the same

name and are shown at cost less any impairment loss

(see note 4.c). Group companies are those over which the

Company exercises control, either by exercising effective

control or by virtue of agreements with the other

shareholders. Joint ventures are companies which are

jointly controlled with third parties. Associates are

companies in which there is significant influence, but not

control or joint control with third parties. Telefónica

assesses the existence of significant influence not only in

terms of percentage ownership but also in qualitative

terms such as presence on the board of directors,

involvement in decision-making, the exchange of

management personnel, and access to technical

information.

Financial investments which the Company intends to

hold for an unspecified period of time and could be sold

at any time to meet specific liquidity requirements or in

response to interest rate movements and which have not

been included in the other categories of financial assets

defined in the RD 1/2021, which amends PGC 2007, are

classified as financial assets at fair value through equity.

These investments are recorded under “Non-current

assets,” unless it is probable and feasible that they will be

sold within 12 months.

Derivative financial instruments and hedge

accounting

When Telefónica chooses not to apply hedge accounting

criteria but economic hedging, gains or losses resulting

from changes in the fair value of derivatives are taken

directly to the income statement.

e) Revenue and expenses

Revenue and expenses are recognized on the income

statement based on an accrual basis; i.e. when the goods

or services represented by them take place, regardless of

when actual payment or collection occurs.

A distribution of unrestricted reserves is considered as

dividend distribution, and therefore, is registered as

dividend revenue in the accounting of the receiving

Company whenever the distributing company and/or any

of its group's subsidiaries have gathered profits above the

amount of equity distributed.

When the Company receives free-allotment rights,

known as scrip dividends, that can be used to acquire

new shares at no cost or be sold in the market or to the

distributing company, it accounts for the concept as

dividend revenue with a counterpart of account

receivable on the distribution date.

The income obtained by the Company in dividends

received from Group companies and associates, and from

the interest accrued on loans and credits given to them,

are included in revenue in compliance with the provisions

of consultation No. 2 of BOICAC 79, published on

September 30, 2009.

f) Related party transactions

In business merger or spin-off transactions involving the

parent company and its direct or indirect subsidiary, as

well as in the case of non-monetary contributions of

business units between Group companies and in the

case of in-kind dividend distributions, the valuation of the

assets and liabilities should be done in accordance with

the Standards on Preparing Consolidated Financial

Statements (Spanish “NOFCAC”), at their pre-transaction

carrying amount in the consolidated financial statements

of the group or subgroup with a Spanish parent company.

Prior to the filing of BOICAC 131, 2nd question (see note

2), which was filed in 2022, the valuation of assets and

liabilities could be done applying the carrying value in the

standalone financial statements as of the transaction

date, when the group was discharged from the obligation

of preparing NOFCAC consolidated financial statements. 

Nevertheless,  there was also the option of using

consolidated values under IFRS as adopted by the

European Union, provided that this consolidated

information did not significantly differ  from that obtained

by applying NOFCAC. In addition, the Company could

also opt to use the values resulting from a reconciliation

to NOFCAC.

In the particular case of a contribution to a group

company of the shares of another group company, the

pre-transaction carrying amount in the standalone

financial statements of the contributing company could

be used, unless the net equity amount was higher, in

which case this amount was used.

The change in value arising in the contributing company

as a result of the above accounting treatment is

recognized in reserves.

g) Financial guarantees

The Company has provided guarantees to a number of

subsidiaries to secure their transactions with third parties

(see note 20.a). Where financial guarantees provided

have a counter-guarantee on the Company’s balance

sheet, the value of the counter-guarantee is estimated to

be equal to the guarantee given, with no additional

liability recognized as a result.

Guarantees provided for which there is no item on the

Company’s balance sheet acting as a counter-guarantee

are initially measured at fair value which, unless there is

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	14

evidence to the contrary, is the same as the premium

received plus the present value of any premiums

receivable. After initial recognition, these are

subsequently measured at the higher of:

i)The amount resulting from the application of the rules

for measuring provisions and contingencies.

ii)The amount initially recognized less, when applicable,

any amounts take to the income statement

corresponding to accrued income.

h) Consolidated data

As required under prevailing legislation, the Company has

prepared separate consolidated annual financial

statements, drawn up in accordance with International

Financial Reporting Standards (IFRS) as adopted by the

European Union. The balances of the main headings of

the Telefónica Group’s consolidated financial statements

for 2022 and 2021 are as follows:

Millions of euros
Item	2022	2021
Total assets	109,642	109,213
Equity:
Attributable to equity holders of the parent	25,088	22,207
Attributable to minority interests	6,620	6,477
Revenue from operations	39,993	39,277
Profit for the year:
Attributable to equity holders of the parent	2,011	8,137
Attributable to minority interests	308	2,580

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	15

Note 5. Intangible assets

The movements in the items composing intangible assets

and the related accumulated amortization in 2022 and

2021 are as follows: 

2022
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
INTANGIBLE ASSETS, GROSS	269	7	—	—	276
Software	167	4	—	1	172
Other intangible assets	102	3	—	(1)	104
ACCUMULATED AMORTIZATION	(248)	(7)	—	—	(255)
Software	(160)	(5)	—	—	(165)
Other intangible assets	(88)	(2)	—	—	(90)
DEPRECIATION ACCRUAL	—	(8)	—	—	(8)
NET CARRYING AMOUNT	21	(8)	—	—	13

2021
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
INTANGIBLE ASSETS, GROSS	262	10	(3)	—	269
Software	163	4	(1)	1	167
Other intangible assets	99	6	(2)	(1)	102
ACCUMULATED AMORTIZATION	(242)	(7)	1	—	(248)
Software	(155)	(5)	—	—	(160)
Other intangible assets	(87)	(2)	1	—	(88)
NET CARRYING AMOUNT	20	3	(2)	—	21

As of December 31, 2022 and 2021 commitments to

acquire intangible assets amount to 2.9 and 3.8 million

euros, respectively.

As of December 31, 2022 and 2021, the Company had 243

and 231 million euros, respectively, of fully amortized

intangible assets.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	16

Note 6. Property, plant and equipment

The movements in the items composing property, plant

and equipment (PP&E) and the related accumulated

depreciation in 2022 and 2021 are as follows:

2022
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
PROPERTY, PLANT AND EQUIPMENT, GROSS	551	11	—	(3)	559
Land and buildings	201	—	—	(2)	199
Plant and other PP&E items	348	6	—	2	356
PP&E under construction and prepayments	2	5	—	(3)	4
ACCUMULATED DEPRECIATION	(415)	(13)	—	—	(428)
Buildings	(116)	(6)	—	—	(122)
Plant and other PP&E items	(299)	(7)	—	—	(306)
NET CARRYING AMOUNT	136	(2)	—	(3)	131

2021
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
PROPERTY, PLANT AND EQUIPMENT, GROSS	548	8	(1)	(4)	551
Land and buildings	203	1	—	(3)	201
Plant and other PP&E items	342	5	(1)	2	348
PP&E under construction and prepayments	3	2	—	(3)	2
ACCUMULATED DEPRECIATION	(403)	(12)	—	—	(415)
Buildings	(111)	(5)	—	—	(116)
Plant and other PP&E items	(292)	(7)	—	—	(299)
NET CARRYING AMOUNT	145	(4)	(1)	(4)	136

Firm commitments to acquire property, plant and

equipment at December 31, 2022 and 2021 amounted to

0.2 and 1.2 million euros, respectively.

At December 31, 2022 and 2021, the Company had 264

and 261 million euros, respectively, of fully depreciated

items of property, plant and equipment.

Telefónica, S.A. has taken on insurance policies with

appropriate limits to cover the potential risks which could

affect its property, plant and equipment.

“Property, plant and equipment” includes the net carrying

amount of the land and buildings occupied by Telefónica,

S.A. at its Distrito Telefónica headquarters, amounting to

62 and 65 million euros at 2022 and 2021 year-ends,

respectively. It also includes the net carrying amount of

the remaining assets in this site (mainly property, plant

and equipment items) of 22 and 16 million euros at

December 31, 2022 and 2021, respectively.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	17

Note 7. Investment properties

The movements in the items composing investment

properties in 2022 and 2021 and the related accumulated

depreciation are as follows:

2022
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
INVESTMENT PROPERTIES, GROSS	436	—	—	3	439
Land	100	—	—	—	100
Buildings	336	—	—	3	339
ACCUMULATED DEPRECIATION	(122)	(8)	—	—	(130)
Buildings	(122)	(8)	—	—	(130)
NET CARRYING AMOUNT	314	(8)	—	3	309

2021
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
INVESTMENT PROPERTIES, GROSS	432	—	—	4	436
Land	100	—	—	—	100
Buildings	332	—	—	4	336
ACCUMULATED DEPRECIATION	(114)	(8)	—	—	(122)
Buildings	(114)	(8)	—	—	(122)
NET CARRYING AMOUNT	318	(8)	—	4	314

“Investment properties” mainly includes in both 2022 and

2021 the value of land and buildings leased by Telefónica,

S.A. to other Group companies at Distrito Telefónica,

headquarters in Madrid.

In 2022 the Company has buildings with a total area of

290.881  square meters (334,499 square meters in 2021)

leased to several Telefónica Group companies,

equivalent to an occupancy rate of 82,22% of the

buildings it has earmarked for lease (94.31% in 2021).

Total income from leased buildings in 2022 and 2021 (see

note 19.1.a) amounted to 37 and 42 million euros

respectively.

Future minimum rentals receivable under non-

cancellable leases are as follows:

	2022	2021
Millions of euros	Future minimum recoveries	Future minimum recoveries
Up to one year	29	31
Between two and five years	—	—
Total	29	31

The most significant lease contracts held with

subsidiaries occupying Distrito Telefónica have been

renewed in 2022 for a non-cancellable period of 12

months.

The main operating leases in which Telefónica, S.A. acts

as lessee are described in note 19.5.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	18

Note 8. Investments in group

companies and associates

8.1. Detail and evolution of investment in group companies and associates:

2022
Millions of euros	Opening balance	Additions	Disposals	Transfers	Exchange rate impacts	Dividends	Net investment hedges	Closing balance	Fair value
Equity instruments (Net) (1)	54,929	5,116	(5,231)	—	—	(66)	698	55,445	75,396
Equity instruments (Cost)	93,986	6,706	(8,513)	—	—	(66)	698	92,810
Impairment losses	(39,057)	(1,590)	3,282	—	—	—	—	(37,365)
Loans to Group companies and associates	131	—	—	121	(7)	—	—	245	238
Other financial assets	7	27	—	(19)	—	—	—	15	15
Total non-current investment in Group companies and associates	55,067	5,143	(5,231)	102	(7)	(66)	698	55,705	75,649
Loans to Group companies and associates	3,641	2,534	(4,636)	(121)	53	—	—	1,470	1,471
Derivatives	9	—	(4)	—	—	—	—	5	5
Other financial assets	48	10	(22)	19	—	—	—	55	55
Total current investments in Group companies and associates	3,698	2,544	(4,662)	(102)	53	—	—	1,530	1,531

(1) Fair value at December 31, 2022 of Group companies and associates quoted in an active market (Telefônica Brasil, S.A. and Telefónica Deutschland Holding,

A.G.) was calculated taking the listing of the investments on the last day of the year; the rest of the shareholdings are stated at the value of discounted cash

flows based on those entities business plans.

2021
Millions of euros	Opening balance	Additions	Disposals	Transfers	Exchange losses	Dividends	Net investment hedges	Closing balance	Fair value
Equity instruments (Net) (1)	58,754	4,404	(2)	(1)	—	(8,620)	394	54,929	76,958
Equity instruments (Cost)	93,285	8,978	(13)	(38)	—	(8,620)	394	93,986
Impairment losses	(34,531)	(4,574)	11	37	—	—	—	(39,057)
Loans to Group companies and associates	590	1	(360)	(100)	—	—	—	131	136
Other financial assets	24	10	—	(27)	—	—	—	7	7
Total non-current investment in Group companies and associates	59,368	4,415	(362)	(128)	—	(8,620)	394	55,067	77,101
Loans to Group companies and associates	9,550	7,224	(13,477)	100	244	—	—	3,641	3,643
Derivatives	19	—	(10)	—	—	—	—	9	9
Other financial assets	39	32	(50)	27	—	—	—	48	48
Total current investments in Group companies and associates	9,608	7,256	(13,537)	127	244	—	—	3,698	3,700

(1) Fair value at December 31, 2021 of Group companies and associates quoted in an active market (Telefônica Brasil, S.A.) was calculated taking the listing of the

investments on the last day of the year; the rest of the shareholdings are stated at the value of discounted cash flows based on those entities business plans.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	19

The most significant transactions occurred in 2022 and

2021 as well as their accounting impacts are described

below:

2022

In June 2022 the Company, as sole shareholder of

Telefónica Tech, S.L., decided to increase the share

capital in the subsidiary by an in-kind contribution of the

shares of Telefónica Cybersecurity & Cloud Tech, S.L.

which amounted to 1,122 million euros. The impact of this

transaction implies an addition to the investment in

Telefónica Tech, S.L. amounting to 839 million euros,

which is shown within Additions in the 2022 chart of

movements and a disposal of the carrying amount of the

contributed investment . Prior to this transaction,

Telefónica Cyber Cloud & Tech, S.L. carried out a capital

increase of 342 million euros fully subscribed and paid by

Telefónica, S.A. also reflected within Additions in the

same chart.

On August 10, 2022 the deed of partial segregation of

Telefónica, S.A. to Telefónica Latinoamérica Holding, S.L.

(TLH) was filed to Madrid Companies' Register. The

segregation involved the business consisting in the

shares owned by Telefónica, S.A. in Telefónica Móviles

Argentina, S.A. and Telefónica de Argentina, S.A. together

with some other items associated with the business. This

transaction has increased the net investment value of

TLH by 1,150 million euros, shown as Additions in the

2022 chart of movements as well as the disposal of the

investment in Telefónica Móviles Argentina, S.A. and

Telefónica de Argentina, S.A., reflected as net Disposals

accordingly by 1,006 and 88 million euros, respectively in

the already mentioned 2022 chart of movements (Cost of

investment by 1,360 million offset by 354 million euros of

impairment losses for Telefónica Móviles Argentina, S.A.

and Cost of investment by 119 million euros offset by 31

million euros of impairment losses for Telefónica de

Argentina, S.A.).

On September 15, 2022, a partial spin-off of TLH took

place. This transaction involved the transfer of the

business consisting in the shares owned by TLH in

Telefónica Móviles Argentina, S.A. and Telefónica de

Argentina, S.A. together with some other related items to

a newly created subsidiary, TLH Holdco, S.L. owned 100%

by Telefónica, S.A. This transaction implies an addition of

the new company, TLH Holdco, S.L. amounting to 1,582

million euros and a net disposal in TLH by 1,561 million

euros (2,396 million euros of investment cost offset by

835 million euros of impairment losses). These amounts

have been reflected as Additions and Disposals,

respectively, in the 2022 chart of movements.

On October 31, 2022 the liquidation of Sao Paulo

Telecomunicaçoes, Ltda. has completed with the

distribution to its shareholders of the assets and liabilities

pro-rata their ownership percentage. As a consequence

of the liquidation, an amount of 3,493 million euros has

been recorded as disposal in the cost of investment line

offset by a 2,039 million euros of impairment loss

disposal. Telefónica owned 39.40% of the subsidiary and

after the liquidation receives an additional 8.06% of the

share capital in Telefônica Brasil, S.A. (calculated based

on the issued share capital) amounting to 903 million

euros and is shown as Addition in 2022 chart of

movements.

All the aforementioned transactions have been valued in

accordance with BOICAC 131, 2nd question (see note 2)

2021

On July 30, 2020, Telefónica reached an agreement with

Liberty Latin America Ltd. for the sale of the entire share

capital of Telefónica de Costa Rica TC, S.A. On August 9,

2021, after the satisfaction of the closing conditions and

obtaining the relevant regulatory approvals, the entire

share capital of Telefónica de Costa Rica TC, S.A. was

transferred to Liberty Latin America Ltd. for an amount of

538 million dollars, approximately 457 million euros. The

net carrying value of the investment was included under

the caption "Net assets held for sale" and the net profit of

the transaction, 163 million euros, is shown as "gains on

disposals" in the 2021 income statement.

On September 27, 2021 the deed of merger between

Telefónica Innovación Alpha, S.L. (absorbed company)

and Telefónica Open Innovation, S.L. (merging company)

was filed to the Madrid Companies' Register. The

absorbed company was 100% directly owned by

Telefónica, S.A. and after the transaction, its net book

value amounting to 38 million euros  was reclassified as

an investment in Telefónica Digital España, S.L., the

parent company of the merging entity, which was also a

direct investment of Telefónica, S.A. This transaction had

had no impact in the income statement, and it is shown

as Transfers in 2021 chart of movements.

Other movements

After the sale of the investment in El Salvador, on January

13, 2022, the General Shareholders' Meeting of

Telefónica Centroamérica Inversiones, S.L. agreed a

dividend distribution to its shareholders pro-rata the

ownership percentage. 76 million USD (equivalent to 66

million euros) were distributed to Telefónica, S.A. This

proceed has been registered as an investment

reimbursement and reflected as Dividends in 2022 chart

of movements.

“Transfers” of “Loans to Group Companies and

Associates” in 2022 includes the reclassification from 

current to long-term of the loan granted in March 2022 to

Telefónica Cybersecurity & Cloud Tech, S.L., and whose

maturity was extended in June 2022 until 2027 (see note

8.5).

In May 2021 Telefónica, S.A. carried out capital increases

in its subsidiaries O2 (Europe) Ltd. by 5,656 million euros

and Telefónica O2 Holdings, Ltd. by 1,631 million euros in

order to enable these companies to pay back the

intercompany loans granted to them by Telfin Ireland,

Ltd. On July 21, 2021 the Board of Directors of Telfin

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	20

Ireland, Ltd. approved the distribution of reserves

amounting to 8,269 million euros. Out of this figure, 8,189

million euros corresponded to contribution payback and

was shown as "Dividends" in 2021 chart of movements.

The rest of the amount was registered as "Dividend

revenue" (see note 19).

On December 10, 2021 the General Shareholders'

Meeting of Pontel, S.L. agreed to a distribution of

reserves amounting to 751 million euros. On the same

date the Board of Directors of the company approved a

dividend distribution of 2,400 million euros. Telefónica,

S.A. has received 2,627 million euros pro-rata its

percentage of ownership. Out of this figure, 431 million

euros corresponded to contribution payback, shown as

"Dividends" in 2021 chart of movements. The rest of the

amount was registered as "Dividend revenue" (see note

19).

“Transfers” of “Loans to Group Companies and

Associates” in 2021 included the reclassification from

long-term to current of the loans granted to Telxius

Telecom, S.A.U. which were due in 2022 and have been

cancelled accordingly during this year.

a) Acquisitions of investments and capital

increases (Additions):

Millions of euros
Companies	2022	2021
TLH Holdco, S.L.	1,646	—
Telefónica Hispanoamérica, S.A.	1,192	370
Telefónica Latinoamérica Holding, S.L	1,150	—
Telefônica Brasil, S.A.	903	—
Telefónica Tech, S.L.	839	52
Telefónica Infra, S.L.	555	197
Telefónica Cybersecurity & Cloud Tech, S.L	342	750
Telefónica Deutschland, A.G.	48	51
Telefónica O2 Holdings, Ltd	—	1,631
Telefónica Digital España, S.L.U.	—	185
O2, Ltd.	—	5,656
Other companies	31	86
Total group and associated companies	6,706	8,978

2022

On December 20, 2022 TLH Holdco, S.L. has carried out a

capital increase of 64 million euros, fully subscribed and

paid by Telefónica, S.A.. The amount in 2022 Additions

chart includes not only this amount but also the figure of

the segregation transaction of Argentinian businesses as

detailed at the beginning of this note (1,582 million euros).

On February 2, 2022 Telefónica Hispanoamérica, S.A.

filed the deed of the capital increase by 1,192 million euros

subscribed and paid in full by the Company.

The amounts related to Telefónica Latinoamérica

Holding, S.L, Telefônica Brasil, S.A. and Telefónica Tech,

S.L. refer to the transactions described at the beginning

of this note.

On May 11, 2022 the deed of capital increase carried out

by Telefónica Infra, S.L. amounting to 38 million euros was

filed to the Companies' Register. It had been fully

subscribed and paid by Telefónica, S.A. In addition, during

2022 the Company has agreed to fund contributions to

Telefónica Infra, S.L. (with no new shares issued) totaling

517 million euros.

During 2022 the Company has continued acquiring in the

stock market shares of Telefónica Deutschland Holding,

A.G. (19.1 million shares) up to a 1.36% of direct ownership

as of 31.12.2022 as detailed in Appendix I of the present

financial statements.

2021

On January 28, 2021 the deed of the capital increase of

Telefónica Hispanoamérica, S.A. amounting to 370 million

euros was filed in the Companies' Register. It was fully

subscribed and paid by Telefónica, S.A.

On December 23, 2021 Telefónica Tech, S.L. carried out a

capital increase amounting to 52 million euros totally

subscribed and paid by Telefónica, S.A.

On June 14, 2021 the deed of capital increase of

Telefónica Infra, S.L. by 197 million euros was filed in the

Companies' Register. It had been fully subscribed and

disbursed by the Company.

On March 25, 2021 Telefónica Cybersecurity & Cloud

Tech, S.L. carried out a capital increase of 530 million

euros. On September 28, 2021, the subsidiary carried out

a second capital increase of 220 million euros. Both

transactions were fully subscribed and paid by

Telefónica, S.A.

During the second half of 2021 the Company acquired in

the stock market 21,3 million shares of Telefónica

Deutschland Holding, A.G. obtaining a 0,71% direct

ownership in the subsidiary.

On May 26, 2021 Telefónica O2 Holdings, Ltd. carried out

a capital increase of 1,631 million euros fully subscribed

and disbursed by the Company, within the framework

detailed at the beginning of this note.

On January 13, 2021 the deed of the capital increase of

Telefónica Digital España, S.L.U. amounting to 185 million

euros was filed in the Companies' Register. It was fully

subscribed and paid by the Company.

On May 26, 2021 O2, Ltd. carried out a capital increase of

5,656 million euros fully subscribed and disbursed by the

Company within the framework detailed at the beginning

of this note.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	21

In 2021 Telefónica decided to partly cancel the accounts

receivable that the subsidiaries had with the Group

companies in Argentina. Telefónica, S.A. purchased these

accounts receivable and the funds collected have been

used to carry out capital increases in Telefónica de

Argentina, S.A. After the transactions the percentage of

ownership in the subsidiary raised to 11.43%.

b) Disposals of investments and capital

decreases:

Millions of euros
Companies	2022	2021
Sao Paulo Telecomunicaçoes, Ltda.	3,493	—
Telefónica Latinoamérica Holding, S.L	2,396	—
Telefónica Móviles Argentina, S.A.	1,360	—
Telefónica Cybersecurity & Cloud Tech, S.L	1,122	—
Telefónica de Argentina, S.A.	119	—
Jubii Europe, N.V.	—	13
Other companies	23	—
Total group and associated companies:	8,513	13

2022

The figure of Sao Paulo Telecomunicaçoes, Ltda. relates

to the liquidation of the Company detailed at the

beginning of the note.

The amounts for Telefónica Latinoamérica Holding, S.L.,

Telefónica Móviles Argentina, S.A. and Telefónica de

Argentina, S.A. refer to the transaction of segregation and

unification of the Argentinian business described at the

beginning of this note.

The Disposal of Telefónica Cybersecurity & Cloud Tech,

S.L.  is framed in the in-kind contribution described at the

beginning of this note.

Other companies includes the liquidation of Corporación

Real Time Team, S.L., Centro de Experimentación de la

Realidad Virtual, S.L. y Telco TE, which have been carried

out in 2022.. The companies were fully impaired and the

same amount has been recorded as disposals in the

impairment losses line.

2021

In June 2021 the deed of liquidation of Jubii Europe, N.V.

was filed with a disbursement to its shareholders' by

0,022 euros per class AA and AB share. Telefónica, S.A.

received 2,2 million euros and the liquidation had no

effect in the income statement.

8.2. Assessment of impairment of

investments in group companies, joint

ventures and associates

At each year end, the Company re-estimates the future

cash flows derived from its investments in Group

companies and associates. The estimate is based on the

expected cash flows to be received from each subsidiary

in its functional currency, discounted using the

appropriate rate, net of the liabilities associated with each

investment (mainly net debt), considering the percentage

of ownership in each subsidiary and translated to euros at

the official closing rate of each currency at December 31.

The main assessments used to determine the discounted

cash flows are the revenue growth, the long term OIBDA

margin, the long term investment ratio, the weighted

average cost of capital (WACC) and the perpetual growth

rate, indicators employed by the Group in its investments

valuation.

Moreover, and only for the companies where discounted

cash flow analysis is not available due to the specific

nature of their businesses, the impairment is calculated

by comparing their equity figure as of the end of the

period and the net book value of those investments.

As a result of these estimations and the effect of the net

investment hedge in 2022, an impairment provision of

1,590 million euros was recognized (write-off of 4.574

million euros in 2021). This amount derives mainly from

the following companies: 

a.a write down, net of hedges, of 1.594 million euros for

Telefónica O2 Holdings, Ltd. (write down of 2,790

million euros, net of hedges, was registered in 2021);

b.a write down reversal, net of hedges, of 449 million

euros for Telefônica Brasil, S.A. (write down

amounting to 588 million euros in 2021) and a reversal

of 15 million euros for Sao Paulo Telecomunicaçoes,

Ltda, registered prior to its liquidation (write down

amounting to 64 million euros in 2021);   

c.a write down by 1,252 million euros for Telefónica

Hispanoamérica, S.A. (write down of 1,008 million

euros in 2021) mainly due to the impact of the

valuation in its  investments in Chile and Colombia.

d.a write down reversal of 1,001 million euros for

Telefónica Latinoamérica Holding, S.L. (write down by

277 million euros in 2021) mainly due to its investment

in Brazil.

e.a write down of 130 million euros for Telefónica Digital

España, S.L.U. (a write down of 22 million euros in

2021). 

f.In 2021 a write down reversal of 155 million euros was

recorded for Telefónica Móviles Argentina, S.A.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	22

Main assumptions used for the calculation of

the discounted cash flows of investments

During 2022 United Kingdom has passed through a

difficult year. In addition to the inflation rate increase due

to external factors (such as a rise in the energy price,

mismatches in the supply chain and rising prices of food)

and internal factors (a highly dynamic labour market)

there has been an increase in the interest rates,

negatively impacting the families' and companies'

incomes resulting in a reduction unknown in decades.

During the second half of the year a highly volatile

financial scenario originated by inconsistent fiscal policy

measures causing further uncertainty. Despite the

difficult macroeconomic context VMED O2 UK has

delivered its set guidance and made strong strategic and

operational progress throughout the year. The company

introduced new products, such as TV Stream and Switch

up and continues to drive fixed mobile convergence with

its VOLT product. VMED O2 UK delivered synergies

according to its plan and the fixed footprint reached 16.1

million homes passed, meeting the full year build targets.

In mobile, it expanded 5G services to more than 1,600

towns and cities, on-track to deliver 5G services to 50%

of the UK population in 2023. In addition, on December 15,

2022, Telefónica Infra, Liberty Global and InfraVia Capital

Partners entered into a joint venture which will deploy

fibre to the home (FTTH) to 5 million homes in the UK not

currently served by VMED O2 UK's network, with the

possibility of expansion to an additional 2 million homes.

The fibre network will offer wholesale FTTH access to

telecommunications service providers, with VMED O2 UK

acting as the anchor tenant, as well as providing a range

of technical services.

The ratios of operating variables included in the valuation

are within the ranges expected by analysts for

comparable companies in the region. As far as the

revenues are concerned, the UK business plan envisages

trend of improvement or stability in the projections

aligned with the evolution of the group's analysts

expectation. Moreover, the long-term OIBDA margin two-

year analysts' estimates for VMED O2 UK are in a range

within 35% to 39%. With respect to the long-term

investment over revenues ratio, the investment needs are

forecasted by analysts to be around 19% . The WACC 

(Weighted average cost of capital) used to discount the

cash flows is 7.3% for 2022. Terminal growth rate is set at

1%, below the real terminal growth forecast for the UK

economy. Finally, it is necessary to consider the evolution

of the exchange rate of the pound sterling  against the

euro in 2022, with a depreciation of 5.31% (see note 19.8),

which has a direct effect on the value in use of the

investment in euro terms.

During 2022 Brazil has been one of the only countries

whose growth perspectives have been substantially

improved notwithstanding external uncertainties.

Estimations at the beginning of the year envisaged a

growth stagnation in the country. However, the final

growth rate in 2022 situated in 3%. The positive economic

evolution can be explained because the country has

profited from the rising prices of raw materials (Brazil

being an exporter of these products), the policies

supporting families income and preventing a higher rise in

the inflation rate and a swifter than expected overcome

of the pandemic. In terms of revenues, the plan is in line

with the average three-year estimates made by analysts,

which include a trend towards stability or improvement.

As for the long-term OIBDA margin two-year estimates of

Telefónica's Group analysts for the operator in Brazil, it is

in a range within 41% to 46%. Regarding investments, the

operator will invest a percentage within the range of the

investment needs forecasted by analysts (around 16%).

The interest rates increase has resulted in an increase in

the cost of debt of the company, and the WACC has risen

from 12% in 2021 to 12.6% in 2022.The perpetuity growth

rate is within the range of the estimations of the analysts,

and it is consistent with the Brazilian Central Bank’s

medium-term inflation target (within a range between

1.5% and 4.5%) and it is below the nominal GDP growth

rate of around 5.5%, according to market expectations.

Moreover, the appreciation of Brazilian real against euro

by 13.48% should also be taken into account as it has an

impact, net of hedges, in the value of the investment (see

note 19.8).

The economic activity in Colombia has continued

growing at a significant rates. Despite this growth and the

rising prices of raw materials worldwide, the country has

failed in correcting the imbalances in relation with

external (deficit of current debt) and internal (tax deficit)

stakeholders. This fact, in addition to a period of political

uncertainties caused by a change in the government, has

created volatility in financial variables. Within this

framework, the financial discount rate has increased by

140 b.p. when compared to the previous year, with a

negative impact in the fair value of the investment in

Telefónica Colombia. With respect to revenues, the

business plan figures are estimated in accordance with

the evolution previewed by the Groups analysts.

Regarding OIBDA margin, the projections envisage a

future scenario of stability after a change in the

investment plans. For long term investment ratio, and as a

consequence of the change in the fiber deployment

programs, capex investments will be focused on mobile

business and the investment ratio is aligned with the

analysts' estimations for the region in the middle term.

Chilean economy dramatically slowed down in 2022 as a

consequence of several factors negatively impacting

families' income. The most relevant were the withdrawal

of tax policies, the deceleration in the labour market and

the high inflation rate above 10% which forced the

Chilean Central Bank to increase interest rates abruptly.

On the other hand, the constitutional reforms set in force

and then withdrawn have added further uncertainties

about the short term growth estimation in the country. In

this scenario, the financial discount rate has increased to

9.4%, that is, about 60 b.p. when compared to the

previous year. This fact as well as the economic

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	23

slowdown reflected in the 2022 business figures have

resulted in a decline in the value of the investment in

Telefónica Chile. Business plans for the following years

involve a sustained revenue growth with a stable margin.

For long term investment ratio, and as a consequence of

the change in the fiber deployment programs, capex

investments will be focused on mobile business and the

investment ratio is aligned with the analysts' estimations

for the region in the middle term.

8.3. Detail of subsidiaries and

associates

The detail of subsidiaries and associates is shown in

Appendix I.

8.4. Transactions protected for tax

purposes

Transactions carried out in 2021 that qualify for special

tax regime, as defined in Articles 76 and 87, as applicable,

of Chapter VII of Title VII of Legislative Royal Decree

27/2014 of November 27 approving the Spanish

Corporate Income Tax Law, are detailed in the following

paragraphs. Transactions qualified for special tax regime

carried out in prior years are disclosed in the financial

statements for those years.

As of June 1, 2022 Telefónica Audiovisual Digital, S.L.

(TAD) carried out the merger by absorption of CIT,

Compañía Independiente de Televisión, S.L. with the

consequent dissolution of the latter entity and the full

transfer of its corporate assets which, as the absorbing

company, acquired by universal succession the rights and

obligations of the absorbed entity.

On June 28, 2022 Telefónica, S.A. as sole shareholders of

Telefónica Tech, S.L. approved and signed a decision to a

capital increase carried out by an in-kind contribution of

the shares of Telefónica Cybersecurity & Cloud Tech, S.L.

The deed was filed in the Companies' Register on July 8,

2022. This transaction meant the contribution of the

shares of Telefónica Cybersecurity & Cloud Tech, S.L. 

with a net book value of 1,122 million euros (fiscal value of

1,182 million euros) in exchange for shares of Telefónica

Tech, S.L. with a net book value of 839 million euros.

On July 28, 2022 Telefónica, S.A. as sole shareholder of

Telefónica Ingeniería de Seguridad, S.A. approved a

partial segregation for the latter in favor of a new

subsidiary named TIS Hispanoamérica, S.L. The deed has

been filed to the Companies' Register on September 30,

2022. Telefónica, the sole owner of the segregated

company, delivered shares of Telefónica Ingeniería de

Seguridad, S.A. amounting to 0.8 million euros (both net

book value and tax value) and received shares of the new

company with the same net book value.

On August 10, 2022 Telefónica, S.A. transferred  to its

subsidiary Telefónica Latinoamérica Holding, S.L. via

share exchange and an in-kind contribution of the

investment in Telefónica Móviles Argentina, S.A. and

Telefónica de Argentina, S.A. as well as some other

balances associated with the business. After the

completion of the transaction, Telefónica Latinoamérica

Holdings S.L, acquires 73,20% and  10,75% of the shares

in Telefónica Móviles Argentina S.A y Telefónica de

Argentina S.A., respectively. Telefónica Latinoamérica

Holding, S.L. has booked the shares received by a net

book value of 1,155 million euros. The tax value of the

shares is 1,460 million euros.

Telefónica, S.A. has delivered the investments in

Telefónica Móviles Argentina, S.A. and Telefónica de

Argentina, S.A. with a net book value of 1,093 million

euros and a tax value of 1,460 million euros. In addition,

the Company has received shares of Telefónica

Latinoamérica Holding, S.L. with a net book value of 1,150

million euros.

On September 15, 2022 Telefónica Latinoamérica

Holding, S.L. carried out a segregation of the Argentinian

business to TLH Holdco, S.L. The segregation included

the shares in Telefónica Móviles Argentina, S.A. and

Telefónica de Argentina, S.A.as well as other balances

related to the business. With the conclusion of the

segregation, TLH Holdco, S.L. acquires 100% and 19,81%

of the ownership in Telefónica Móviles Argentina, S.A.

and Telefónica de Argentina, S.A., respectively.

Telefónica, S.A. became the sole stockholder of TLH

Holdco, S.L.

TLH Holdco, S.L. registered the investment received with

a net book value of 1,623 million euros. The tax value of

the assets received amounts to 4,008 million euros.

As for Telefónica, S.A. the net book value of the shares

delivered is 1,561 million euros and its tax value totals

4,008 million euros. The book value of the shares

received amounts to 1,582 million euros.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	24

8.5. Maturity of loans to Group

companies and associates

The breakdown and maturity of loans to Group

companies and associates in 2022 and 2021 are as

follows:

2022
Millions of euros
Company	2023	2024	2025	2026	2027	2027 and subsequent years	Final balance, current and non-current
Telefónica Móviles España, S.A.U.	99	—	—	—	—	—	99
Telefónica Cybersecurity & Cloud Tech, S.L.	1	—	—	—	113	—	114
Telfisa Global, B.V.	16	—	—	—	—	—	16
Telefónica de España, S.A.U.	415	—	—	—	—	—	415
Telxius Telecom, S.A.	—	50	—	50	—	—	100
Telefônica Brasil, S.A.	189	—	—	—	—	—	189
Telefónica Finanzas, S.A.U.	198	—	—	—	—	—	198
Bluevía Fibra, S.L.	527	—	—	—	—	—	527
Other companies	25	—	—	—	—	32	57
Total	1,470	50	—	50	113	32	1,715

2021
Millions of euros
Company	2022	2023	2024	2025	2026	2026 and subsequent years	Final balance, current and non-current
Telefónica Móviles España, S.A.U.	785	—	—	—	—	—	785
Telefónica O2 Holding, Ltd.	1,190	—	—	—	—	—	1,190
Telfisa Global, B.V.	364	—	—	—	—	—	364
Telefónica de España, S.A.U.	402	—	—	—	—	—	402
Telxius Telecom, S.A.U.	100	—	50	—	50	—	200
Telefônica Brasil, S.A.	181	—	—	—	—	—	181
Telefónica Finanzas, S.A.U.	101	—	—	—	—	—	101
Telefónica Hispanoamérica, S.A	397	—	—	—	—	—	397
Other companies	121	—	—	—	—	31	152
Total	3,641	—	50	—	50	31	3,772

The main loans granted to Group and associated

companies are described below:

•The outstanding balance with Telefónica Móviles

España, S.A.U. in 2021 included dividends distributed

and uncollected as of December 2021 amounting to

560 million euros received in December 2022.

The outstanding balance in 2022 amounts to 99 million

euros of tax balances are receivable from this

subsidiary for its tax expense declared in the

consolidated tax return (225 million euros in 2021).

•On March 21, 2022 the Company granted a credit to its

subsidiary Telefónica Cybersecurity & Cloud Tech, S.L.

of 140 million pounds sterling and maturity date on June

21, 2022. At maturity date, the credit was partially

cancelled and the outstanding amount, 100 million

pounds sterling, extended the maturity date until 2027.

As of December 31, 2022 the equivalent amount of this

credit amounts to 113 million euros. Moreover, there is 1

million euros of uncollected interests accounted as

current.

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	25

•The receivable with Telefónica O2 Holdings, Ltd.

included in 2021 dividends distributed and uncollected

as of December 2021 amounting to 1,000 million

pounds sterling (equivalent to 1,190 million euros) which

have been received in 2022.

•In December 2022, Telfisa Global, B.V. has approved

the distribution of dividends totaling 14 million euros

that remain unpaid as of the formulation date of these

financial statements (357 million euros in 2021).

Included in current caption there is an uncollected

amount of 2 million euros referring to the financial net

result sharing agreement signed with Telfisa Global,

B.V. as stated in note 19.1.c).

Moreover, in 2021 there were uncollected balances of 7

million euros of tax balances are receivable from this

subsidiary for its tax expense declared in the

consolidated tax return. The amount of this concept in

2022 is inferior to 1 million euros and therefore it is not

shown in the chart.

•The balance of Telefónica de España, S.A.U. in 2021

included an amount of 301 million euros in dividends

distributed which have been received in December

2022.

In 2022 the full outstanding amount of 415 million euros

refers to tax receivables from the subsidiary for its tax

expense declared in the consolidated tax return (101

million euros in 2021).

•On May 27, 2016, the Company granted its subsidiary,

Telxius Telecom, S.A. with a credit of 280 million euros

at a fix interest rate and maturity in 2022, a credit of 140

million euros at a fix interest rate and maturity in 2024, a

credit of 140 million euros at a fix rate and maturity in

2026. In 2021 there was  an early partial cancellation of

these credits. At year end, the outstanding amount is

100 million euros with maturity date  in 2024 and 2026.

In 2022 the installment of 100 million euros has been

canceled as scheduled..

•The balance totaling 189 million euros shown in 2022

with Telefônica Brasil, S.A. entirely corresponds to

dividends agreed by the subsidiary and unpaid at year

end (181 million euros in December 2021).

•The balance of Telefónica Finanzas, S.A.U. in December

2022 amounting to 182 million euros includes dividends

distributed and uncollected at year end (67 million

euros in 2021).

Moreover, in 2022 there are uncollected balances of 16

million euros of tax balances are receivable from this

subsidiary for its tax expense declared in the

consolidated tax return.

•On December 20, 2022 Telefónica, S.A. granted a

credit facility with maturity in 3 months to Bluevía Fibra,

S.L. amounting to 526 million euros. The uncollected

interests amount to 1 million euros and are also shown

in the 2023 column of the chart of movements.

•The balance of Telefónica Hispanoamérica, S.A. in 2021

fully related to the tax receivables from the subsidiary

for its tax expense declared in the consolidated tax

return. In 2022 there is no uncollected balance for this

concept.

In the 2022 chart of movements, additions of current

loans to group companies and associates comprise 548

million euros (873 million euros in 2021) of loans in

connection with the taxation of Telefónica, S.A. as the

head of the tax group pursuant to the consolidated tax

regime applicable to corporate groups (see note 17). The

most significant amounts have already been disclosed

through this note. All these amounts fall due in the short

term.

Disposals of current loans to group companies and

associates includes the cancellation of balances

receivable from subsidiaries on account of their

membership of Telefónica, S.A.’s tax group totaling 873

million euros (549 million euros in 2021).

Total accrued interest receivable at December 31, 2022

and 2021 included under “Current loans to group

companies and associates” amount to 2.4 and 0.5 million

euros, respectively.

8.6. Other financial assets with Group

companies and associates

This includes rights to collect amounts from other Group

companies related to share-based payment plans

involving Telefónica, S.A. shares offered by subsidiaries to

their employees.

Invoices of share plans that were already vested and are

outstanding at year end are shown as other current

financial assets. Amounts derived from the new share

plans launched in 2022 and 2021 with a maturity date

longer than 2023 are included as other non-current

financial assets (see note 19.3).

Financial Statements 2022

Individual Annual Report 2022	Telefónica, S. A.	26

Note 9. Financial investments

9.1. The breakdown of “Financial investments” at December 31, 2022 and 2021 is as follows:

2022
	Assets at fair value								Assets at amortized cost
					Measurement hierarchy
Millions of euros	Financial Assets at fair value with changes  through  equity	Financial assets at fair value with changes through income statement	Hedges with changes through equity	Subtotal assets at fair value	Level 1: quoted prices	Level 2: Estimates based on other directly observable market inputs	Level 3: Estimates not based on observable market data		Financial assets at amortized cost	Other financial assets at amortized cost	Subtotal financial assets at amortized cost	Fair value	Total carrying amount	Total fair value
Non-current financial investments	358	738	1,817	2,913	358	2,555	—		—	375	375	375	3,288	3,288
Equity instruments	358	—	—	358	358	—	—		—	—	—	—	358	358
Derivatives (Note 16)	—	738	1,817	2,555	—	2,555	—		—	—	—	—	2,555	2,555
Loans to third parties and other financial assets	—	—	—	—	—	—	—		—	375	375	375	375	375
Current financial investments	—	289	325	614	—	614	—		26	1,174	1,200	1,200	1,814	1,814
Loans to third parties and other financial assets	—	—	—	—	—	—	—		26	1,174	1,200	1,200	1,200	1,200
Derivatives (Note 16)	—	289	325	614	—	614	—		—	—	—	—	614	614
Total financial investments	358	1,027	2,142	3,527	358	3,169	—		26	1,549	1,575	1,575	5,102	5,102

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	27

2021
	Assets at fair value								Assets at amortized cost
					Measurement hierarchy
Millions of euros	Financial Assets at fair value with changes though  equity	Financial assets at fair value with changes through income statement	Hedges with changes through equity	Subtotal assets at fair value	Level 1: quoted prices	Level 2: Estimates based on other directly observable market inputs	Level 3: Estimates not based on observable market data		Financial assets at amortized cost	Other financial assets at amortized cost	Subtotal assets at amortized cost	Fair value	Total carrying amount	Total fair value
Non-current financial investments	348	779	1,896	3,023	348	2,675	—		—	867	867	867	3,890	3,890
Equity instruments	348	—	—	348	348	—	—		—	—	—	—	348	348
Derivatives (Note 16)	—	779	1,896	2,675	—	2,675	—		—	—	—	—	2,675	2,675
Loans to third parties and other financial assets	—	—	—	—	—	—	—		—	867	867	867	867	867
Current financial investments	—	88	663	751	—	751	—		53	746	799	800	1,550	1,551
Loans to third parties and other financial assets	—	—	—	—	—	—	—		53	746	799	800	799	800
Derivatives (Note 16)	—	88	663	751	—	751	—		—	—	—	—	751	751
Total financial investments	348	867	2,559	3,774	348	3,426	—		53	1,613	1,666	1,667	5,440	5,441

Derivatives are measured using the valuation techniques and models normally used in

the market, based on money-market curves and volatility prices available in the market.

Additionally, on this valuation, the credit valuation adjustment or CVA net for

counterparty (CVA + DVA), which is the methodology used to measure the credit risk of

the counterparties and of Telefónica itself is calculated to adjust the fair value

determination of the derivatives. This adjustment reflects the possibility of insolvency or

deterioration of the credit quality of the counterparty and Telefónica.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	28

9.2 Financial assets at fair value with

changes though income statement

and hedges with changes through

equity

These two categories include the fair value of

outstanding derivative financial instruments at December

31, 2022 and 2021 (see note 16).

9.3 Financial assets at fair value with

changes through equity

This category mainly includes the fair value of

investments in listed companies (equity instruments) over

which the Company does not have significant control or

influence. The movement of items composing this

category at December 31, 2022 and 2021 are as follows:

December 31, 2022
Millions of euros	Opening balance	Disposals	Fair value adjustments	Closing balance
Banco Bilbao Vizcaya Argentaria, S.A.	232	—	17	249
China Unicom (Hong Kong), Ltd.	80	—	25	105
Promotora de Informaciones, S.A. (PRISA)	36	(36)	4	4
Total	348	(36)	46	358

December 31, 2021
Millions of euros	Opening balance	Disposals	Fair value adjustments	Closing balance
Banco Bilbao Vizcaya Argentaria, S.A.	178	—	54	232
China Unicom (Hong Kong), Ltd	85	—	(5)	80
Promotora de Informaciones, S.A. (PRISA)	57	(50)	29	36
Total	320	(50)	78	348

In accordance with the change introduced in 2017 by the

article 21 of Income Tax Law 27/2014 with respect to the

non-deductible nature of the net losses generated by the

sale of some investments with certain characteristics, the

Company is not accruing the tax impacts of the fair value

adjustments in its available-for-sale investments.

Banco Bilbao Vizcaya Argentaria, S.A. (BBVA)

At December 31, 2022 and 2021 Telefónica, S.A.'s

investment in BBVA represents 0.732% and 0.66%,

respectively, of that company's share capital at each

year-end.

Promotora de Informaciones, S.A. (Prisa)

At December 31, 2022 and 2021 Telefónica, S.A.'s

investment in Prisa represents 1.87% and 9.03%,

respectively of its share capital, at each year-end.

On May 19, 2022, Telefónica, S.A. sold 50 million shares of

Prisa. The revenue from the sale amounts to 5 million

euros and it is reflected under the caption "Net result on

financial assets at fair value with changes through

equity".

In December 2022 the Company registered a write-off on

this investment amounting to 4 million euros under the

caption "Net result on financial assets at fair value with

changes through equity" caused by the significant drop in

the quotation of Prisa's shares (50 million euros in 2021).

China Unicom (Hong Kong), Ltd.

The investment in China Unicom (182 million shares)

represents 0.593% of that company's share capital both

in 2022 and 2021. The shares are quoted in Hong Kong

stock exchange.

The impacts shown in the column “Fair value

adjustments” on both years include the fair value

adjustments in the quotation of the three investments.

These impacts are registered in the equity of the

Company (note 11.2.).

The difference between the amount shown as "Fair Value

adjustments" in this note and the "Valuation at market

value" of Financial assets at fair value with changes

through equity in 2022 and 2021 chart of movements in

note 11 is due to hedges which partially offset the

exchange rate impact in the valuation of China Unicom.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	30

9.4 Financial assets at amortized cost

The breakdown of investments included in this category

at December 31, 2022 and 2021 is as follows:

Millions of euros	2022	2021
Financial assets at amortized cost, non- current:
Deposits related to real state properties	7	7
Collateral guarantees	365	565
Marketable debt securities	3	295
Financial assets at amortized cost, current:
Loans to third parties	26	53
Marketable debt securities	939	591
Collateral guarantees	235	150
Other current financial assets	—	5
Total	1,575	1,666

Collaterals are classified in both years under the caption

"Financial assets at amortized cost" and classified in

accordance with the maturity of the underlying derivative

instruments which they relate to.

In 2022, marketable debt securities under current caption

refer to the notes with a total nominal value of 1,000 US

million dollars issued by the international issue platform

Single Platform Investment Repackaging Entity, S.A.

("Spire"). These notes are deposited in a securities

account owned by Telefónica, S.A. In 2021 these

instruments were accounted for as current and non-

current according to the maturity date.

In relation with collateral contracts, there is an additional

guarantee of 79,034 bonds issued by Telefónica

Emisiones, S.A.U. deposited in a securities account

owned by Telefónica, S.A. with a notional of 78 million

euros as of December 31, 2022 (there were 166,678 bonds

with a notional of 173 million euros as of December 31,

2021).

9.4.1 Loans to third parties

In 2022 and 2021 the concept of loans to third parties

includes the uncollected amounts from financial entities

as a result of the maturity of derivative instruments.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	31

Note 10. Trade and other receivables

The breakdown of “Trade and other receivables” at

December 31, 2022 and 2021 is as follows:

Millions of euros	2022	2021
Trade receivables	—	3
Trade receivables from Group companies and associates	166	191
Other receivables	2	—
Employee benefits receivable	1	1
Tax receivables (Note 17)	305	138
Total	474	333

“Trade receivables from Group companies and

associates” mainly includes amounts receivable from

subsidiaries for the impact of the rights to use the

Telefónica brand and the monthly office rental fees (see

note 7).

“Trade receivables” and “Trade receivables from Group

companies and associates” in 2022 and 2021 include

balances in foreign currency equivalent to 66 and 98

million euros, respectively.

In 2022 these amounts relate to receivables in US dollars

and pounds sterling. The brand fee contract with

Telefónica Venezuela which was nominated in

Venezuelan bolivars has been amended in 2022 to US

dollars. Accordingly, there are no outstanding amounts in

Venezuelan bolivars as of December 2022.

In 2021 the amount corresponded to accounts receivable

in US dollars and Venezuelan bolivars.

These balances give rise to exchange rate profits in the

income statement of 3 million euros in 2022 (6 million

euros of exchange rate losses in 2021).

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	32

Note 11. Equity

11.1 Capital and reserves

a) Share capital

2022

As of December 31, 2022, the share capital of Telefónica,

S.A. was set at 5,775,237,554 euros and was divided into

5,775,237,554 common shares, of a single series and with

a par value of 1 euro each, fully paid in. All the shares of

the Company have the same characteristics and carry

the same rights and obligations.

The impacts in 2022 share capital are detailed below:

On April 8, 2022 the Board of Directors of Telefónica, S.A.

agreed to carry out the capital decrease with treasury

share amortization previously approved by the General

Shareholders' Meeting, held on the same date.

The share capital was reduced by 139,275,057 euros after

the amortization of 139,275,057 treasury shares, with a par

value of 1 euro each. The share capital of the Company

was set at 5,639,772,963 euros, corresponding to

5,639,772,963 shares with a par value of 1 euro each. As a

consequence of this transaction, the share premium

reserve was reduced by 409 million euros.

The share capital decrease did not result in a cash

distribution to the shareholders, as the amortized shares

were treasury shares owned by the Company.

Additionally, an unrestricted reserve totaling the par value

of the amortized treasury shares (139,275,057 euros) was

registered. This reserve for cancelled share capital can

only be used if the same requirements as those

applicable to the reduction of share capital are met.

Therefore, in accordance with the Section 335.c) of the

Corporate Enterprises Act, the creditors of the Company

can not claim the opposition right disclosed in article 334

of the Corporate Enterprise Act.

On April 22, 2022  the deed of the capital decrease was

registered in the Madrid Companies' Register.

On June 24, 2022, the deed was registered for a paid-up

capital increase in the amount of 135,464,591 euros, in

which 135,464,591 ordinary shares with a par value of 1

euro each were issued against reserves as part of the

scrip dividend. Following the share capital increase, the

share capital was set at 5,775,237,554 euros.

The shares of Telefónica, S.A. are represented by book

entries that are listed on the Spanish Electronic Market

(within the selective Ibex 35 index) and on the four

Spanish Stock Exchanges (Madrid, Barcelona, Valencia

and Bilbao), as well as on the New York and Lima Stock

Exchanges (on these latter two Stock Exchanges through

American Depositary Shares (ADSs), with each ADS

representing one share of the Company). 

2021

As of December 31, 2021, the share capital of Telefónica,

S.A. was set at 5,779,048,020 euros and was divided into

5,779,048,020 common shares, of a single series and with

a par value of 1 euro each, fully paid in. All the shares of

the Company have the same characteristics and carry

the same rights and obligations.

The impacts in 2021 share capital are detailed below:

On April 23, 2021 the Board of Directors of Telefónica, S.A.

agreed to carry out the capital decrease with treasury

share amortization previously approved by the General

Shareholders' Meeting held on the same date.

The share capital was reduced by 82,896,466 euros after

the amortization of 82,896,466 treasury shares, with a par

value of 1 euro each. The share capital of the Company

was set at 5,443,534,596 euros, corresponding to

5,443,534,596 shares with a par value of 1 euro each. As a

consequence of this transaction, the share premium

reserve was reduced by 305 million euros.

The share capital decrease did not result in a cash

distribution to the shareholders, as the amortized shares

were treasury shares owned by the Company.

Additionally, an unrestricted reserve totaling the par value

of the amortized treasury shares (82,896,466 euros) was

registered. This reserve for cancelled share capital can

only be used if the same requirements as those

applicable to the reduction of share capital are met, in

accordance with the Section 335.c) of the Corporate

Enterprises Act. Therefore, the creditors of the Company

can not claim the opposition right disclosed in article 334

of the Corporate Enterprise Act.

On May 5, 2021 the deed of the capital decrease was

registered in the Madrid Companies' Register.

On June 22, 2021, the deed was registered for a paid-up

capital increase in the amount of 194,518,911 euros, in

which 194,518,911 ordinary shares with a par value of 1

euro each were issued against reserves as part of the

scrip dividend. Following the share capital increase, the

share capital was set at 5,638,053,507 euros.

On November 3, 2021 Telefónica announced its plans to

propose to the Company’s General Shareholders’

Meeting the adoption of the appropriate corporate

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	33

resolutions for the redemption of a total of 1.65% of the

treasury shares representing the share capital (October

25, 2021 according to the communiqué to the CNMV).

On December 23, 2021 the deed was registered for a

paid-up capital increase in the amount of 140,994,513

euros, in which 140,994,513 ordinary shares with a par

value of 1 euro each were issued against reserves as part

of the scrip dividend. Following the share capital increase,

the share capital was set at 5,779,048,020 euros.

Authorizations by Shareholders’ Meeting

As regards the authorizations conferred in respect of the

share capital, the shareholders acting at the Ordinary

General Shareholders’ Meeting held on June 12, 2020

resolved to delegate to the Board of Directors, as broadly

as required by Law, pursuant to the provisions of Section

297.1.b) of the Companies Act, the power to increase the

share capital on one or more occasions and at any time,

within a period of five years from the date of adoption of

such resolution, by the maximum nominal amount of

2,596,065,843 euros, equal to one-half of the share

capital of the Company on the date of adoption of the

resolution at the General Shareholders’ Meeting, issuing

and floating the respective new shares for such purpose

with or without a premium, the consideration for which

will consist of monetary contributions, with express

provision for incomplete subscription of the shares to be

issued. The Board of Directors was also authorized to

exclude pre-emptive rights in whole or in part, as

provided in section 506 of the Corporate Enterprises Act.

However, the power to exclude pre-emptive rights is

limited to 20% of the share capital on the date on which

the resolution is adopted. In accordance with the above-

mentioned authorization, as of the end of fiscal year 2022,

the Board would be authorized to increase the share

capital by the maximum nominal amount of

2,596,065,843 euros.

Furthermore, the Ordinary General Shareholders’

Meeting of Telefónica, S.A. held on June 12, 2020

delegated to the Board of Directors, in accordance with

the general rules governing the issuance of debentures

and pursuant to the provisions of applicable law and the

Company’s By-Laws, the power to issue securities,

including preferred shares and warrants, with the power

to exclude the pre-emptive rights of shareholders. The

aforementioned securities may be issued on one or more

occasions, within a maximum period of five years as from

the date of adoption of the resolution. The securities

issued may be debentures, bonds, notes and other fixed-

income securities, or debt instruments of a similar nature,

or hybrid instruments in any of the forms admitted by Law

(including, among others, preferred interests) both simple

and, in the case of debentures, bonds and hybrid

instruments, convertible into shares of the Company and/

or exchangeable for shares of the Company, of any of the

companies of its Group or of any other company, and/or

giving the holders thereof an interest in the corporate

earnings. Such delegation also includes warrants or other

similar instruments that may entitle the holders thereof,

directly or indirectly, to subscribe for or acquire newly-

issued or outstanding shares, payable by physical delivery

or through differences. The aggregate amount of the

issuance or issuances of instruments that may be

approved in reliance on this delegation may not exceed,

at any time, 25,000 million euros or the equivalent

thereof in another currency. In the case of notes and for

purposes of the above-mentioned limits, the outstanding

balance of those issued in reliance on the delegation shall

be computed. In the case of warrants, and also for the

purpose of such limit, the sum of the premiums and

exercise prices of each issuance shall be taken into

account.  Moreover, under the aforementioned

delegation resolution, the shareholders at the Ordinary

General Shareholders’ Meeting of Telefónica, S.A.

resolved to authorize the Board of Directors to guarantee,

in the name of the Company, the issuance of the

aforementioned instruments issued by the companies

belonging to its Group of companies, within a maximum

period of five years as from the date of adoption of the

resolution.

On the other hand, on June 8, 2018, shareholders voted to

authorize the acquisition by the Board of Directors of

Telefónica, S.A. treasury shares, up to the limits and

pursuant to the terms and conditions established at the

Shareholders’ Meeting, within a maximum five-year

period from that date. However, it specified that in no

circumstances could the par value of the shares acquired,

added to that of the treasury shares already held by

Telefónica, S.A. and by any of its controlled subsidiaries,

exceed the maximum legal percentage at any time.

At December 31, 2022 and 2021, Telefónica, S.A. held the

following treasury shares:

		Euros per share
	Number of shares	Acquisition price	Trading price	Market value (*)	%
Treasury shares at Dec 31 2022	85,217,621	4.00	3.39	288	1.476%
Treasury shares at Dec 31 2021	139,329,370	3.92	3.85	537	2.411%

(*) Millions of euros

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	34

The movement in treasury shares of Telefónica, S.A.

during the years 2022 and 2021 is as follows:

	Number of shares
Treasury shares at 12/31/20	98,231,380
Acquisitions	122,032,764
Scrip dividend (see Note 11.d)	6,291,518
Share capital decrease	(82,896,466)
Employee share option plan (See Note 19.3)	(4,329,826)
Treasury shares at 12/31/21	139,329,370
Acquisitions	90,403,530
Scrip dividend (see Note 11.d)	563,415
Share capital decrease	(139,275,057)
Employee share option plan (See Note 19.3)	(5,391,956)
Disposals	(411,681)
Treasury shares at 12/31/22	85,217,621

Acquisitions

In 2022 and 2021 acquisition of treasury shares

amounting to 365 and 478 million euros respectively,

have been registered (see note 21).

Share redemption and disposals

On April 8, 2022 following the agreement of the General

Shareholders' Meeting held on April 8, 2022, the share

capital decrease was carried out with the amortization of

139,275,057 treasury shares with an impact of 548 million

euros in this caption.

On May 5, 2021 following the agreement of the General

Shareholders' Meeting held on April 23, 2021, the share

capital decrease was carried out with the amortization of

82,896,466 treasury shares with an impact of 388 million

euros in this caption.

Employee share option plan 

Treasury shares related to share plans redemptions in

2022 and 2021 amount to 22 and 20 million euros,

respectively. 

Other instruments

The Company also has different derivative instruments, to

be settled by offset, on a nominal value equivalent to 193

million of Telefónica shares in 2022 (192 million shares in

2021) registered in the balance sheet in accordance with

their maturity date and fair value at year end 2022.

b) Legal reserve

According to the text of the Corporate Enterprises Act,

companies must transfer 10% of profit for the year to a

legal reserve until this reserve reaches at least 20% of

share capital. The legal reserve can be used to increase

capital by the amount exceeding 10% of the increased

share capital amount. Except for this purpose, until the

legal reserve exceeds the limit of 20% of share capital, it

can only be used to offset losses, if there are no other

reserves available. At December 31, 2022 and 2021, this

reserve amounted to 1,059 and 1,038 million euros

representing 18.34% and 17.97% of the share capital at the

date, respectively.

c) Other reserves

“Other reserves” include:

•The “Revaluation reserve” which arose as a result of the

revaluation made pursuant to Royal Decree-Law 7/1996

dated June 7. The revaluation reserve may be used, free

of tax, to offset any losses incurred in the future and to

increase capital. From January 1, 2007, it may be

allocated to unrestricted reserves, provided that the

capital gain has been realized. The capital gain will be

deemed to have been realized in respect of the portion

on which the depreciation has been recorded for

accounting purposes or when the revalued assets have

been transferred or derecognized. In this respect, at the

end of 2022 and 2021, an amount of 4 million euros,,

corresponding to revaluation reserves subsequently

considered unrestricted has been reclassified to “Other

reserves”. The balance of this reserve at December 31,

2022 and 2021 was 54 and 58 million euros,

respectively.

•Reserve for cancelled share capital: In accordance with

Section 335.c) of the Corporate Enterprises Act and to

render null and void the right of opposition provided for

in Section 334 of the same Act, whenever the Company

decreases capital it records a reserve for cancelled

share capital for an amount equal to the par value of

the cancelled shares, which can only be used if the

same requirements as those applicable to the

reduction of share capital are met. The cumulative

amount of the reserve for cancelled share capital at

December 31, 2022 and 2021 totals 954 and 814 million

euros, respectively.

•Pursuant to the provisions of Royal Decree 1514/2007,

since 2008, after the distribution of profits for each

year, the Company set aside a restricted reserve of 2

million euros for goodwill amortization. Pursuant to the

provisions of Royal Decree 602/2016 of December 2,

2016 regarding the mandatory amortization of all

intangible assets, the goodwill amortization as of

January 1, 2015, amounting to 10 million euros was

registered with a counterparty in this reserve.

•In addition to the restricted reserves explained above,

"Other reserves" includes unrestricted reserves from

gains obtained by the Company in prior years. In

addition, this caption includes the equity impacts of the

corporate transactions described in note 8. Thus, the

segregation of the Argentinian business had a positive

impact in reserves amounting to 84 million euros and

shown as "Other movements" in the Statements of

changes in Equity. On the other hand, the in-kind

contribution of the investment in Telefónica Cyber

Cloud & Tech, S.L. to Telefónica Tech, S.L. implied a

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	35

negative impact in reserves of 317 million euros.

Moreover the liquidation of Sao Paulo

Telecomunicaçoes, S.A. has raised a negative effect in

reserves amounting to 441 million euros shown in the

same line item.

d) Dividends

Dividend distribution in 2022

Approval was given at the General Shareholders’ Meeting

of April 8, 2022 to pay a dividend in two tranches. The first

tranche through a scrip dividend amounting to

approximately 0.15 euros per share took place on June

2022 and consist on the assignment of free allotment

rights with an irrevocable purchase commitment by the

Company. The  second tranch amounting to

approximately 0.15 euros per share took place in

December 2022, after the adoption of the corresponding

corporate resolutions.

At its meeting held on May 25, 2022, the Executive

Commission of Telefónica, S.A. Board of Directors agreed

to carry out the execution of the increase in paid-up

capital, related to the shareholders compensation by

means of a scrip dividend. Thus, each shareholder

received one free allotment right for each Telefónica

share held. Such free allotment rights were traded on the

Continuous Market in Spain during a period of 15

calendar days. Once this trading period ended, the

shareholders of 25.54% of the free-of-charge allotment

rights accepted the irrevocable purchase commitment

assumed by Telefónica, S.A. The payment to these

shareholders was made on June 16, 2022. The gross

impact of this dividend amounts to 213 million euros.

On the other hand, the shareholders of 74.46% of the

free-of-charge allotment rights were entitled, therefore,

to receive new shares of Telefónica, S.A. So the final

number of shares issued on June 24, 2022 in the capital

increase was 135,464,591 shares with a nominal value of 1

euro each.

The second tranch of the dividend was paid on

December 15, 2022 and had an impact in equity

amounting to 854 million euros.

Dividend distribution in 2021

Approval was given at the General Shareholders’ Meeting

of April 23, 2021 to pay a scrip dividend amounting to

approximately 0.35 euros per share in two tranches,

consisting of the assignment of free allotment rights with

an irrevocable purchase commitment by the Company,

and a subsequent capital increase by means of the issue

of new shares to fulfill said allotments, following a specific

calculation mechanism which might result in variations of

the amount. The distribution of the first tranche,

amounting approximately 0.20 euros per share, took

place in June of 2021 and the second tranch amounting

approximately 0.15 euros took place in December 2021,

after the adoption of the corresponding corporate

resolutions.

At its meeting held on May 26, 2021, the Executive

Commission of Telefónica, S.A. Board of Directors agreed

to carry out the execution of the increase in paid-up

capital, related to the shareholders compensation by

means of a scrip dividend. Thus, each shareholder

received one free allotment right for each Telefónica

share held. Such free allotment rights were traded on the

Continuous Market in Spain during a period of 15

calendar days. Once this trading period ended, the

shareholders of 28.53% of the free-of-charge allotment

rights accepted the irrevocable purchase commitment

assumed by Telefónica, S.A. Cash payment to these

shareholders was made on June 17, 2021. The gross

impact of this dividend amounts to 308 million euros.

On the other hand, the shareholders of 71.47% of the free-

of-charge allotment rights were entitled, therefore, to

receive new shares of Telefónica, S.A. So the final

number of shares issued after June 22, 2021 in the capital

increase was 194,518,911 shares with a nominal value of 1

euro each.

The Executive Commission of Telefónica, S.A. Board of

Directors meeting of November 3, 2021 agreed the

implementation of the second capital increase with

charge to reserves related to the shareholder

compensation by means of a scrip dividend. Thus, each

shareholder received 1 free allotment right for each

Telefónica share held. The shareholders of 34.98% of the

free-of-charge allotment rights accepted the irrevocable

purchase commitment assumed by Telefónica, S.A. Cash

payment was made on December 17, 2021 and had an

impact in equity amounting to 292 million euros.

On the other hand, the shareholders of 65.02% of the

free-of-charge allotment rights were entitled, therefore,

to receive new shares of Telefónica, S.A. So the final

number of shares issued on December 23, 2021 in the

capital increase was 140,994,513 shares with a nominal

value of 1 euro each.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	36

11.2 Unrealized gains (losses) reserve

The movements in the items composing “Unrealized

gains (losses) reserve” in 2022 and 2021 are as follows:

2022
Millions of euros	Opening balance	Valuation at market value	Tax effect of additions	Amounts transferred to income statement	Tax effect of transfers	Closing balance
Financial assets at fair value with changes through equity  (Note 9.3)	(52)	37	—	1	—	(14)
Cash flow hedges	93	1,135	(284)	(531)	133	546
Total	41	1,172	(284)	(530)	133	532

2021
Millions of euros	Opening balance	Valuation at market value	Tax effect of additions	Amounts transferred to income statement	Tax effect of transfers	Closing balance
Financial assets at fair value with changes through equity  (Note 9.3)	(124)	122	—	(50)	—	(52)
Cash flow hedges	(491)	1,461	(365)	(683)	171	93
Total	(615)	1,583	(365)	(733)	171	41

Since 2018, the Company includes the fair value hedges,

whose impacts are generated and transferred to the

income statement in the same period, in the statement of

recognized income and expense in equity, and transfers

the amounts to the income statement of the same period.

The impacts are shown in the column "Valuation at

market value" and with the opposite sign in the column

"Amounts transferred to income statement" of the tables

above.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	37

Note 12. Financial liabilities

The breakdown of “Financial liabilities” at December 31, 2022 and 2021 is as follows:

2022
	LIABILITIES AT FAIR VALUE							LIABILITIES AT AMORTIZED COST
				MEASUREMENT HIERARCHY
Millions of euros	Financial liabilities with changes through income statement	Hedges with changes through equity	Subtotal financial liabilities at fair value	Level 1: quoted prices	Level 2: Estimates based on other directly observable market inputs	Level 3: Estimates not based on other directly observable market data		Financial liabilities at amortized cost	Fair value of financial liabilities	TOTAL CARRYING AMOUNT	TOTAL FAIR VALUE
Non-current financial liabilities	860	1,048	1,908	—	1,908	—		34,935	32,336	36,843	34,244
Payable to Group companies and associates			—	—	—	—		33,405	30,772	33,405	30,772
Bank borrowings			—	—	—	—		372	406	372	406
Derivatives (Note 16)	860	1,048	1,908	—	1,908	—		—	—	1,908	1,908
Other financial liabilities	—	—	—	—	—	—		1,158	1,158	1,158	1,158
Current financial liabilities	269	7	276	—	276	—		10,132	10,133	10,408	10,409
Payable to Group companies and associates	—	—	—	—	—	—		9,950	9,950	9,950	9,950
Bank borrowings	—	—	—	—	—	—		181	182	181	182
Derivatives (Note 16)	269	7	276	—	276	—		—	—	276	276
Other financial liabilities	—	—	—	—	—	—		1	1	1	1
Total financial liabilities	1,129	1,055	2,184	—	2,184	—		45,067	42,469	47,251	44,653

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	38

2021	LIABILITIES AT FAIR VALUE							LIABILITIES AT AMORTIZED COST
				MEASUREMENT HIERARCHY
Millions of euros	Financial liabilities with changes through income statement	Hedges with changes through equity	Subtotal financial liabilities at fair value	Level 1: quoted prices	Level 2: Estimates based on other directly observable market inputs	Level 3: Estimates not based on other directly observable market data		Financial liabilities at amortized cost	Fair value of financial liabilities	TOTAL CARRYING AMOUNT	TOTAL FAIR VALUE
Non-current financial liabilities	656	1,168	1,824	—	1,824	—		36,135	41,004	37,959	42,828
Payable to Group companies and associates	—	—	—	—	—	—		35,141	40,065	35,141	40,065
Loans with financial entities	—	—	—	—	—	—		415	360	415	360
Derivatives (Note 16)	656	1,168	1,824	—	1,824	—		—	—	1,824	1,824
Other financial liabilities	—	—	—	—	—	—		579	579	579	579
Current financial liabilities	129	207	336	—	336	—		9,810	9,863	10,146	10,199
Payable to Group companies and associates	—	—	—	—	—	—		8,364	8,413	8,364	8,413
Loans with financial entities	—	—	—	—	—	—		1,416	1,420	1,416	1,420
Bonds and other marketable debt securities	—	—	—	—	—	—		30	30	30	30
Derivatives (Note 16)	129	207	336	—	336	—		—	—	336	336
Total financial liabilities	785	1,375	2,160	—	2,160	—		45,945	50,867	48,105	53,027

Derivatives are measured using the valuation techniques and models normally used in

the market, based on money-market curves and volatility prices available in the market.

Additionally, on this valuation, the credit valuation adjustment or CVA net for

counterparty (CVA + DVA), which is the methodology used to measure the credit risk of

the counterparties and of Telefónica itself is calculated to adjust the fair value

determination of the derivatives. This adjustment reflects the possibility of insolvency or

deterioration of the credit quality of the counterparty and Telefónica. The calculation of

the fair values of the Company’s financial debt instruments required an estimate for

each currency of a credit spread curve using the prices of the Company’s bonds and

credit derivatives.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	39

Note 13. Bonds and other marketable

debt securities

This caption, at December 31, 2022 and 2021, only

includes a promissory notes program.

The features of the 2022 program are the following:

Amount	Placement system	Nominal amount of the Promissory notes	Terms of the Promissory notes	Placement
500 millions of euros	Auctions	100,000 euros	30, 60, 90, 180 and 364 days	Competitive auctions
	Tailored	100,000 euros	Between 3 and 364 days	Specific transactions

The features of the 2021 program are the following:

Amount	Placement system	Nominal amount of the Promissory notes	Terms of the Promissory notes	Placement
2,000 millions of euros	Auctions	100,000 euros	30, 60, 90, 180,  365, 540 and 731 days	Competitive auctions
	Tailored	100,000 euros	Between 3 and 731 days	Specific transactions

The balances and movements of the financial

instruments included under this caption at December 31,

2022 and 2021 are as follows:

	2022	2021
Millions of euros	Other marketable debt securities (Promissory notes)	Other marketable debt securities (Promissory notes)
Opening balance	30	269
Additions	—	54
Disposals	(30)	(293)
Closing balance	—	30
Details of maturities:
Non-current	—	—
Current	—	30

There were no promissory notes issuance in 2022 (the

average interest rate during 2021 was -0.45%).

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	40

Note 14. Interest-bearing debt and

derivatives

14.1 Detail of debt balances

The balances at December 31, 2022 and 2021 are as

follows:

December 31, 2022
Millions of euros	Current	Non-current	Total
Loans with financial entities (Note 12)	181	372	553
Derivatives (Note 16)	276	1,908	2,184
Total	457	2,280	2,737

December 31, 2021
Millions of euros	Current	Non-current	Total
Loans with financial entities (Note 12)	1,416	415	1,831
Derivatives (Note 16)	336	1,824	2,160
Total	1,752	2,239	3,991

14.2 Disclosure of nominal amount of debts

The nominal values of the main interest-bearing debts at

December 31, 2022 and 2021 are as follows:

2022
Description	Value Date	Maturity Date	Currency	Limit 12/31/2022 (millions of local currency)	Balance (millions of euros)
Structured Financing (*)	02/22/2013	01/31/2023	USD	12	12
Structured Financing (*)	08/01/2013	10/31/2023	USD	27	25
Structured Financing (*)	12/11/2015	03/11/2026	USD	238	223
Structured Financing (*)	12/11/2015	03/11/2026	EUR	161	161
Bilateral Loan	09/26/2022	12/15/2032	EUR	—	150

(*) Facilities with amortization schedule, showing in the column "Limit 12/31/2022" the outstanding amount.

2021
Description	Value Date	Maturity Date	Currency	Limit 12/31/2021 (millions of local currency)	Balance (millions of euros)
Structured Financing (*)	02/22/2013	01/31/2023	USD	82	72
Structured Financing (*)	08/01/2013	10/31/2023	USD	100	89
Structured Financing (*)	12/11/2015	03/11/2026	USD	326	288
Structured Financing (*)	12/11/2015	03/11/2026	EUR	221	221

(*) Facilities with amortization schedule, showing in the column "Limit 12/31/2021" the outstanding amount.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	41

14.3 Maturities of balances

The maturity of balances at December 31, 2022 and 2021

are as follows:

December 31, 2022	Maturity
Millions of euros	2023	2024	2025	2026	2027	Subsequent years	Closing balance
Loans with financial entities	181	40	111	77	(5)	149	553
Derivatives (Note 16)	276	109	70	103	515	1,111	2,184
Total	457	149	181	180	510	1,260	2,737

December 31, 2021	Maturity
Millions of euros	2022	2023	2024	2025	2026	Subsequent years	Closing balance
Loans with financial entities	1,416	48	81	177	109	—	1,831
Derivatives (Note 16)	336	133	32	15	45	1,599	2,160
Total	1,752	181	113	192	154	1,599	3,991

14.4 Interest-bearing debt arranged or repaid in 2022

The most significant transactions in 2022 mainly includes

the following:

Description	Limit Dec 31 2022 (millions)	Currency	Outstanding balance Dec 31 2022 (million euros)	Arrangement date	Maturity date	Drawdown 2022 (million euros)	Repayment 2022 (million euros)
Telefónica, S.A.
Bilateral Loan	—	EUR	150	09/26/2022	12/15/2032	150	—
Syndicated (1)	5,500	EUR	—	03/15/2018	01/13/2027	—	—
Bilateral Loan	125	EUR	—	12/23/2022	—	—	—

(1) On January 13, 2022, there was a maturity extension of the syndicated credit facility of Telefónica, S.A. for 5,500 million euros. The loan has two annual

extension options at Telefónica, S.A. request with a maturity maximum up to 2029.

14.5 Average interest on loans and

borrowings

The average interest rate in 2022 on loans and

borrowings denominated in euros was -0.128% (0.2467%

in 2021) and 2.289% (1.512% in 2021) for foreign-currency

loans and borrowings.

14.6 Unused credit facilities

The balances of loans and borrowings only relate to

drawn down amounts.

At December 31, 2022 and 2021, Telefónica had undrawn

credit facilities amounting to 9,994 million euros and

10,415 million euros, respectively.

Financing arranged by Telefónica, S.A. at December 31,

2022 and 2021 is not subject to compliance with financial

ratios (covenants).

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	42

Note 15. Payable to group

companies and associates

15.1 Detail of group debts

The breakdown of payable to group companies and

associates at the 2022 and 2021 year ends is as follows:

December 31, 2022
Millions of euros	Non-current	Current	Total
Loans	33,396	9,381	42,777
Trade payables to Group companies and associates	7	122	129
Derivatives (Note 16)	—	21	21
Tax Group payables to subsidiaries	2	426	428
Total	33,405	9,950	43,355

December 31, 2021
Millions of euros	Non-current	Current	Total
Loans	35,115	7,947	43,062
Trade payables to Group companies and associates	2	125	127
Derivatives (Note 16)	—	2	2
Tax Group payables to subsidiaries	24	290	314
Total	35,141	8,364	43,505

The maturity of these loans at the 2022 and 2021 year

ends is as follows (figures in millions of euros):

December 31, 2022
Company	2023	2024	2025	2026	2027	2028 and subsequent years	Final balance, current and non-current
Telefónica Emisiones, S.A.U.	1,625	999	2,009	1,840	3,636	16,359	26,468
Telefónica Europe, B.V.	1,466	999	1,297	997	996	4,264	10,019
Telfisa Global, B.V.	6,290	—	—	—	—	—	6,290
Total	9,381	1,998	3,306	2,837	4,632	20,623	42,777

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	43

December 31, 2021
Company	2022	2023	2024	2025	2026	2027 and subsequent years	Final balance, current and non-current
Telefónica Emisiones, S.A.U.	3,162	1,295	999	2,017	1,261	20,083	28,817
Telefónica Europe, B.V.	1,205	1,497	998	1,296	996	4,508	10,499
Telfisa Global, B.V.	3,580	—	—	—	—	—	3,580
Telefónica de Argentina, S.A.	—	—	—	—	159	—	159
Other companies	—	—	—	—	—	7	7
Total	7,947	2,792	1,997	3,313	2,416	24,598	43,062

Financing raised by Telefónica, S.A. through its subsidiary

Telefónica Europe, B.V. at December 31, 2022 amounting

10,019 million euros (10,499 million euros in 2021). This

financing entails a number of loans paying market interest

rates calculated on a Euribor plus spread basis, with

average interest rates at December 31, 2021 of 4.11%

(3.64% in 2021). The main source of this financing was the

funds obtained through the issuance of undated deeply

subordinated reset rate guaranteed securities amounting

to 7,564 million euros (7,443 million euros in 2021), bonds

and debentures amounting to 1,689 million euros (1,557

million euros in 2021) and commercial paper amounting to

500 million euros (999 million euros in 2021).

Financing raised by Telefónica, S.A. through Telefónica

Emisiones, S.A.U. at December 31, 2022 was 26,468

million euros (28,817 million euros in 2021). This financing

is arranged as loans between these companies on the

similar terms and conditions as those of the notes issued

under the debt issuance programs of Telefónica

Emisiones, S.A.U. The average interest rate in 2022 was

3.23% (3.40% in 2021). The financing arranged includes,

as a related cost, the fees or premiums taken to the

income statement for the period corresponding to the

financing based on the corresponding effective interest

rates. Telefónica Emisiones, S.A.U. raised financing in

2022 by tapping the European capital markets, issuing

bonds totaling 1,100 million euros (in 2021 there has not

been bonds issuances).

Part of the amount owed by Telefónica, S.A. to Telefónica

Emisiones, S.A.U. and to Telefónica Europe, B.V. includes

adjustments to amortized cost at December 31, 2022 and

2021 as a result of fair value interest rate and exchange

rate hedges.

Telfisa Global, B.V. centralizes and handles cash

management and flows for the Telefónica Group in Latin

America, the United States, Europe and Spain. The

balance payable to this subsidiary is formalized through

several deposit agreements accruing interest at market

rates and amounting to 6,290 million euros in 2022 (3,580

million euros in 2021).

In 2021 disclosure chart it is shown a loan granted in

September 2021 by Telefónica de Argentina, S.A.

amounting to 180 million US dollars (equivalent to 159

million euros at year end exchange rates), maturity date

in 2026 and a variable interest rate referred to Libor. The

loan has been repaid prior to its maturity during 2022, as

detailed in note 21.

15.2 Tax liabilities

The balance of “Payable to subsidiaries due to taxation on

a consolidated basis” was 428 and 314 million euros at

December 31, 2022 and 2021, respectively. This basically

includes payables to Group companies for their

contribution of taxable income (tax loss carryforwards) to

the tax group headed by Telefónica, S.A. (see note 17).

The current or non-current classification is based on the

Company’s projection of maturities.

The most significant balances in 2022 correspond to

Telefónica Latinoamérica Holding, S.L.. amounting to 370

million euros, Telefónica Hispanoamérica, S.A. amounting

to 24 million euros and Telefónica Digital España, S.L.

amounting 8 million euros.

The most significant balances in 2021 corresponded to

Telefónica de España, S.A.U. amounting to 110 million

euros, Telefónica Móviles de España, S.A.U. amounting to

40 million euros, Telefónica Latinoamérica Holding, S.L.

amounting to 52 million euros, Telefónica

Hispanoamérica, S.A. amounting to 36 million euros and

Telefónica Digital España, S.L.U. amounting 21 million

euros.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	44

Note 16. Derivative financial

instruments and risk

management policies

a) Derivative financial instruments

During 2022, the Group continued to use derivatives to

limit interest and exchange rate risk on otherwise

unhedged positions, and to adapt its debt structure to

market conditions.

At December 31, 2022, the total outstanding balance of

derivatives transactions was 64,079 million euros (64,658

million euros in 2021), of which 42,040 million euros

related to interest rate risk and 22,039 million euros to

foreign currency risk. In 2021, 38,248 million euros related

to interest rate risk and 26,410 million euros to foreign

currency risk.

This figure is inflated by the use, in some cases, of several

levels of derivatives applied to the nominal value of a

single underlying liability. For example, a foreign currency

loan can be hedged into floating rate, and then each

interest rate period can be fixed using a fixed rate hedge,

or FRA (forward rate agreement). The high volume is also

due to the fact that when a derivative transaction is

cancelled, the Company may either cancel the derivative

or take the opposite position, which cancels out the

variability thereof. The second option is usually chosen in

order to cut costs. Even using such techniques to reduce

the position, it is still necessary to take extreme care in

the use of derivatives to avoid potential problems arising

through error or a failure to understand the real position

and its associated risks.

It should be noted that at December 31, 2022, Telefónica,

S.A. had transactions with financial institutions to hedge

exchange rate risk for other Telefónica Group companies

amounting to 631 million euros (501 million euros in 2021).

At year-end 2022 and 2021, the Company had no

transactions to hedge interest rate risk for other Group

companies. These external trades are matched by

intragroup hedges with identical terms and maturities

between Telefónica, S.A. and Group companies, and

therefore involve no risk for the Company. External

derivatives not backed by identical intragroup

transactions consist of hedges on net investment and

future acquisitions that, by their nature, cannot be

transferred to Group companies and/or transactions to

hedge financing raised by Telefónica, S.A. as parent

company of the Telefónica Group, which are transferred

to Group subsidiaries in the form of financing rather than

via derivative transactions.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	45

The breakdown of Telefónica, S.A.’s interest rate and

exchange rate derivatives at December 31, 2022, their

notional amounts at year end and the expected maturity

schedule is as follows:

2022
Millions of euros		Telefónica receives			Telefónica pays
Type of risk	Value in Euros	Carrying	Currency		Carrying	Currency
Euro interest rate swaps	25,792
Fixed to floating	14,439	14,439	EUR		14,439	EUR
Floating to fixed	11,353	11,353	EUR		11,353	EUR
Foreign currency interest rate swaps	16,248
Fixed to floating
GBPGBP	451	400	GBP		400	GBP
USDUSD	14,935	15,943	USD		15,943	USD
Floating to fixed
USDUSD	862	920	USD		920	USD
Exchange rate swaps	16,908
Fixed to fixed
EURUSD	2,185	2,185	EUR		2,333	USD
GBPEUR	582	500	GBP		582	EUR
Fixed to floating
JPYEUR	95	15,000	JPY		95	EUR
Floating to floating
EURUSD	703	703	EUR		750	USD
GBPEUR	448	400	GBP		448	EUR
USDEUR	12,895	14,403	USD		12,895	EUR
Forwards	5,131
BRLEUR	209	1,143	BRL		209	EUR
EURPEN	30	30	EUR		122	PEN
CZKEUR	85	2,095	CZK		85	EUR
EURBRL	2,567	2,567	EUR		14,296	BRL
EURCLP	57	57	EUR		52,274	CLP
EURGBP	796	796	EUR		706	GBP
EURMXN	1	1	EUR		30	MXN
EURUSD	750	750	EUR		801	USD
GBPEUR	25	21	GBP		25	EUR
USDBRL	20	21	USD		113	BRL
USDCLP	7	6	USD		6,054	CLP
USDCOP	2	2	USD		11,543	COP
USDEUR	571	609	USD		571	EUR
USDPEN	3	3	USD		11	PEN
CLPUSD	1	1,404	CLP		1	USD
BRLUSD	7	43	BRL		8	USD
TOTAL	64,079

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	46

The breakdown by average maturity is as follows:

Millions of euros
Hedged underlying item	Notional	Up to 1 year	From 1 to 3 years	From 3 to 5 years	Over 5 years
Pension Plans	7,008	754	2,073	2,262	1,919
Loans	2,174	1,004	1,057	18	95
In national currency	1,575	775	800	—	—
In foreign currencies	599	229	257	18	95
Debentures and bonds MtM	44,352	4,866	489	12,705	26,292
In national currency	6,500	2,200	125	100	4,075
In foreign currencies	37,852	2,666	364	12,605	22,217
Other underlying (*)	10,545	8,226	319	—	2,000
CCS	2,185	2,185	—	—	—
Forward	5,132	5,132	—	—	—
IRS	3,228	909	319	—	2,000
Total	64,079	14,850	3,938	14,985	30,306

(*) Most of these transactions are related to economic hedges of investments, assets and liabilities of subsidiaries.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	47

The breakdown of Telefónica, S.A.'s derivatives in 2021,

their notional amounts at year end and the expected

maturity schedule is as follows:

2021
Millions of euros		Telefónica receives			Telefónica pays
Type of risk	Value in Euros	Carrying	Currency		Carrying	Currency
Euro interest rate swaps	22,265
Fixed to fixed	75	75	EUR		75	EUR
Fixed to floating	11,250	11,250	EUR		11,250	EUR
Floating to fixed	10,940	10,940	EUR		10,940	EUR
Foreign currency interest rate swaps	15,983
Fixed to floating
GBPGBP	476	400	GBP		400	GBP
USDUSD	14,695	16,644	USD		16,644	USD
Floating to fixed
USDUSD	812	920	USD		920	USD
Exchange rate swaps	16,831
Fixed to fixed
EURBRL	46	46	EUR		288	BRL
EURUSD	2,943	2,943	EUR		3,333	USD
GBPEUR	757	650	GBP		757	EUR
MXNUDI	359	5,322	MXN		1,170	UDI
UDIMXN	230	1,170	UDI		5,322	MXN
Fixed to floating
JPYEUR	95	15,000	JPY		95	EUR
Floating to floating
CHFEUR	662	662	EUR		750	USD
GBPEUR	448	400	GBP		448	EUR
USDEUR	11,291	12,734	USD		11,291	EUR
Forwards	9,579
BRLEUR	94	628	BRL		94	EUR
CHFEUR	144	150	CHF		144	EUR
CLPEUR	1	536	CLP		1	EUR
CZKEUR	66	1,708	CZK		66	EUR
EURBRL	5,153	5,153	EUR		32,573	BRL
EURCLP	55	55	EUR		52,750	CLP
EURGBP	1,939	1,939	EUR		1,629	GBP
EURMXN	1	1	EUR		15	MXN
EURUSD	855	855	EUR		969	USD
GBPEUR	597	510	GBP		597	EUR
USDBRL	12	13	USD		77	BRL
USDCLP	4	4	USD		3,579	CLP
USDCOP	1	1	USD		4,058	COP
USDEUR	654	743	USD		654	EUR
USDGBP	1	1	USD		1	GBP
USDPEN	2	2	USD		9	PEN
Subtotal	64,658

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	48

The breakdown by average maturity is as follows:

Millions of euros
Hedged underlying item	Notional	Up to 1 year	From 1 to 3 years	From 3 to 5 years	Over 5 years
Pension plans	5,357	758	1,507	2,177	915
Loans	3,478	1,168	2,105	110	95
In national currency	2,500	775	1,725	—	—
In foreign currencies	978	393	380	110	95
Debentures and bonds MtM	40,420	492	4,845	5,188	29,895
In national currency	5,217	317	2,200	725	1,975
In foreign currencies	35,203	175	2,645	4,463	27,920
Other underlying (*)	15,403	13,383	1,637	136	247
CCS	3,575	2,762	430	136	247
Forward	9,581	9,581	—	—	—
IRS	2,247	1,040	1,207	—	—
Total	64,658	15,801	10,094	7,611	31,152

(*) Most of these transactions are related to economic hedges of investments, assets and liabilities of subsidiaries.

The debentures and bonds hedged relate to both those

issued by Telefónica, S.A. and intragroup loans on the

same terms as the issues of Telefónica Europe, B.V. and

Telefónica Emisiones, S.A.U.

b) Risk management policy

Telefónica, S.A. is exposed to various financial market

risks as a result of: (i) its ordinary business activity, (ii) debt

incurred to finance its business, (iii) its investments in

companies, and (iv) other financial instruments related to

the above commitments.

The main market risks affecting Telefónica are as follows:

Exchange rate risk

Foreign currency risk primarily arises in connection with:

(i) Telefónica’s international presence, through its

investments and businesses in countries that use

currencies other than euro (primarily in Latin America and

in the United Kingdom), and (ii) debt denominated in

currencies other than that of the country where the

business is conducted or the home country of the

company incurring such debt and (iii) due to those

accounts payable or receivable referred to the entity that

has registered the transaction.

Interest rate risk

Interest rate risk arises primarily in connection with

changes in interest rates affecting (i) financial expenses

on floating rate debt (or short-term debt likely to be

renewed), (ii) the value of non-current liabilities at fixed

interest rates and (iii) financial expenses and principal

payments of inflation-linked financial instruments,

considering interest rate risk as the impact of changes in

inflation rates.

Share price risk

Share price risk arises primarily from changes in the value

of the equity investments (that may be bought, sold or

otherwise involved in transactions), from changes in the

value of derivatives associated with such investments,

from changes in the value of treasury shares and from

derivatives on treasury shares.

Other risks

Telefónica, S.A. is also exposed to liquidity risk if a

mismatch arises between its financing needs (operating

and financial expense, investment, debt redemptions and

dividend commitments) and its sources of finance

(revenues, divestments, credit lines from financial

institutions and capital market operations). The cost of

finance could also be affected by changes in the credit

spreads (over benchmark rates) demanded by lenders.

Credit risk appears when a counterparty fails to meet or

delays its payment obligations in accordance with the

agreed terms, driving an impairment in an asset due to: (i)

solvency issues, or (ii) no intention to pay.

Finally, Telefónica is exposed to country risk (which

overlaps with market and liquidity risks). This refers to the

possible decline in the value of assets, cash flows

generated, or cash flows returned to the parent company

as a result of political, economic or social instability in the

countries where Telefónica, S.A. operates, especially in

Latin America.

Risk management

Telefónica, S.A. actively manages these risks through the

use of derivatives (primarily on exchange rates, interest

rates, credit  and share prices) and by incurring debt in

local currencies, where appropriate, with a view to

optimize the financial cost and to stabilizing cash flows,

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	49

the income statement and investments. In this way,

Telefónica attempts to protect its solvency, facilitate

financial planning and take advantage of investment

opportunities.

Telefónica manages its exchange rate risk and interest

rate risk in terms of net debt and net financial debt

internally calculated. Telefónica believes that these

parameters are more appropriate to understand its debt

position. Net debt and net financial debt take into

account the impact of the Group’s cash and cash

equivalents balances including derivative positions with a

positive value linked to liabilities. Neither net debt nor net

financial debt as calculated by Telefónica should be

considered an alternative to gross financial debt (the sum

of current and non-current interest-bearing debt).

Exchange rate risk

The fundamental objective of the exchange rate risk

management policy is that, in case of depreciation in

foreign currencies relative to the euro, any potential

losses is hedged in the value of the business investment

in foreign currency. The degree of exchange rate hedging

employed varies depending on the type of investment.

For transactions of purchase or sale of a business in

currencies other than euro, additional hedges can be

made based on the estimate prices of the transactions or

on estimated cash flows.

Telefónica occasionally takes out dollar-denominated

debt to hedge the euro-dollar intermediate component in

the relation euro-Latin American currencies, either in

Spain (where such debt is associated with an investment

as long as it is considered to be an effective hedge) or in

the country itself, where the market for local currency

financing or hedges may be inadequate or non-existent.

At December 31, 2022, net financial debt in pounds

sterling was equivalent to 597 million euros (374 million

euros at December 31, 2021). The synthetic debt target

denominated in pounds sterling will be directly related to

the flows that are expected to be repatriated from VMED

O2 UK.

Telefónica also manages its exchange rate risk seeking to

significantly reduce the negative impact of any currency

exposure on the income statement, both from

transactions recognized on the balance sheet and those

classified as highly probable, regardless of whether or not

open positions are held. Such open position exposure can

arise for any of three reasons: (i) a thin market for local

derivatives or difficulty in obtaining funding in the local

currency, making it impossible to arrange a low-cost

hedge (as in Argentina and Venezuela); (ii) financing

through intra-group loans, where the accounting

treatment of exchange rate risk is different from that for

funding through capital contributions, and (iii) as the

result of a deliberate policy decision, to avoid the high

cost of hedges that are not warranted by expectations or

high depreciation risks.

The main transactions that generate or may generate

exchange rate risk (regardless of whether or not they

have an impact on the income statement) are, among

others: bond issuances in currencies other than the euro,

which is Telefónica, S.A.'s functional currency, highly

probable transactions in other currencies, future cash

inflows in other currencies, investments and divestments,

provisions for collections or payments and collections in

foreign currency, the actual value of the investments

(subsidiaries) in currencies other than the euro.

Interest rate risk

Telefónica´s financial expenses are exposed to changes

in interest rates. In 2022 the Euro, Brazilian Real, British

Pound and the US dollar were the short term rates that

accounted for most of the exposure. Telefónica manages

its interest rate risk by entering into derivative financial

instruments, primarily swaps and interest rate options.

Telefónica analyzes its exposure to changes in interest

rates at the Telefónica Group level. The table illustrates

the sensitivity of finance costs and the balance sheet to

variability in interest rates at Group and Telefónica, S.A.

level.

	Impact on        Consolidated P/L	Impact on Telefónica, S.A. P/L	Impact on Consolidated Equity	Impact on Telefónica, S.A.  Equity
+100bp	(34)	(18)	61	(107)
-100bp	34	18	(61)	107

To calculate the sensitivity of the income statement, a

100 basis point rise in interest rates in all currencies in

which there are financial positions at December 31, 2022

has been assumed, as well as a 100 basis point decrease

in all currencies in order to avoid negative rates.           

The constant position equivalent to that prevailing at the

end of the year has also been assumed.

To calculate the sensitivity of equity to variability in

interest rates, a 100 basis point increase in interest rates

in all currencies and terms in which there are financial

positions at December 31, 2022 was assumed, as well as a

100 basis point decrease in all currencies and terms.

Cash flow hedge positions were also considered as they

are the only positions where changes in market value due

to interest-rate fluctuations are recognized in equity.

In both cases, only transactions with external

counterparties have been considered.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	50

Share price risk

The Telefónica Group is exposed to changes in the value

of equity investments, of derivatives associated with such

investments, of share-based payments plans, of treasury

shares and of equity derivatives over treasury shares.

According to the share-based payments plans (see note

19) the shares to be delivered to employees under such

plan may be either the parent company treasury shares,

acquired by Telefónica or any of its Group companies; or

newly-issued shares. The possibility of delivering shares

to beneficiaries of the plan in the future implies a risk

since there could be an obligation to hand over the

maximum number of shares granted at the end of each

cycle, whose acquisition (in the event of acquisition in the

market) in the future could imply a higher cash outflow

than required on the start date of each cycle if the share

price at the vesting date is above the price at the start of

the cycle. In the event that new shares are issued for

delivery to the beneficiaries of the plan, there would be a

dilutive effect for ordinary shareholders of Telefónica as a

result of the higher number of shares delivered under

such plan outstanding.

In 2018, the General Shareholder’s Meeting approved a

long-term incentive plan consisting of the delivery of

shares of Telefónica, S.A. allocated to executives and

managers of the Telefónica Group. In 2021, the General

Shareholder’s Meeting approved a new long-term

incentive plan consisting of the delivery of shares of

Telefónica, S.A. allocated to executives and managers of

the Telefónica Group.

Additionally, the 2022 Shareholder’s Meeting approved a

share plan for the incentivized purchase of shares for

employees of the Telefónica Group, which was

implemented in June 2022. The characteristics of these

three plans are described in note 19.

To reduce the risk associated with variations in share

price under these plans, Telefónica could acquire

instruments that hedge the risk profile of some of these

plans.

In addition, part of the treasury shares of Telefónica, S.A.

held at December 31, 2022 might be used to hedge the

shares deliverable under the new plans. The fair value of

the treasury shares at liquidation moment could increase

or decrease depending on the variations in Telefónica,

S.A.’s share quotation.

Liquidity risk

Telefónica seeks to match the schedule for its debt

maturity payments to its capacity to generate cash flows

to meet these maturities, while allowing for some

flexibility. In practice, this has been translated into two

key principles:

1.Telefónica’s average maturity of net financial debt is

intended to stay above 6 years, or be restored above

that threshold in a reasonable period of time if it

eventually falls below it. This principle is considered as

a guideline when managing debt and access to credit

markets, but not a rigid requirement. When

calculating the average maturity for the net financial

debt and part of the undrawn credit lines can be

considered as offsetting the shorter debt maturities,

and extension options on some financing facilities

may be considered as exercised, for calculation

purposes.

2.Telefónica must be able to pay all commitments over

the next 12 months without accessing new borrowing

or tapping the capital markets (drawing upon firm

credit lines arranged with banks), assuming budget

projections are met.

Country risk

Telefónica  managed or mitigated country risk by

pursuing two lines of action (in addition to its normal

business practices):

1.Partly matching assets to liabilities (those not

guaranteed by the parent company) in the Latin

American companies so that any potential asset

impairment would be accompanied by a reduction in

liabilities; and,

2.Repatriating funds generated in Latin America that are

not required for the pursuit of new, profitable business

development opportunities in the region.

Credit risk

The Telefónica Group trades in derivatives with

creditworthy counterparties. Therefore, Telefónica, S.A.

generally trades with credit entities whose “senior debt”

ratings are of at least “A-” or in case of Spanish entities in

line with the credit rating of the Kingdom of Spain. In

Spain, where most of the Group’s derivatives portfolio is

held, there are netting agreements with financial

institutions, with debtor or creditor positions offset in

case of bankruptcy, limiting the risk to the net position. In

addition, the CDS (Credit Default Swap) of all the

counterparties with which Telefónica, S.A. operates is

monitored at all times in order to assess the maximum

allowable CDS for operating at any given time.

Transactions are generally only carried out with

counterparties whose CDS is below the threshold.

CVA or net Credit Valuation Adjustment (CVA+DVA) by is

the method used to measure credit risk for both

counterparties and Telefónica in order to determine the

fair value of the derivatives portfolio. This adjustment

reflects the probability of default or the deterioration of

the credit quality of both Telefónica and its

counterparties. The simplified formula to calculate CVA =

(Expected Exposure) x (Probability of Default) x (Loss

Given Default), in case of default or loss given default. In

order to calculate these variables standard market

practices are used.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	51

When managing credit risk, Telefónica considers the use

of CDS, novations, derivatives with break clauses and

signing CSAs under certain conditions.

For other subsidiaries, particularly those in Latin America,

assuming a stable sovereign rating provides a ceiling

which is below “A”, trades are with local financial entities

whose rating by local standards is considered to be of

high creditworthiness.

Meanwhile, with credit risk arising from cash and cash

equivalents, the Telefónica Group places its cash

surpluses in high quality money-market assets. These

placements are regulated by a general framework,

revised annually. Counterparties are chosen according to

criteria of liquidity, solvency and diversification based on

the conditions of the market and countries where the

Group operates. The general framework sets: the

maximum amounts to be invested by counterparty based

on its rating (long-term debt rating); and the instruments

in which the surpluses may be invested (money-market

instruments).

Formal delegation of authority procedures and

management practices are implemented in the different

Group companies, taking into account benchmark risk

management techniques but adapted to the local

characteristics of each market. Commercial debtors that

may cause a relevant impact on the Telefónica Group

consolidated financial statements and increased risk

profile products - due to customer target, term, channels

or other commercial characteristics - are subject to

specific management practices in order to mitigate the

exposure to credit risk.

This customer credit risk management model is

embedded in the day-to-day operational processes of the

different companies, where the credit risk assessment

guides both the product and services available for the

different customers and the collection strategy.

Telefónica’s maximum exposure to credit risk is initially

represented by the carrying amounts of the assets (see

notes 8 and 9) and the guarantees given by Telefónica

(See note 20).

Capital management

Telefónica’s corporate finance department takes into

consideration several factors for the evaluation of the

capital structure of the Company, with the aim of

maintaining the solvency and creating value to the

shareholders.

The corporate finance department estimates the cost of

capital on a continuous basis through the monitoring of

the financial markets and the application of standard

industry approaches for calculating weighted average

cost of capital, or WACC, so that it can be applied in the

valuation of businesses in course and in the evaluation of

investment projects. Telefónica also uses as reference a

certain level of net financial debt (excluding items of a

non-recurring or exceptional nature) that allows a

comfortable investment grade credit rating as assigned

by credit rating agencies, aiming at protecting credit

solvency and making it compatible with alternative uses

of cash flow that could arise at any time.

These general principles are refined by other

considerations and the application of specific variables,

such as country risk in the broadest sense, or the volatility

in cash flow generation that are considered, when

evaluating the financial structure of the Telefónica Group

and its different areas.

Derivatives Policy

Telefónica’s derivatives policy emphasizes the following

points:

•Derivatives based on a clearly identified underlying.

•Matching of the underlying to one side of the

derivative.

•Matching the company contracting the derivative and

the company that owns the underlying.

•Ability to measure the derivative’s fair value using the

valuation systems available to the Telefónica Group.

•Sale of options only when there is an underlying

exposure.

Hedge accounting

Hedges can be of three types:

•Fair value hedges.

•Cash flow hedges. Such hedges can be set at any value

of the risk to be hedged (interest rates, exchange rates,

etc.) or for a defined range (interest rates between 2%

and 4%, above 4%, etc.). In this last case, the hedging

instruments used are options and only the intrinsic

value of the option is recognized as an effective hedge.

The changes in the temporal value of the option are

registered in the income statements.

•Net investment hedges in consolidated foreign

subsidiaries. Generally, such hedges are arranged by

the parent company. Wherever possible, these hedges

are implemented through real debt in foreign currency.

However, this is not always possible as many Latin

American currencies are non-convertible, making it

impossible for non-resident companies to issue local

currency debt. It might also occur that the local debt

market is not deep enough to accommodate the

required hedge, or that an acquisition is made in cash

with no need for market financing. In these

circumstances, derivatives, either forwards or cross-

currency swaps, are mainly used to hedge the net

investment.

Hedges can comprise a combination of different

derivatives.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	52

There is no reason to suppose management of

accounting hedges will be static, with an unchanging

hedging relationship lasting right through maturity.

Hedging relationships may change to allow appropriate

management that serves our stated principles of

stabilizing cash flows, stabilizing net financial income/

expense and protecting our equity. The designation of

hedges may therefore be cancelled, before maturity,

because of a change in the underlying, a change in the

perceived risk on the underlying or a change in market

view. The hedges must meet the effectiveness test and

be well documented. To gauge the efficiency of

transactions defined as accounting hedges, Telefónica

analyzes the extent to which the changes in the fair value

or in the cash flows attributable to the hedging

instrument would offset the changes in fair value or cash

flows attributable to the hedged risk using a linear

regression model for both forward- and backward-

looking analysis.

The possible sources of ineffectiveness that might arise

when designing a hedging relationship and that will be

considered when establishing the hedging rationale are:

•The hedging instrument and the hedged item have

different maturity dates, initial dates, contract dates,

repricing dates, etc.

•The hedging instrument starts with initial value and a

financing effect is produced.

•When the underlying items have different sensitivity

and are not homogeneous, for example EURIBOR 3M

versus EURIBOR 6M.

The main guiding principles for risk management are laid

down by Telefónica’s finance department (who are

responsible for balancing the interests of the companies

in a standalone basis and those of the Telefónica Group).

The Corporate finance department may allow exceptions

to this policy where these can be justified, normally when

the market is too thin for the volume of transactions

required or on clearly limited and small risks. 

In 2022 the Company recognized a loss of 0.3 million

euros for the ineffective part of cash flow hedges (a loss

of 33 million euros in 2021).

The fair value of Telefónica, S.A. ´s derivatives with third

parties amounted to a positive MtM (accounts

receivable) of 985 million euros in 2022 (1.266 million

euros in 2021).

The fair value of Telefónica, S.A.´s intragroup derivatives

amounted to a negative MtM (accounts payable) of 16

million euros in 2022 (positive MtM of 7 million euros in

2021).

The breakdown of the Company’s derivatives with third

party counterparties at December 31, 2022 and 2021 by

type of hedge, their fair value at year end and the

expected maturity schedule of the notional amounts is as

follows:

2022
Millions of euros		Notional amount maturities (*)
Derivatives	Fair value (**)	2023	2024	2025	Subsequent years	Total
Interest rate hedges	(94)	(800)	—	(302)	(5,360)	(6,462)
Cash flow hedges	(17)	—	—	(177)	177	—
Fair value hedges	(77)	(800)	—	(125)	(5,537)	(6,462)
Exchange rate hedges	(972)	(78)	—	—	6,438	6,360
Cash flow hedges	(966)	—	—	—	6,438	6,438
Fair value hedges	(6)	(78)	—	—	—	(78)
Interest and exchange rate hedges	(2)	110	80	46	760	996
Cash flow hedges	(2)	110	80	46	760	996
Net investment Hedges	(18)	(2,474)	—	—	—	(2,474)
Other derivatives	101	(2,624)	(479)	(348)	(49)	(3,500)
Interest rate	174	(1,539)	(688)	(348)	(2,435)	(5,010)
Exchange rate	(244)	(1,792)	—	—	2,386	594
Other	171	707	209	—	—	916

(*) For interest rate hedges, the positive amount is in terms of fixed “payment.” For foreign currency hedges, a positive amount means payment in functional

versus foreign currency.

(**) Positive amounts indicate payables.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	53

2021
Millions of euros		Notional amount maturities (*)
Derivatives	Fair value (**)	2022	2023	2024	Subsequent years	Total
Interest rate hedges	(1,083)	67	(800)	—	(2,818)	(3,551)
Cash flow hedges	5	67	—	—	—	67
Fair value hedges	(1,088)	—	(800)	—	(2,818)	(3,618)
Exchange rate hedges	(65)	175	—	—	6,438	6,613
Cash flow hedges	(65)	175	—	—	6,438	6,613
Interest and exchange rate hedges	(133)	189	110	80	806	1,185
Cash flow hedges	(133)	189	110	80	806	1,185
Net investment Hedges	98	(5,104)	—	—	—	(5,104)
Other derivatives	(83)	(2,238)	(1,187)	(303)	1,321	(2,407)
Interest rate	(154)	(963)	(1,283)	(303)	(1,065)	(3,614)
Exchange rate	(9)	(1,724)	(370)	—	2,386	292
Other	80	449	466	—	—	915

(*) For interest rate hedges, the positive amount is in terms of fixed “payment.” For foreign currency hedges, a positive amount means payment in functional

versus foreign currency.

(**) Positive amounts indicate payables.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	54

Note 17. Income tax

Pursuant to a Ministerial Order dated December 27, 1989,

Telefónica, S.A. has filed consolidated tax returns with

certain Group companies. The consolidated tax group in

2022 and 2021 comprised 47 and 45 companies,

respectively.

This tax consolidation regime applies indefinitely

providing the companies continue to meet the

requirements set down in prevailing legislation, and that

application of the regime is not expressly waived.

Tax balances as of December 31, 2022 and 2021 are as

follows:

Millions of euros	2022	2021
Tax receivables:	728	1,147
Deferred tax assets:	423	1,009
Deferred income tax (income)	118	155
Long-term tax credits for loss carryforwards	38	580
Unused tax deductions	267	274
Current tax receivables (Note 10):	305	138
Withholdings	9	19
Corporate income tax receivable	292	113
VAT and Canary Islands general indirect tax refundable	4	6
Tax payable:	347	142
Deferred tax liabilities:	189	91
Current payables to public administrations (Note 18):	158	51
Personnel income tax withholdings	5	5
Withholding on investment income, VAT and other	151	44
Social security	2	2

Telefónica S.A., considers that unused tax loss

carryforwards in Spain, taking into account tax litigation in

which the Group is involved, amount to 2,003 million

euros at December 31, 2022.

Dec 31 2022	Total carry- forwards	Less than 1 year	More than 1 year	Total recognized
Tax Group tax credits for loss carryforwards	1,755	—	1,755	153
Prior to Tax Group loss carryforwards (*)	248	—	248	—

(*) Unused tax credits for loss carryforwards

Total tax credits based on the taxable income recognized

in the balance sheet at December 31, 2022 amounts to 38

million euros (580 million euros in 2021).

During 2022, Telefónica, S.A., as head of the Telefónica

tax group, made payments on account of income tax

amounting to 289 million euros (71 million euros in 2021).

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	55

17.1 Movement in deferred tax assets

and liabilities

The balances and movements in deferred tax assets and

liabilities for Telefónica, S.A. at December 31, 2022 and

2021 are as follows:

2022
Millions of euros	Tax credits	Temporary differences, assets	Deductions	Total deferred tax assets	Deferred tax liabilities
Opening balance	580	155	274	1,009	91
Additions	58	14	253	325	250
Disposals	(600)	(51)	(286)	(937)	(152)
Transfers to the tax group’s net position	—	—	26	26
Closing balance	38	118	267	423	189

2021
Millions of euros	Tax credits	Temporary differences, assets	Deductions	Total deferred tax assets	Deferred tax liabilities
Opening balance	869	371	875	2,115	151
Additions	—	53	—	53	—
Disposals	(289)	(269)	(626)	(1,184)	(15)
Transfers to the tax group’s net position	—	—	25	25	(45)
Closing balance	580	155	274	1,009	91

The company assesses the recoverability of deferred tax

assets based on the future activities carried out by the

different companies that conform the Tax Group, on the

Spanish tax regulation and on the strategic decisions

affecting the companies. At December 31, 2022 the

estimate of the recoverability of deferred tax assets has

been assessed taking into account, (i) the estimated Tax

Group companies result, (ii) the  regulatory changes

(mainly the entry into force of Law 38/2022 setting a limit

to the compensation of loss within subsidiaries within

Consolidated Tax Groups).

Following this analysis, in 2022 a reversal of deferred tax

assets for loss carryforwards and deductions amounting

to 203 million euros has been recorded with a balancing

entry in income tax (410 million euros of loss

carryforwards and activation of 207 million euros of

deductions in 2021).

Moreover, in 2021 a long term tax provisions (see note 18)

and the related deferred tax assets were reversed by 143

million euros after the state aid recuperation procedure

corresponding to the tax deductibility of financial

goodwill from 2005 to 2018 (see 17.3 Tax deductibility of

financial goodwill in Spain).

The arising of "deferred tax liabilities" in 2022 is mainly

due to the accounting of the tax effect in the valuation of

financial derivative instruments with changes through

equity amounting to 250 million euros. This concept in

2021 was a reversal of 255 million euros of temporary

differences, assets.

In 2021 the recoverability analysis of deferred tax assets

of the Group in Spain was concluded with a reversal of

106 million euros of deferred tax assets for loss

carryforwards and deductions amounting to 273 million

euros

With respect to the execution of the ruling filed by the

Spanish Audiencia Nacional on October 29, 2021; as

detailed in section 17.3, it is shown in 2022 chart of

movements a reversal of 512 million euros of deferred tax

assets for loss carryforwards and a reversal of 269 million

euros of  deductions.

Moreover, an addition of 58 million euros of tax assets for

loss carryforwards and a reversal of 16 million euros of tax

credits from deductions has been recorded with a

balancing entry in income tax in the income statement.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	56

17.2 Reconciliation of accounting

profit (loss) to taxable income and

income tax expense to income tax

payable

The calculation of the income tax expense and income

tax payable for 2022 and 2021 is as follows.

Millions of euros	2022	2021
Accounting profit (loss) before tax	(1,541)	248
Permanent differences	(1,853)	(1,816)
Temporary differences:	(37)	2
Arising in the year	28	57
Arising in prior years	(65)	(55)
Tax result	(3,431)	(1,566)
Gross tax payable	(858)	(391)
Corporate income tax refundable	(858)	(391)
Activation/Reversal of loss carryforwards and/or deductions	137	381
Temporary differences for tax valuation	9	(1)
Other effects	30	29
Corporate income tax accrued in Spain	(682)	18
Foreign taxes	21	24
Income tax	(661)	42
Current income tax	(761)	(853)
Deferred income tax	100	895

The permanent differences mainly correspond to the

impairment of the investments in Group companies, to

the non-taxable dividends received, to the last corporate

simplification carried out in Brazil due to the approval in

2021 of a new Telecommunications Law (Law 14.195 of 26

August 2021), the consequent repeal of Decree

2.617/1998, which abolishes the obligation to control a

telecommunications company through a Brazilian

company (see note 8) and to the financial goodwill.

The heading "Activation/reversion of loss carryforwards

and/or deductions" mainly includes the activations of

deductions by 207 million euros (293 million euros in

2021) and the reversal of loss carryforwards by 410 million

euros in 2022 (108 million euros in 2021).

The caption “Other effects” mainly includes the impact

arising from the provision made in relation to the tax

deductibility of the financial goodwill.

17.3 Tax inspections and tax-related

lawsuits

In July 2019, new inspection proceedings were initiated

with respect to several of the companies belonging to tax

group 24/90, of which Telefónica, S.A. is the dominant

company. The taxes and period being audited are as

follows: corporate income tax for the years 2014 to 2017

and value added tax, withholding and personnel income

tax, tax returns on real estate and non-resident income

tax returns for the period between June and December of

2015 and from the years 2016 to 2018.

In October 2021, the resolutions were signed with

agreement with respect to the fiscal treatment of

exchange rate differences raised by the assets in

Venezuelan Bolivars and with disagreement with respect

to the non-taxable income of juros since 2015, generating

a loss (Tax Group expense) amounting to 387 million

euros and disposals of deferred tax assets detailed in the

2021 chart of movements in this note. However, there has

not been a significant cash outflow as Group tax credits

have substantially offset the impact.

In January 2022 the tax inspection proceeding was

closed after the reception of the resolution agreement.

The Company filed an appeal against this resolution to

the economic-administrative tax court including the non-

agreed adjustments, mainly corresponding to the "juros

over equity". On December 9, 2022 the Company

received a rejected resolution by the Economic-

Administrative Central court which is being appealed by

the Company to the Contencioso-Administrativo court in

the Spanish Audiencia Nacional.

With respect to the inspection proceedings for the years

2008-2011, in July 2022 a Supreme Court resolution was

notified with the dismissal of the appeal filed by the

Government lawyers against the resolution of the

Spanish Audiencia Nacional dated October 29, 2021,

which validated the liquidation criteria of negative loss

carryforwards and deductions used by Telefónica, S.A. in

the inspections agreements of those years.

On October 24, 2022 an execution agreement filed by the

Spanish Audiencia Nacional ordering a payment to

Telefónica, S.A. amounting to 790 million euros as

notional of the taxes as well as 526 million euros of

interests (note 19.6). Said amounts were collected on

October 28, 2022.

At year-end of 2022, after the closed inspection

proceedings detailed, it was determined that there was

no need to record additional liabilities as a result of any of

the foregoing.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	57

Tax deductibility of financial goodwill in Spain

The tax regulations added article 12.5 to the Spanish

Corporate Income Tax Law, which came into force on

January 1, 2002. The article regulated the deductibility of

tax amortization of financial goodwill (fondo de comercio)

arising from the acquisition of non-Spanish companies,

which could be amortized over 20 years at 5% per

annum.

Following the entry into force of the Laws 9/2011 of

August 19, 2011 and 16/2013 of October 29, 2013, the

amount of goodwill amortization deductible for tax

purposes under article 12.5 for the years 2011 to 2015 was

reduced from 5% to 1%. The effect is temporary because

the 4% not amortized for five years (20% in total) will be

recovered extending the deduction period from the initial

20 years to 25 years.

The Telefónica Group, under this regulation, has been

amortizing for tax purposes the financial goodwill from its

investments, both direct and indirect, in O2, BellSouth

and Colombia Telecom (prior to December 21, 2007) and

Vivo (acquired in 2010). The positive accumulated effect

in the corresponding settlements of corporate income tax

from 2004 to the closing of December 31, 2022, was

2,042 million euros.

In relation to this tax incentive, the European Commission

(EC) has in recent years commenced three proceedings

against the Spanish State as it deems that this tax benefit

could constitute an example of state aid. Although the EC

itself acknowledged in the first decision the validity of the

tax incentive for those investors that invested in

European companies for operations carried out before

December 21, 2007, and before May 21, 2011 for

investments in other countries in the second decision, in

its third decision dated October 15, 2014 it calls into

question the applicability of the principle of legitimate

expectations in the application of the incentive for

indirect acquisitions, whatever the date of acquisition

may have been.

Furthermore, there are also doubts in the Spanish Courts

about the classification of the incentive as a deduction

and if this deduction would remain in the case of a

subsequent transmission.

On October 6, 2021, the Court of Justice of the European

Union concluded that the European Commission

correctly classified the Spanish Tax depreciation scheme

of financial goodwill as state aid and non-compatible with

the internal market for the First and Second decisions.

With regard to the recognition of legitimate expectations

for the First and Second decisions, the Court of Justice of

the European Union confirms its applicability.

The proceedings initiated on the Third Decision, which

was suspended until the resolution of the First and

Second Decisions, has been reactivated on October 2021.

As of the signing of these financial statements, this

Decision is still pending first instance judgement.

Notwithstanding the above, the Tax and Customs Control

Unit of the Spanish Tax Authority (Dependencia de

Control Tributario y Aduanero de la Agencia Tributaria), in

compliance with the obligation set out in the EC Decision

(EU) 2015/314, recovered in March 2019 and February

2021, the amortization of goodwill for the indirect

acquisition of non-resident companies from 2005 to

2015, for the years 2016 to 2018 and it is been informed in

December 2022 the recovery for the years ended 2019 to

2020. The effective recovery of the aid is provisional,

pending the final results of the appeals brought against

the three decisions. The result of the settlement, once

offset by outstanding tax credits (tax losses carryforward

and deductions) resulted in a payment of 12 million euros.

Even when the Company understands that the legitimate

expectations principle in relation to this tax incentive

applies, in relation to tax-amortized goodwill by the

purchase of some companies for which the applicability

of the legitimate expectations principle is questioned,

mainly Vivo, the Group  decided to reverse the recovered

part amounted to 143 million euros and continues

accruing the amount of the goodwill amortized for tax

purposes, totaling 406 million euros as of 31 December

2022 (343 million euros as of 31 December 2021).

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	58

Note 18. Trade, other payables

and provisions

A)  Trade and other payables

The breakdown of “Trade and other payables” is as

follows:

Millions of euros	2022	2021
Suppliers	84	95
Accounts payable to personnel	49	39
Other payables	10	6
Other payables to public administrations (Note 17)	158	51
Total	301	191

Information on deferred payments to third

parties. Third additional provision, “Information

requirement” of Law 15/2010 of July, 5, amended

by Law 28/2022 of September, 28

In accordance with the aforementioned Law, the

following information corresponding to the Company is

disclosed:

	2022	2021
	Number of days	Number of days
Weighted average maturity period	26	36
Ratio of payments	25	38
Ratio of outstanding invoices	34	21
	Millions of euros	Millions of euros
Total Payments	266	275
Outstanding invoices	22	20

Telefónica, S.A. has adapted its internal processes and

payment schedules to the provisions of Law 15/2010

(amended by Law 31/2014) and Royal Decree 4/2013,

amending Law 3/2004, establishing measures against

late payment in commercial transactions. Engagement

conditions with commercial suppliers, as contractually

agreed with them, in 2022 included payment periods with

a maximum of 60 days.

For reasons of efficiency and in line with general practice

in the business, the Company has set payment

schedules, whereby payments are made on set days.

Invoices falling due between two payment days are

settled on the following payment date in the schedule.

Payments to Spanish suppliers in 2022 surpassing the

legal limit were due to circumstances or incidents beyond

the payment policies, mainly the delay in the billing

process (a legal obligation for the supplier), the closing of

agreements with suppliers over the delivery of goods or

the rendering of services, or occasional processing issues.

Additional information required by Law 18/2022,

amending the third additional provision of Law 15/2020 is

disclosed below:

	2022
Monetary volume of invoices paid in a period less than the maximum established in the regulations (millions of euros)	255
Percentage over total payments	96%
Number of invoices paid in a period less than the maximum established in the regulations	8,537
Percentage over the total number of invoices paid	92%

B)  Provisions

In 2022 and 2021 the concepts and amounts under the

provisions caption are the following:

2022
Millions of euros	Non-current	Current	Total
Tax Provisions	406	—	406
Termination plans (Note 19)	81	26	107
Other provisions	114	2	116
Total	601	28	629

2021
Millions of euros	Non-current	Current	Total
Tax Provisions	343	—	343
Termination plans (Note 19)	105	28	133
Other provisions	212	2	214
Total	660	30	690

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	59

Movements in the provisions during 2022 and 2021 are

disclosed below:

Millions of euros	2022	2021
Opening balance:	690	731
Additions	84	132
Amortization and reversals	(148)	(175)
Fair value adjustments and others	3	2
Closing balance:	629	690
Non-current	601	660
Current	28	30

In 2022 and 2021 the caption “Additions” included 62 and

53 million euros, of tax provisions for the article 12.5 of the

Spanish Corporate Tax Law related to the acquisition of

Vivo (see note 17). In 2021, after the recovery of the

amortization of financial goodwill made by Spanish Tax

Authorities detailed in 17.3, the Company has amortized

an amount of 143 million euros of long term tax accrual for

this concept. The amortization is shown as "Amortization

and reversals" in 2021 chart of movements.

In 2019 Telefónica, S.A. launched a new voluntary

termination plan for the employees who met certain

requirements regarding the age of the employee and the

seniority in the Company. The program was implemented

during the first months of 2020.

In 2022 and 2021, the programs launched in 2019 (Plan 5

and Plan 10) with requirements regarding age and

seniority in the Company for active employees have been

carried on. Additional expense of 2 and 25 million euros

has been registered in 2022 and 2021, respectively, to

cover the programs.

In addition, the Company launched in 2021 a new

voluntary, but not universal, termination plan for the

employees who met certain requirements regarding the

age of the employee and the seniority in the Company.

This program has  been implemented during the first

months of 2022 and it amounted to an expense of 11

million euros in 2021 income statement. in 2022 no new

termination plans have been set up.

In 2022 and 2021 amortization of 28 and 20 million euros,

respectively, related to the different programs launched

in previous years have been registered.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	60

Note 19. Revenue and expenses

19.1 Revenue

a) Rendering of services

Telefónica, S.A. has contracts for the right to use the

Telefónica brand with Group companies which use the

license. The amount each subsidiary must recognize as a

cost for use of the license is stipulated in the contract as

a percentage of income obtained by the licensor. In 2022

and 2021, “Rendering of services to Group companies and

associates” included 400 and 345 million euros,

respectively, for this item.

Telefónica, S.A. has signed contracts to provide

management support services to Telefónica de España,

S.A.U, Telefónica Móviles España, S.A.U., Telefónica UK,

Ltd., Telefónica Latinoamérica Holding, S.L., Telefónica

Hispanoamérica, S.A., Telxius Telecom, S.A.U. and

Telefónica Germany, GmbH. In September 2022

Telefónica Hispanoamérica, S.A. partially transferred the

contract signed with Telefónica, S.A. to TLH Holdco, S.L.

so that Telefónica, S.A. went on to provide these services

also to TLH Holdco, S.L. from January 1st, 2022. Revenues

received for this concept in 2022 and 2021 amounted to

24 and 39 million euros, respectively, recognized under

“Rendering of services to Group companies and

associates”.

Revenues in 2022 and 2021 also include property rental

income amounting to 37 y 42 million euros, respectively,

mainly generated from the lease of office space in Distrito

Telefónica to several Telefónica Group companies (see

note 7).

b) Dividends from Group companies and

associates

The detail of the main amounts recognized in 2022 and

2021 is as follows:

Millions of euros	2022	2021
Telfisa Global, B.V.	14	356
Telefónica O2 Holdings Limited	909	2,345
Telefónica Móviles España, S.A.U.	—	560
Telefônica Brasil, S.A.	309	272
Sao Paulo Telecomunicaçoes, Ltda	18	56
Pontel Participaciones, S.L.	—	2,196
Telefónica Finanzas, S.A.U	182	67
Telfin Ireland, Ltd.	—	80
Other companies	18	11
Total	1,450	5,943

c) Interest income on loans to Group companies

and associates

This heading includes the return obtained on loans

granted to subsidiaries to carry out their business (see

note 8.5). The breakdown of the most significant amounts

is as follows:

Millions of euros	2022	2021
Telefónica Cybersecurity & Cloud Tech, S.L.	5	—
Telfisa Global, B.V.	6	29
Telxius Telecom, S.A.U.	2	5
Telefónica Europe, B.V.	2	2
Total	15	36

As described in note 15.1, Telfisa Global, B.V. is in charge

of the cash pooling services of the Group. In 2021, and

based on the recommendations by the OECD Transfer

Pricing Guidance on Financial Transactions, the

Company has signed an agreement to partially share the

financial profit or loss raised by its subsidiary within its

operations. In 2022 and 2021 the impact has been a

revenue shown in the chart above.

19.2 Non-core and other current

operating revenues

“Non-core and other current operating revenues – Group

companies” relates to revenues on centralized services

that Telefónica, S.A., as head of the Group, provides to its

subsidiaries. Telefónica, S.A. bears the full cost of these

services and then charges each individual subsidiary for

the applicable portion.

19.3 Personnel expenses and

employee benefits

The breakdown of “Personnel expenses” is as follows:

Millions of euros	2022	2021
Wages, salaries and other personnel expenses	163	167
Pension plans	9	9
Social security costs	24	36
Total	196	212

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	61

In 2022 and 2021, “Wages, salaries and other personnel

expenses” includes compensation accruals amounting to

2 million euros (36 million euros in 2021) as described in

note 18.

Telefónica has reached an agreement with its staff to

provide an Occupational Pension Plan pursuant to

Legislative Royal Decree 1/2002, of November 29,

approving the revised Pension Plans and Funds Law. The

features of this plan are as follows:

•Defined contribution of 4.51% of the participating

employees’ base salary. The defined contributions of

employees transferred to Telefónica from other Group

companies with different defined contributions (e.g.

6.87% in the case of Telefónica de España, S.A.U.) will

be maintained.

•Mandatory contribution by participants of a minimum of

2.2% of their base salary.

•Individual and financial capitalization systems.

This fund was outsourced to Telefónica's subsidiary,

Fonditel Entidad Gestora de Fondos de Pensiones, S.A.,

which has added the pension fund assets to its Fonditel B

fund.

At December 31, 2022, 2,289 participants have signed up

for the plan (2,220 participants in 2021). This figure

includes both active employees, employees under

termination plans and former employees who voluntarily

decided to maintain the plan, as provided for in Royal

Decree 304/2004 approving the regulations for Pension

Plans and Funds. The cost for the Company amounted to

3 million euros in both 2022 and 2021.

In 2006, a Pension Plan for Senior Executives, wholly

funded by the Company, was created and complements

the previous plan and involves additional defined

contributions at a certain percentage of the executive’s

fixed remuneration, based on professional category, plus

some extraordinary contributions depending on the

circumstances of each executive, payable in accordance

with the terms of the plan.

Telefónica, S.A. has recorded costs related to the

contributions to this executive plan of 7 million euros in

both 2022 and 2021, respectively. In 2022 and 2021 some

executives under this Pension Plan for Senior Executives

left the Company, and accordingly their accumulated

contributions were retrieved by Telefónica, S.A. and

registered as a decrease in the expense totaling 3 and 2

million euros, respectively.

No provision was made for this plan as it has been fully

externalized.

The main share-based payment plans in place in the

2022-2021 period are as follows:

Long-term incentive plan based on Telefónica,

S.A. shares: Performance Share Plan 2018-2022

At the General Shareholders’ Meeting held on June 8,

2018, a long-term incentive plan was approved,

consisting of the delivery of shares of Telefónica, S.A.

aimed at senior executive officers of the Telefónica

Group, including the Executive Directors of Telefónica,

S.A. The plan consists of the delivery to the participants of

a certain number of shares of Telefónica, S.A. based on

compliance with the objectives established for each of

the cycles into which the plan is divided. 

The number of shares to deliver will depend (i) 50% on

achievement of the Total Shareholder Return ("TSR")

objective for shares of Telefónica, S.A. with regard to the

TSRs of a comparison group  made up of companies of

the telecommunication sector, weighted by its relevance

for Telefónica, and (ii) 50% on the generation of free cash

flow of the Telefónica Group ("FCF"). 

The plan will be in force for five years and is divided into

three cycles of three years each. The first cycle

commenced in 2018 and finalized on December 31, 2020.

The second cycle commenced in 2019 and finalized on

December 31, 2021.The maximum number of shares

assigned to this cycle of the plan was 9,471,489 shares

(out of which, 3,448,724 shares were assigned to

Telefónica, S.A.'s employees) with a fair value of 6.1436

euros per share for the FCF and 4.4394 euros for the TSR.

As of December 31, 2021 the number of outstanding

shares was 7,494,896 (out of which, 2,989,340 shares

correspond to Telefónica, S.A.’s employees). Once

considered the target fulfillment levels for 2019, 2020 and

2021, a weighted achievement ratio of 50% has been

reached. Performance assessment has been carried out

based on the evolution of the stock price and on the

audited results of the Company.

The third and last cycle commenced in 2020 and has

ended on December 31, 2022. The maximum number of

shares assigned as of January 1, 2020  to this cycle of the

plan was 5,346,508 shares  with a fair value of 3.2136

euros per share for the FCF and 1,6444 euros for the TSR.

The outstanding shares at December 31, 2022 were

4,595,621 (1,799,717 shares corresponding to Telefónica,

S.A.). Once considered the target fulfillment levels for

2020, 2021 and 2022 a weighted achievement ratio of

50% has been reached. Performance assessment has

been carried out based on the evolution of the stock price

and on the audited results of the Company.

Long-term incentive plan based on Telefónica,

S.A. shares: Performance Share Plan 2021-2025

At the General Shareholders’ Meeting held on April 23,

2021, a long-term incentive plan was approved,

consisting of the delivery of shares of Telefónica, S.A.

aimed at senior executive officers of the Telefónica

Group, including the Executive Directors of Telefónica,

S.A. The plan consists of the delivery to the participants of

a certain number of shares of Telefónica, S.A. based on

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	62

compliance with the objectives established for each of

the cycles into which the plan is divided.

The number of shares to deliver depend (i) 50% on

achievement of the total shareholder return ("TSR")

objective for shares of Telefónica, S.A. with regard to the

TSRs of a comparison group made up of companies of

the telecommunication sector, weighted by its relevance

for Telefónica, (ii) 40% on the generation of free cash flow

of Telefónica Group ("FCF"), and (iii) 10% on CO2

Emission Neutralization, in line with the goal set by the

Company.

The plan has a duration of five years and is divided into

three cycles of three years each.

The first cycle commenced in 2021, with delivery of the

respective shares in 2024. The maximum number of

shares assigned to this cycle of the plan was 19,425,499

and the outstanding shares at December 31, 2022 was

18,544,534, with the following breakdown:

First cycle	Nº of shares assigned	Outstanding shares at 12/31/2022	Unit fair value (euros)
TSR Objective	9,712,749	9,272,267	2.64
FCF Objective	7,770,200	7,417,814	3.15
N.E. CO2 Objective	1,942,550	1,854,453	3.15

The maximum number of shares assigned to Telefónica,

S.A.'s employees amounts to 7,831,873 (outstanding

shares as of December 31, 2022 amounting to 7,758,829).

The second cycle commenced in 2022, with delivery of

the respective shares in 2025. The maximum number of

shares assigned to this cycle of the plan was 15,069,650

and the outstanding shares at December 31, 2022 was

14,969,799, with the following breakdown:

Second cycle	Nº of shares assigned	Outstanding shares at 12/31/2022	Unit fair value (euros)
TSR Objective	7,534,825	7,484,899	2.43
FCF Objective	6,027,860	5,987,920	2.95
N.E. CO2 Objective	1,506,965	1,496,980	2.95

The maximum number of shares assigned to Telefónica,

S.A.'s employees amounts to 7,209,211 (outstanding

shares as of December 31, 2022 amounting to 7,203,521).

Long-term incentive plan based on Telefónica,

S.A. shares: “Talent for the Future Share Plan

2018-2022” (TFSP)

At its meeting on June 8, 2018, the Telefónica, S.A.'s

Board of Directors agreed to launch a new installment of

the long-term incentive plan "Talent for the Future Share

Plan". 

The term of this plan is also five years and it is divided into

three cycles. As in the case of the Performance Share

Plan described above, the plan the number of shares to

deliver will depend (i) 50% on achievement of the Total

Shareholder Return ("TSR") objective for shares of

Telefónica, S.A. and (ii) 50% on the generation of free

cash flow of the Telefónica Group ("FCF"). 

The first cycle commenced in 2018 and finalized on

December 31, 2020.

The second cycle commenced in 2019 and finalized on

December 31, 2021 with a maximum number of shares

assigned of 812,000 (out of which, 112,250 shares were

assigned to Telefónica, S.A.'s employees) with a fair value

of 6.1436 euros per share for the FCF and 4.4394 euros for

the TSR. As of December 31, 2021 the number of

outstanding shares was 690,750 (out of which, 88,500

shares corresponded to Telefónica, S.A.’s employees).

Once considered the target fulfillment levels for 2019,

2020 and 2021, a weighted achievement ratio of 50% has

been reached. Performance assessment has been carried

out based on the evolution of the stock price and on the

audited results of the Company.

The third cycle commenced in 2020 and finalized on

December 31, 2022,The maximum number of shares

assigned to this cycle of the plan was 897,400 shares

assigned as of January 1, 2020 with a fair value of 3,2136

euros per share for the FCF and 1,6444 euros for the TSR

and there were 761,600 outstanding shares at December

31, 2022 (99,400 shares corresponding to Telefónica, S.A.

employees). Once considered the target fulfillment levels

for 2020, 2021 and 2022, a weighted achievement ratio of

50% has been reached. Performance assessment has

been carried out based on the evolution of the stock price

and on the audited results of the Company.

Long-term incentive plan based on Telefónica,

S.A. shares: “Talent for the Future Share Plan

2021-2025” (TFSP)

At its meeting on March 17, 2021, the Telefónica, S.A.'s

Board of Directors agreed to launch a new installment of

the long-term incentive plan "Talent for the Future Share

Plan".

The term of this plan is also five years and it is divided into

three cycles. As in the case of the Performance Share

Plan 2021-2025 described above, the number of shares

to deliver will depend (i) 50% on achievement of the total

shareholder return ("TSR") objective for shares of

Telefónica, S.A. with regard to the TSRs of a comparison

group  made up of companies of the telecommunication

sector, weighted by its relevance for Telefónica, (ii) 40%

on the generation of free cash flow of Telefónica Group

("FCF"), and (iii) 10% on CO2 Emission Neutralization, in

line with the goal set by the Company. .

The first cycle commenced in 2021, with delivery of the

respective shares in 2024. The maximum number of

shares assigned to this cycle of the plan was 1,751,500

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	63

and the outstanding shares at December 31, 2022 was

1,659,500, with the following breakdown:

First cycle	Nº of shares assigned	Outstanding shares at 12/31/2022	Unit fair value (euros)
TSR Objective	875,750	829,750	2.64
FCF Objective	700,600	663,800	3.15
N.E. CO2 Objective	175,150	165,950	3.15

From this total, the shares assigned to Telefónica, S.A.'s

employees are 232,500. The outstanding shares as of

December 31, 2022 are 222,000.

The second cycle commenced in 2022, with delivery of

the respective shares in 2025. The maximum number of

shares assigned to this cycle of the plan was 1,646,500

and the outstanding shares at December 31, 2022 was

1,611,000, with the following breakdown:

Second cycle	Nº of shares assigned	Outstanding shares at 12/31/2022	Unit fair value (euros)
TSR Objective	823,250	805,500	2.43
FCF Objective	658,600	644,400	2.95
N.E. CO2 Objective	164,650	161,100	2.95

From this total, the shares assigned to Telefónica, S.A.'s

employees are 219,000. The outstanding shares as of

December 31, 2022 are 215,500.

Telefónica, S.A. global share plans "Global

Employee Share Plans"

The Telefónica, S.A.`s Ordinary General Shareholders’

Meeting on April 8, 2022 approved a new voluntary plan

for incentivized purchases of shares of Telefónica, S.A. for

the employees of the Group. Under this Plan, employees

were offered the option to acquire Telefónica, S.A. shares

during a twelve-month period, with the company

undertaking to deliver a certain number of free shares to

participants, subject to certain requirements.

The maximum amount that each employee can invest is

limited to 1,800 euros. Nevertheless, the total free shares

to be delivered can not exceed 0.38% of the share capital

of Telefónica, S.A. as of the approval date in 2022

Ordinary General Shareholders’ meeting.

The purchase period commenced in October 2022 and

will end in September 2023.. In March 2024 the vesting

period of the plan will end. As of December 31, 2022

27,518 Group employees were compromised with the

Plan, out of which 730 were Telefónica, S.A.'s employees.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	64

19.4 Average number of employees in

2022 and 2021 and number of

employees at year-end

2022
	Employees at 12/31/22				Average no. of employees in 2022
Professional category	Females	Males	Total		Females	Males	Total
Chairman and General Managers	—	1	1		—	1	1
Directors	50	107	157		48	106	154
Managers	142	133	275		140	138	278
Project Managers	136	157	293		132	150	282
University graduates and experts	155	134	289		150	131	281
Administration, clerks, advisors	93	3	96		94	3	97
Total	576	535	1,111		564	529	1,093

2021
	Employees at 12/31/2021				Average no. of employees in 2021
Professional category	Females	Males	Total		Females	Males	Total
Chairman and General Managers	—	1	1		—	1	1
Directors	48	108	156		49	112	161
Managers	144	143	287		143	146	289
Project Managers	127	141	268		127	141	268
University graduates and experts	155	123	278		165	126	291
Administration, clerks, advisors	98	1	99		101	1	102
Total	572	517	1,089		585	527	1,112

According to the requirement of the Spanish Companies

Law established in article 260, the average number of

employees with disability of 33% or higher, establishing

the categories to which they belong are the following:

Professional category	Average number of employees
Project Managers	1
University graduates and experts	2
Administration, clerks, advisors	1
Total	4

19.5 External services

The items composing “External services” are as follows:

Millions of euros	2022	2021
Rent	4	4
Independent professional services	105	145
Donations	74	58
Marketing and advertising	96	106
Other expenses	26	76
Total	305	389

In 2022 and 2021 the line Donations includes funds

contributed and paid to Fundación Telefónica amounting

to 71 and 57 million euros..

On May 30, 2019, Telefónica, S.A. signed a 10-year

contract to rent Diagonal 00 building, owned by the

Company until that moment, due in 2029, renewable for

another 6 years.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	65

Future minimum rentals payable under non-cancellable

operating leases without penalization at December 31,

2022 and 2021 are as follows:

Millions of euros	Total	Up to 1 year	From 1 to 3 years	From 3 to 5 years	Over 5 years
Future compromised payments 2022	26	5	8	8	5
Future compromised payments 2021	24	4	7	6	7

The increase of compromises in 2022 figures is mainly

due to the revaluation according to rising price index.

19.6 Finance revenue

The items composing “Finance revenue” are as follows:

Millions of euros	2022	2021
Dividends from other companies	22	13
Other third parties financial revenues and gains on derivative instruments	1,407	410
Total	1,429	423

The caption “Other third parties financial revenues and

gains on derivative instruments” includes the interests

amounting to 526 million euros from the proceed

executed by Spanish Audiencia Nacional regarding the

tax agreement disclosed in note 17.3.

The significant increase in financial revenue is mainly due

to the rise in interest rates of euro and Brazilian real. The

rise of the interest rate in both currencies has a relevant

impact also in finance costs..

“Other third parties financial revenues and gains on

derivative instruments” includes the effect of the financial

hedges arranged to unwind positions for 2022 and 2021,

which have the same amount under ¨Finance costs

payable to third parties and losses on interest rates of

financial hedges¨ and therefore do not have a net impact

in the income statement.

19.7 Finance costs

The breakdown of “Finance costs” is as follows:

Millions of euros	2022	2021
Interest on borrowings from Group companies and associates	1,331	1,455
Finance costs payable to third parties and losses on interest rates of financial hedges	1,319	89
Total	2,650	1,544

The breakdown by Group company of debt interest

expenses is as follows:

Millions of euros	2022	2021
Telefónica Europe, B.V.	417	458
Telefónica Emisiones, S.A.U.	902	986
Other companies	12	11
Total	1,331	1,455

The significant increase in third party finance costs

shown in 2022 is related with the rise in the interest rates

in euro and Brazilian real.

Other companies includes financial costs with Telfisa

Global, B.V. related to current payables for specific cash

needs.

The amount included as “Finance costs payable to third

parties and losses on interest rate of financial hedges”

refers to fair value effects in the measurement of

derivative instruments described in note 16, together with

the effect of the debt interest rates' trend during the year.

19.8 Exchange differences

The breakdown of exchange gains recognized in the

income statement is as follows:

Millions of euros	2022	2021
On current operations	124	102
On loans and borrowings	100	95
On derivatives	986	849
On other items	4	231
Total	1,214	1,277

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	66

The breakdown of exchange losses recognized in the

income statement is as follows:

Millions of euros	2022	2021
On current operations	58	105
On loans and borrowings	58	79
On derivatives	1,236	1,077
On other items	43	11
Total	1,395	1,272

The variation in exchange gains and losses is due to the

fluctuations in the main currencies the Company works

with. In 2022 euro exchange rate has depreciated against

US dollar (6.10%) and Brazilian real (13.48%). has revalued

against pound sterling (5.31%).

In 2021 euro exchange rate has depreciated against US

dollar (8.32%), pound sterling (6.90%) and Brazilian real

(0.87%).

These impacts are offset by the hedges contracted to

mitigate exchange rate fluctuations.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	67

Note 20. Other information

a) Financial guarantees

At December 31, 2022, Telefónica, S.A. had provided

financial guarantees for its subsidiaries and affiliates to

secure their transactions with third parties amounting to

36,019 million euros (37,638 million euros at December 31,

2021). These guarantees are measured as indicated in

note 4.g).

Millions of euros
Nominal Amount	2022	2021
Debentures and bonds and equity instruments	35,412	36,524
Loans and other payables	107	115
Other marketable debt securities	500	999
Total	36,019	37,638

The debentures, bonds and equity instruments in

circulation at December 31, 2022 issued by Telefónica

Emisiones, S.A.U., and Telefónica Europe, B.V. were

guaranteed by Telefónica, S.A. The nominal amount

guaranteed was equivalent to 35,412 million euros at

December 31, 2022 (36,524 million euros at December 31,

2021). During 2022 Telefónica Emisiones, S.A.U. issued

1,100 million euros  of instruments on capital markets

(there were no issuance of instruments in 2021 ) and

2,787 million euros matured during 2022 (4,471 million

euros during 2021).

“Other marketable debt securities” includes the

guarantee of Telefónica, S.A. relating to the commercial

paper issue program of Telefónica Europe, B.V. The

outstanding balance of commercial paper in circulation

issued through this program at December 31, 2022 was

500 million euros (999 million euros at December 31,

2021).

Telefónica, S.A. provides operating guarantees granted

by external counterparties, which are offered during its

normal commercial activity. At December 31, 2022, these

guarantees amounted to approximately 31 million euros

(41 million euros at December 31, 2021).

b) Litigation

Telefónica and its group companies are party to several

legal proceedings which are currently in progress in the

courts of law and the arbitration bodies of the various

countries in which Telefónica is present.

Based on the advice of our legal counsel it is reasonable

to assume that these legal proceedings will not materially

affect the financial condition or solvency of the

Telefónica Group.

It is worth highlighting the following aspects relating to

the unresolved legal proceedings or those underway

during 2022 (see note 17 for details of tax-related cases):

Appeal against the Decision of the European

Commission dated January 23, 2013, to sanction

Telefónica for the infringement of Article 101 of

the Treaty on the functioning of the European

Union

On January 19, 2011, the European Commission initiated

formal proceedings to investigate whether Telefónica,

S.A. (Telefónica) and Portugal Telecom SGPS, S.A.

(Portugal Telecom) had infringed European Union

antitrust laws with respect to a clause contained in the

sale and purchase agreement of Portugal Telecom’s

ownership interest in Brasilcel, N.V., a joint venture in

which both companies were venturers and which was

the owner of the Brazilian company Vivo.

On January 23, 2013, the European Commission passed a

ruling on the formal proceedings. The ruling imposed a

fine on Telefónica in the amount of 67 million euros, as

the European Commission ruled that Telefónica and

Portugal Telecom committed an infraction of Article 101

of the Treaty on the Functioning of the European Union

for having entered into the agreement set forth in Clause

Nine of the sale and purchase agreement of Portugal

Telecom’s ownership interest of Brasilcel, N.V.

On April 9, 2013, Telefónica filed an appeal for annulment

of this ruling with the European Union General Court. On

August 6, 2013, the European Union General Court

notified Telefónica of the response issued by the

European Commission, in which the European

Commission reaffirmed the main arguments of its ruling

and, specifically, that Clause Nine includes a competition

restriction. On September 30, 2013, Telefónica filed its

reply. On December 18, 2013, the European Commission

filed its appeal.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	68

A hearing was held on May 19, 2015, at the European

Union General Court.

On June 28, 2016, the European Union General Court

ruled. Although it declared the existence of an

infringement of competition law, it annulled Article 2 of

the contested Decision and required the European

Commission to reassess the amount of the fine imposed.

The General Court considered that the European

Commission has not neutralized the allegations and

evidences provided by Telefónica on services in which

there was not potential competition or were outside the

scope of Clause Nine.

Telefónica understands that there are grounds for

believing that the ruling does not suit at law;

consequently, it filed an appeal to the Court of Justice of

the European Union, on September 11, 2016.

On November 23, 2016, the European Commission filed

its response against the Telefónica's appeal. On January

30, 2017, Telefónica filed its response. On March 9, 2017,

the European Commission filed its rejoinder.

On December 13, 2017, the General Court dismissed the

appeal filed by Telefónica. The European Commission,

which was urged to recalculate the amount of the fine in

the judgment of the General Court of June 2016, issued a

resolution on January 25, 2022, imposing a fine of

67million euros on Telefónica. In April 2022, Telefónica

paid the fine of 67 million euros imposed, bringing the

procedure to an end.

Decision by the High Court regarding the

acquisition by Telefónica of shares in Český

Telecom by way of a tender offer

Venten Management Limited ("Venten") and Lexburg

Enterprises Limited ("Lexburg") were non-controlling

shareholders of Český Telecom. In September 2005, both

companies sold their shares to Telefónica in a mandatory

tender offer. Subsequently, Venten and Lexburg, in 2006

and 2009, respectively, filed actions against Telefónica

claiming a higher price than the price for which they sold

their shares in the mandatory tender offer.

On August 5, 2016, the hearing before the High Court in

Prague took place in order to decide the appeal against

the second decision of the Municipal Court, which had

been favorable to Telefónica's position (as was also the

case with the first decision of the Municipal Court). At the

end of the hearing, the High Court announced the

Second Appellate Decision by which it reversed the

second decision of the Municipal Court and ordered

Telefónica to pay 644 million Czech korunas

(approximately 23 million euros) to Venten and 227 million

Czech korunas (approximately 8 million euros) to

Lexburg, in each case plus interest.

On December 28, 2016, the decision was notified to

Telefónica. Telefónica filed an extraordinary appeal,

requesting the suspension of the effects of the decision.

In March 2017, Telefónica was notified of the decision of

the Supreme Court, which ordered the suspension of the

effects of the unfavorable decision to Telefónica issued

by the High Court.

Venten and Lexburg filed with the Supreme Court a

motion to partially abolish the suspension of

enforceability of the Decision of the High Court in Prague.

On January 17, 2018, Telefónica filed its response seeking

dismissal of such motion for lack of legal basis.

On February 14, 2019, notification was given to Telefónica

of the resolution of the Supreme Court which, based on

the extraordinary appeal filed by Telefónica, abolished

the decision of the High Court in Prague dated August 5,

2016 and remanded the case back to the High Court.

In December 2021, the High Court of Prague confirmed

its appointment of an expert in order to produce a new

expert report to assess the reliability of market-based

price criteria used in the mandatory tender offer and

further technical issues discussed in this litigation,

including a new discounted cashflow valuation of the

shares of Český Telecom in 2005.

ICSID Arbitration Telefónica, S.A. vs. Republic of

Colombia

In the local arbitration brought by Colombia against

Colombia Telecomunicaciones (“ColTel”), on July 25,

2017, the local arbitration tribunal ordered ColTel to pay

470 million euros as economic compensation for the

reversion of assets related to voice services in relation to

the concession granted between 1994 and 2013.

On August 29, 2017, ColTel’s share capital was increased

in order to make the payment ordered by the local arbitral

award; Telefónica, S.A. contributed and disbursed an

amount equivalent to 67.5% of the award’s amount (317

million euros) and the Colombian Government

contributed an amount equivalent to the remaining 32.5%

(153 million euros).

On February 1, 2018, Telefónica, S.A. filed a Request for

Arbitration against Colombia at the International Centre

for Settlement of Investment Disputes ("ICSID"), which

was formally registered on February 20, 2018.

The ICSID Court was constituted on February 26, 2019,

with José Emilio Nunes Pinto as President, Horacio A.

Grigera Naón appointed by Telefónica, S.A., and Yves

Derains appointed by Colombia.

Colombia filed Preliminary Objections on Jurisdiction on

August 5, 2019. Telefónica, S.A. responded to Colombia’s

objections in its Claimant’s Memorial on September 23,

2019, in which it also requested that Colombia pay

compensation for damages caused to Telefónica, S.A.

On October 23, 2019, Colombia submitted its

Complementary Objections on Jurisdiction as well as a

request for Bifurcation, to which Telefónica, S.A.

responded on November 29, 2019.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	69

On January 24, 2020, the Court dismissed the request for

Bifurcation presented by Colombia, ordering the

continuation of the proceeding. A decision on the merits

of Telefónica, S.A.’s claim is pending. On July 3, 2020,

Colombia filed its reply to the claim filed by Telefónica

before the ICSID.

On November 2, 2020, Telefónica presented its response

to Colombia's reply.

After the hearing held in April 2021, on July 27, 2021 the

hearing of closing arguments was held, and the parties

are awaiting the issuance of the arbitration award.

Telefónica's lawsuit against Millicom

International Cellular for default in the sale of

Telefónica de Costa Rica

Telefónica, S.A. (Telefónica) and Millicom International

Cellular, S.A. (Millicom) reached an agreement on

February 20, 2019 for the purchase and sale of the entire

capital stock of Telefónica de Costa Rica TC, S.A.

In March 2020, Telefónica informed Millicom that, once

the pertinent regulatory authorizations had been

obtained and all the other conditions established in the

aforementioned agreement for the execution of the sale

had been completed, the execution of the contract and

the closing of the transaction should be in April 2020.

Millicom expressed its refusal to proceed with the closing,

arguing that the competent Costa Rican administrative

authorities had not issued the appropriate authorization.

On May 25, 2020, Telefónica filed a lawsuit against

Millicom before the New York Supreme Court,

considering that Millicom had breached the terms and

conditions established in the sale contract, demanding

compliance with the provisions of the aforementioned

agreement, and compensation for all damages that this

unjustified breach could cause to Telefónica.

On June 29, 2020, Millicom filed a Motion to Dismiss, to

which Telefónica replied on July 8, 2020.

On August 3, 2020, Telefónica submitted an amendment

to the lawsuit, removing the requirement to comply with

the provisions of the sale and purchase contract and

requesting only compensation for all damages that the

unjustified breach of said agreement could cause to

Telefónica.

On January 5, 2021, the Motion to Dismiss filed by

Millicom in June 2020 was dismissed by the New York

Supreme Court.

ICSID Arbitration Telefónica, S.A. vs. Republic of

Peru

On February 5, 2021, Telefónica filed a request for

arbitration against the Republic of Peru at the ICSID,

which was formally registered on March 12, 2021.

Telefónica bases its claims on the Agreement for the

Promotion and Reciprocal Protection of Investments

between the Kingdom of Spain and the Republic of Peru

("APRPI") signed on November 17, 1994. Telefónica argues

that the Peruvian tax administration (called

Superintendencia Nacional de Aduanas y de

Administración Tributaria, known as "SUNAT") and other

state bodies have failed to comply with the obligations

established in the APRPI, including by adopting arbitrary

and discriminatory actions.

It is requested that the defendant be ordered to fully

compensate Telefónica for all damages suffered.

Once the Tribunal was constituted, on February 9, 2023,

Telefónica filed a request for urgent injunctive relief

together with a request for injunctive relief, requesting

the suspension of the administrative litigation (acción

contencioso-administrativa or ACA) related to the income

tax for the years 1998, 2000 and 2001, as well as the

extension of the deadline for submission by Telefónica of

the memorial or claim. Following response of Peru, on

February 16, 2023, the Tribunal ruled to dismiss

Telefónica's request for urgent injunctive relief, to

establish the procedural calendar to process the request

for injunctive relief and to grant Telefonica two additional

weeks to file the memorial or claim.

UK High Court claim by Phones 4 U Limited against

various mobile network operators and other

companies, among others, Telefónica, S.A.,

Telefonica O2 Holdings Limited and Telefonica UK

Limited

In late 2018, Phones 4U Limited (in administration) (“P4U”)

commenced a claim in the English High Court in London

against various mobile network operators: Everything

Everywhere, Deutsche Telekom, Orange, Vodafone,

Telefónica, S.A., Telefonica O2 Holdings Limited and

Telefonica UK Limited (together the “Defendants”). 

P4U carried on a business of selling mobile phones and

connections to the public, such connections being

supplied by mobile network operators including the

Defendants.  In 2013 and 2014, the Defendants declined

to extend and / or terminated their contracts to supply

connections to P4U.

P4U went into administration in September 2014.

P4U alleges that the Defendants ceased to supply

connections because they had colluded between

themselves in contravention of the United Kingdom and

the European Union competition laws and asserts that it

has a basis to claim damages for breach of competition

law by all the Defendants. The Defendants deny all P4U’s

allegations.

The claim commenced on December 18, 2018 by P4U.

The Defendants filed their initial Defences in the course

of April and May 2019, with P4U filing replies on October

18, 2019. The first case management conference took

place on March 2, 2020.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	70

The trial was held between May and July 2022. The

parties are awaiting the issuance of the sentence.

c) Other contingencies

The Group is currently cooperating with governmental

authorities (and, where appropriate, conducting the

relevant internal investigations) regarding requests for

information potentially related, directly or indirectly, to

possible violations of applicable anti-corruption laws.

Telefónica believes that, considering the size of the

Group, any potential penalty as a result of matters

relating to those specific information requests would not

materially affect the Group's financial condition.

d) Commitments

Agreement related to the Sale of Customer

Relationship Management (“CRM”) Business,

Atento

As a result of the sale agreement of Atento by Telefónica,

announced on October 12, 2012, and ratified on

December 12, 2012, both companies signed a Master

Service Agreement which regulates Atento’s relationship

with the Telefónica Group as a service provider for a

period of nine years and which has been amended on

May 16, 2014, November 8, 2016, May 11, 2018, November

28, 2019 and February 4, 2022. The term of the

agreement was extended for Spain and Brazil in

November 2016, for two additional years until the end of

2023, and for Latin America in February 2022, for one

additional year until the end of 2022.

By virtue of this agreement, Atento became Telefónica’s

preferred Contact Center and Customer Relationship

Management (“CRM”) service provider, stipulating annual

commitments in terms of turnover which is updated

based on inflation and deflation that vary from country to

country, pursuant to the volume of services Atento has

been providing to the entire Group. Effective January 1,

2017, the minimum volume commitments that Telefónica

must comply with have significantly decreased for Brazil

and Spain. Additionally, from January 1, 2019 a new

reduction of the minimum commitment has been agreed,

in this case only for Spain.

Failure to meet the annual turnover commitments in

principle results in the obligation to the counterparty, to

pay additional amounts, which would be calculated

based on the difference between the actual amount of

turnover and the predetermined commitment, applying a

percentage based on the Contact Center’s business

margin to the final calculation.

Notwithstanding the above, as a consequence of the

amendment signed with the Atento Group on May 11,

2018, from January 1, 2018 the payment obligation for

failure to meet the annual turnover commitment

continues to be calculated every year but will only be

liquidated upon termination of the agreement. Such

payment will only be due if the balance is in favor of

Atento after adding certain amounts agreed between the

parties and deducting an annual percentage of the

Atento Group’s sales to the Telefónica Group.

The Master Agreement sets forth a reciprocal

arrangement, whereby Atento assumes similar

commitments to subscribe certain telecommunications

services from Telefónica.

Agreement for the sale of the shares of

Telefónica Gestión de Servicios Compartidos

España, S.A.U., Telefónica Gestión de Servicios

Compartidos Argentina, S.A. and T-Gestiona

Servicios Contables y Capital Humano, S.A.C.

On March 1, 2016, a share purchase agreement between,

on one hand, Telefónica, S.A., Telefónica Servicios

Globales, S.L.U. and Telefónica Gestión de Servicios

Compartidos Perú, S.A.C. (as sellers), and, on the other

hand, IBM Global Services España, S.A., IBM del Perú,

S.A.C., IBM Canada Limited and IBM Americas Holding,

LLC (as purchasers) for the sale of the companies

Telefónica Gestión de Servicios Compartidos España,

S.A.U., Telefónica Gestión de Servicios Compartidos

Argentina, S.A. and T-Gestiona Servicios Contables y

Capital Humano, S.A.C., for a total price of approximately

22 million euros, was ratified before Notary Public. This

share purchase agreement was subscribed on December

31, 2015.

Following the aforementioned share purchase agreement

and in connection with the latter transaction, also, on

December 31, 2015, Telefónica subscribed a master

services agreement with IBM for the outsourcing of

economic-financial and HR activities and functions to be

provided to the Telefónica Group during a period of ten

years, for a total amount of approximately 450 million

euros. Most of the Telefónica Group’s subsidiary

companies have already adhered to that master services

agreement.

On March 31, 2021 and March 31, 2022 the master

services agreement with IBM for the outsourcing of

economic-financial and HR activities and functions to be

provided to the Telefónica Group was amended. By virtue

of these amendments the term may be extended for

those adhered companies that decide to extend their

services beyond the initial term.

In addition, on July 29, 2022 a new amendment was

executed by virtue of which the term may be extended

for those adhered companies in Latinoamerica that

decide to extend some of their services.

Contracts for the provision of IT services with

Nabiax

In 2019 Telefónica, S.A. signed an agreement for the sale

of a portfolio of eleven data center businesses to a

company (hereinafter "Nabiax") controlled by Asterion

Industrial Partners SGEIC, S.A.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	71

At the same time as this sale, agreements were entered

into with Nabiax to provide housing services to the

Telefónica Group, allowing Telefónica to continue

providing housing services to its customers, in

accordance with its previous commitments. Such service

provision agreements have an initial term of ten years and

include minimum consumption commitments in terms of

capacity. These commitments are consistent with the

Group's expected consumption volumes, while prices are

subject to review mechanisms based on inflation and

market reality.

On May 7, 2021, Asterion Industrial Partners SGEIC, S.A.

and Telefónica Infra (T. Infra), the infrastructure unit of

the Telefónica Group, reached an agreement for the

contribution to Nabiax of four additional data centers

owned by the Telefónica Group (two of them located in

Spain and two in Chile). In exchange for the contribution

of these four data centers, T. Infra will receive a 20%

equity stake in Nabiax. Once the relevant authorizations

and other conditions precedent to the contribution of the

two data centers located in Spain were obtained, the

partial closing of the transaction took place as of July 21,

2021, whereby Telefónica Group contributed those data

centers to Nabiax, with T. Infra receiving in exchange a

13.94% stake in Nabiax at this stage. The agreement was

complemented by the signing of a contract for the

provision to Telefónica of housing services from those

two data centers under terms and conditions equivalent

to those established in the transaction executed in 2019,

for an initial period of ten years.

Once the conditions related to the contribution of the

two data centers located in Chile were fulfilled, on May

24, 2022, the complete closing of the transaction took

place, and T. Infra reached a 20% stake in Nabiax. The

agreement was complemented by the signing of a

contract for the provision to Telefónica of housing

services from those two data centers under terms and

conditions equivalent to those established in the

transaction executed in 2019, for an initial period ending

in 2031.

50:50 joint venture with Liberty Global for the

combination of both groups' businesses in the

United Kingdom

On May 7, 2020, Telefónica agreed to enter into a joint

venture with Liberty Global plc ("Liberty Global") pursuant

to a contribution agreement (as amended, the

"Contribution Agreement") between Telefónica,

Telefonica O2 Holdings Limited, Liberty Global, Liberty

Global Europe 2 Limited and a newly formed entity of

which, after closing, each of Telefónica and Liberty

Global would hold 50% of its share capital named VMED

O2 UK Limited.

After having obtained the clearance from the

Competition and Market Authority (the antitrust authority

in the UK) to complete this transaction and having fulfilled

all the other pre-closing conditions included in the

Contribution Agreement, the transaction was completed

on June 1, 2021. From such date, Telefónica and Liberty

Global each hold an equal number of shares in VMED O2

UK Limited; after: (i) Telefónica having contributed to

VMED O2 UK Limited its O2 mobile business in the United

Kingdom and (ii) Liberty Global having contributed its

Virgin Media business in the United Kingdom to VMED O2

UK Limited.

The corporate governance of VMED O2 UK Limited is

regulated by a shareholders' agreement, which was

entered into by the parties to the Contribution

Agreement on June 1, 2021 (the "Shareholders'

Agreement").

On the date of closing of the transaction, Telefónica,

Liberty Global, and certain companies belonging to each

shareholder’s corporate group entered into certain

services, reverse services, licensing and data protection

agreements with VMED O2 UK Limited and certain

entities belonging to the VMED O2 UK Limited group. In

particular, Telefónica and Liberty Global agreed that each

shareholder’s group would provide certain services,

either on a transitional or ongoing basis to VMED O2 UK

Limited and its group and that, for a limited period of time,

VMED O2 UK Limited would also provide certain reverse

services to specific companies belonging to the

corporate group of each of its shareholders.

Pursuant to the terms of the above referred services

agreements, the transitional services that are to be

provided by the Telefónica Group to VMED O2 UK

Limited shall be provided for terms ranging from 7 to 24

months while the ongoing services that are to be

provided by the Telefónica Group to VMED O2 UK

Limited will be provided for periods of two to six years,

depending on the service. The services provided by the

Telefonica Group to VMED O2 UK Limited consist

primarily of technology and telecommunication services

that will be used by or will otherwise benefit VMED O2 UK

Limited. In addition to providing VMED O2 UK Limited

with such services, the mobile operators of the Telefonica

Group and VMED O2 UK Limited will maintain their

roaming commercial relationships in order to reciprocally

provide roaming services for their respective customers.

Likewise, as of closing of the transaction Telefónica

granted certain trademark license agreements to VMED

O2 UK Limited (the “VMED O2 UK Limited Trademark

Licenses”). Pursuant to the VMED O2 UK Limited

Trademark Licenses, Telefonica Group licensed the use

of Telefónica and O2 brand rights to VMED O2 UK

Limited. 

e) Directors’ and Senior executives’

compensations and other benefits

The compensation of the members of Telefónica’s Board

of Directors is governed by article 35 of the Company’s

By-Laws, which provides that the annual amount of the

compensation to be paid thereby to all of the Directors in

their capacity as such, i.e., as members of the Board of

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	72

Directors and for the performance of the duty of

supervision and collective decision-making inherent in

such body, shall be fixed by the shareholders at the

General Shareholders' Meeting. The Board of Directors

shall determine the exact amount to be paid within such

limit and the distribution thereof among the Directors,

taking into account the duties and responsibilities

assigned to each Director, their membership on

Committees within the Board of Directors and other

objective circumstances that it deems relevant.

Furthermore, Executive Directors shall receive such

compensation as the Board determines for the

performance of executive duties delegated or entrusted

to them by the Board of Directors. Such compensation

shall conform to the Director compensation policy

approved by the shareholders at the General

Shareholders’ Meeting.

In accordance with the foregoing, the shareholders

acting at the Ordinary General Shareholders’ Meeting

held on April 11, 2003 set at 6 million euros the maximum

amount of annual gross compensation to be received by

the Board of Directors as a fixed allotment and as

attendance fees for attending the meetings of the

Advisory or Control Committees of the Board of Directors.

Thus, as regards fiscal year 2022, the total amount of

compensation accrued by the Directors of Telefónica, in

their capacity as such, was 2,851,801 euros for the fixed

allocation and for attendance fees. 

The compensation of the Directors of Telefónica in their

capacity as members of the Board of Directors, of the

Executive Commission and/or of the Advisory or Control

Committees consists of a fixed amount payable monthly

and of attendance fees for attending the meetings of the

Advisory or Control Committees.

Set forth below are the amounts established in fiscal year

2022 as fixed amounts for belonging to the Board of

Directors, the Executive Commission and the Advisory or

Control Committees of Telefónica and the attendance

fees for attending meetings of the Advisory or Control

Committees of the Board of Directors:

Compensation of the Board of Directors and of

the Committees thereof

Amounts in euros
Position	Board of Directors	Executive Commission	Advisory or Control Committees (*)
Chairman	240,000	80,000	22,400
Vice chairman	200,000	80,000	—
Executive Member	—	—	—
Proprietary Member	120,000	80,000	11,200
Independent Member	120,000	80,000	11,200
Other external	120,000	80,000	11,200

(*) In addition, the amount of the attendance fee for each of the meetings of

the Advisory or Control Committees is 1,000 euros.

In this regard, it is noted that the Executive Chairman, Mr.

José María Álvarez-Pallete López, waived the receipt of

the above amounts (i.e., 240,000 euros as Chairman of

the Board of Directors and 80,000 euros as Chairman of

the Executive Commission).

Likewise, the fixed remuneration of 1,923,100 euros

established for the 2023 financial year related to

executive roles carried out by Executive Chairman, Mr.

José María Álvarez-Pallete López is equal to that received

in the previous seven years (i.e. 2022, 2021, 2020, 2019,

2018, 2017 and 2016), which was set in his capacity as

Chief Operating Officer, remaining invariably after his

appointment as Chairman in 2016.

The fixed remuneration, for his executive roles, of

1,600,000 euros that the Chief Operating Officer

(C.O.O.), Mr. Ángel Vilá Boix, has established for the 2023 

financial year is equal to the one received in the years

2022, 2021, 2020 and 2019. 

Individualized description

Appendix II provides an individual breakdown by item of

the compensation and benefits that the members of the

Board of Directors and of the Senior Management of the

Company have accrued and/or received from Telefónica,

S.A. and from other companies of the Telefónica Group

during fiscal year 2022. Likewise, the compensation and

benefits accrued and/or received, during such year, by

the members of the Company's Senior Management are

broken down.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	73

f) Related-party transactions

Significant shareholders

The significant shareholders of the Company are Banco

Bilbao Vizcaya Argentaria, S.A. (BBVA), CaixaBank, S.A.

and BlackRock, Inc.

Based on the information provided by CaixaBank, S.A. for

the 2022 Annual Report Corporate Governance, as

updated per share capital of Telefónica, S.A. as of

December 31, 2022, the shareholding of CaixaBank, S.A.

in Telefónica’s share capital were 3.50%.

Based on the information provided by Banco Bilbao

Vizcaya Argentaria, S.A. (BBVA) for the 2022 Annual

Report on Corporate Governance, as updated per share

capital of Telefónica, S.A. as of December 31, 2022, the

shareholding of BBVA in Telefónica’s share capital were

4.87%. Likewise, and according to the aforementioned

information provided by BBVA, the percentage of

economic rights attributed to Telefónica, S.A. shares

owned by BBVA amounts to 4.97%.

Based on the information notified by BlackRock, Inc to the

CNMV on March 31, 2020, as updated per the share

capital of Telefónica, S.A. as of December 31, 2022, the

shareholding of BlackRock, Inc in Telefónica’s share

capital were 4.48%. Based on the Schedule 13G/A filed

with the SEC, on October 7, 2022, BlackRock, Inc.

beneficially owned 4.96% of Telefónica, S.A. shares and

4.49% of voting rights.

During 2022 and 2021, the Group carried out no

significant transactions with BlackRock, Inc. other than

the corresponding dividends paid.

A summary of significant transactions between

Telefónica, S.A. and the companies of BBVA and those of

Caixabank, other than the payment of the dividend 

corresponding to its shareholding, carried out at market

prices, is as follows:

2022
Millions of euros	BBVA	Caixabank
Financial expenses	4	1
Receipt of services	1	2
Total expenses	5	3
Financial revenues	2	—
Dividends received (1)	15	—
Total revenues	17	—
Financing transactions	1	—
Time deposits	289	43

(1) As of December 31, 2022 Telefónica holds 0.732% investment in BBVA

(See note 9.3).

2021
Millions of euros	BBVA	Caixabank
Financial expenses	6	1
Receipt of services	1	2
Total expenses	7	3
Financial revenues	1	—
Dividends received (1)	8	—
Total revenues	9	—
Guarantees granted	—	8
Time deposits	86	—
Time deposits (Others)	251	21

(1) As of December 31, 2021 Telefónica held 0.66% investment in BBVA.

In addition, the nominal outstanding value of derivatives

held with BBVA and Caixabank in 2022 amounted to

5,286 and 264 million euros, respectively (6,226 million

euros held with BBVA and 264 million euros with

Caixabank in 2021). The fair value of these derivatives in

the balance sheet is 227 and 41 million euros, respectively,

in 2022 (331 and 26 million euros, respectively, in 2021). As

explained in Derivatives policy in note 16, this figure is

inflated by the use in some cases of several levels of

derivatives applied to the nominal value of a single

underlying. Moreover, in 2022 there are collateral

guarantees (liabilities) of certain derivatives held with

BBVA and Caixabank amounting to 134 and 43 million

euros, respectively (a liability of 251 and 21 million euros,

respectively,  in 2021).

Telefónica, S.A. holds a 50% interest in Telefónica

Consumer Finance, E.F.C., S.A., a company controlled by

Caixabank. (see Appendix I).

Telefónica, S.A. holds a 50% interest in Telefónica

Factoring España and a 40,5% interest in its subsidiaries

in Peru, Colombia and México as well as a 40% interest in

its subsidiary in Brazil, in which BBVA and Caixabank have

minority interests. (see Appendix I).

On July 21, 2022, Telefónica, S.A. and CaixaBank

Payments and Consumer E.F.C., E.P., S.A. incorporated

the company Telefónica Renting, S.A. 50% each. This

company is controlled by CaixaBank. (see Appendix I).

Balances with Group and Associated companies

Telefónica, S.A. is a holding company for various

investments in companies in Latin, Spain and the rest of

Europe which do business in the telecommunications,

media and entertainment sectors.

The balances and transactions between the Company

and these subsidiaries (Group and Associated

Companies) at December 31, 2022 and 2021 are detailed

in the notes to these individual financial statements.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	74

Directors and senior executives

During the financial year to which these accompanying

financial statements refer, the Directors and senior

executives did not perform any transactions with

Telefónica, S.A. or any Telefónica Group company other

than those in the Group’s normal trading activity and

business.

Compensation and other benefits paid to members of the

Board of Directors and senior executives are detailed in

note 20 e) and Appendix II of these financial statements.

Telefónica contracted a civil liability insurance scheme

(D&O) for Directors, managers and staff with similar

functions in the Telefónica Group, with standard

conditions for these types of insurance and a premium

attributable to 2022 of 6,598,467.33 euros (5,303,931.42 

euros in 2021). This scheme provides coverage for

Telefónica, S.A. and its subsidiaries in certain cases. Out

of this amount, Telefónica, S.A. has paid 3,622,176.07

euros (3,010,258.35  euros in 2021).

g) Auditors' fees

The services commissioned to PricewaterhouseCoopers

Auditores, S.L.,  the Principal Auditor of Telefónica, S.A.

for the years 2022 and 2021, meet the independence

requirements stipulated by the Spanish Audit Law

22/2015, July 20, the US SEC rules and the Public

Company Accounting Oversight Board (PCAOB).

The expenses accrued refer to the fees for services

rendered by the various member firms of the PwC

network, of which PricewaterhouseCoopers Auditores,

S.L. forms part, amount to 3.96 and 3.52 million euros in

2022 and 2021, respectively.

The detail of these amounts is as follows:

Millions of euros	2022	2021
Audit services	3.20	3.07
Audit-related services	0.76	0.45
Total	3.96	3.52

"Audit services" mainly includes audit fees for the

individual and consolidated financial statements, as well

as reviews of interim financial statements. These Audit

services also incorporate the integrated audits of the

financial statements for the annual report Form 20-F to

file with the US SEC and the internal control audit over

the financial information to comply with the requirements

of the Sarbanes-Oxley 2002 Act (Section 404).

Audit-related services: mainly services related to the

issuance of comfort letters, the report on the information

relating to the system of the internal control over financial

reporting (ICFR) and the verification of the non-financial

information of the Consolidated Management Report.

During the years 2022 and 2021, the principal auditor has

not performed services, other than the audit services or

the audit-related services in Telefónica, S.A.

h) Environmental matters

Commitment to protect the environment is part of the

Company's general strategy and is the responsibility of

the Board of Directors. The performance in this area is

regularly supervised by the Board's Sustainability

Committee and the Responsible Business Office, made

up of the global areas which execute that strategy

alongside the business units.

The Group has global environmental and energy

management policies, and externally certified

environmental management systems in accordance with

ISO 14001 in all Group companies. The environment is a

central issue throughout the Company, involving both

operational and management areas as well as business

and innovation areas.

Managing environmental impact and energy

consumption is a strategic priority and carbon reduction

targets are part of the variable remuneration of all

Company employees, including the Senior Management.

In addition, Telefónica, S.A.'s long-term share-based

incentive plans 2021-2025 (see note 19) include CO2

Emission Neutralization targets, in line with the target set

by the Company.

Sustainable financing is a key tool for supporting the

transformation of the business through investment in

projects with a positive environmental and social impact.

In 2018, the Company published its Sustainable Financing

Framework. This was updated in January 2021 and, in

both cases, was endorsed by a second party opinion from

Sustainalytics. The framework is linked to the United

Nations Sustainable Development Goals and aligned with

the Green Bond, Social Bond and Sustainable Bond

Principles of the International Capital Market Association

(ICMA).

Telefónica was the first issuer of senior green bonds and

hybrid instruments (green and sustainable) in the

telecommunications sector. The funds that were

obtained have been allocated to projects focused on

switching our network from copper to fiber, which is more

efficient and suffers fewer faults; the rollout and

improvement of mobile connectivity in rural areas; and

the promotion of entrepreneurship and job creation

through investments in start-ups. Even when the above

mentioned issuances have not been directly carried out

by the Company, they are guaranteed by Telefónica, S.A.

In addition to senior green bonds and hybrid instruments,

the Company uses other sustainable bank financing tools,

such as loans and credits linked to sustainability

objectives that make it possible to progress steadily

towards such important corporate targets as reducing

emissions and gender equality. Also in this case, the main

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	75

syndicated loan of the Company is linked to sustainability

criteria in line with the corporate Sustainability-linked

Loan Framework, which was drawn up in late 2021 with a

second opinion from Sustainalytics.

In 2022, the Company maintained an active presence in

the capital market through several issuances.,

guaranteed by Telefónica, S.A., These included its first

sustainable senior bond issuance for 1,000 million euros

in May with a term of nine years. The funds obtained from

this issuance will be allocated to projects related to

transformation of the telecommunications network via

the rollout of fiber optics and 5G technology, as well as

social projects aimed at promoting inclusive connectivity,

entrepreneurship and job creation.

The Group's second hybrid green instrument issuance

took place in November for the value of 750 million euros,

guaranteed by Telefónica, S.A., with the first redemption

date at six years. In this case, the investment from funds

will be used to switch off obsolete equipment and

transform mobile infrastructures through energy

efficiency projects.

Despite the market instability, these two issues were well

received by the market with a broadly international and

diversified investor base.

Already in January 2023, a new issue of a green hybrid

bond for an amount of 1,000 million euros, guaranteed by

Telefónica, S.A. has been carried out (see note 22).

During 2022, Telefónica, S.A. or instrumental companies

of the Group, with the guarantee of Telefónica, S.A.

committed lines and bilateral financing operations were

also carried out during the year with numerous financial

entities, obtaining a total volume of 3,864 million euros at

the close of 2022, the interest applied to which is also

linked to compliance with sustainability targets.

i) Trade and other guarantees

The Company is required to issue trade guarantees and

deposits for concession and spectrum tender bids and in

the ordinary course of its business. No significant

additional liabilities in the accompanying financial

statements are expected to arise from guarantees and

deposits issued (see note 20.a).

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	76

Note 21. Cash flow analysis

Cash flows from/(used in) operating

activities

The net result before tax in 2022 amounts to a loss of

1,541 million euros (see income statement), adjusted by

items recognized in the income statement that did not

require an inflow or outflow of cash in the year, or are

included within the investing and financing activities.

These adjustments relate mainly to:

•The impairment of investments in Group companies,

associates and other investments of 1,590 million euros

(in 2021 a write down of 4,574 million euros).

•Declared dividends as income in 2022 for 1,450 million

euros (5,943 million euros in 2021), interest accrued in

2022 on loans granted to subsidiaries of 15 million euros

(36 million euros in 2021) and a net financial expense of

1,401 million euros (1,166 million euros in 2021), adjusted

initially to include only movements related to cash

inflows or outflows during the year under “Other cash

flows from operating activities.”

“Other cash flows from operating activities” amount to

4,277 million euros (11,257 million euros in 2021). The main

items included are:

a)Net interest paid:

Payments of net interest and other financial expenses

amounted to 1,062 million euros (1,431 million euros in

2021), including:

•Net proceeds to external credit entities, net of

hedges, for 212 million euros, (net payments of 49

million euros in 2021 offset by their hedges), and

• Interest and hedges paid to Group companies of

1,274 million euros (1,383 million euros in 2021).

b)Dividends and other distributions from reserves and

paid-in capital received:

Millions of euros	2022	2021
Telefónica Filiales España, S.A.U.	—	105
Telefónica Móviles España, S.A.U.	560	1,949
Telefónica O2 Holdings, Ltd.	2,106	5,290
Telefónica de España, S.A.U.	301	906
Telfisa Global, B.V.	357	1,364
Telefónica Finanzas, S.A.U. (TELFISA)	67	178
Telfin Ireland, Ltd.	—	216
Telefônica Brasil, S.A.	332	240
Sao Paulo Telecomunicaçoes, Ltda	15	52
Pontel Participaciones, S.L.	—	2,196
Other dividend collections	39	24
Total	3,777	12,520

In addition to the dividends declared in 2022 (see note

19.1) and collected in the same period, this caption also

includes dividends from previous periods collected in

2022.

c)Income tax collected: Telefónica, S.A. is the parent of

its consolidated Tax Group (see note 17) and therefore

it is liable for filing income tax with the Spanish

Treasury. It subsequently informs companies included

in the Tax Group of the amounts payable by them.

Payments totaling 289 million euros on account of

income tax were made in 2022 (71 million euros in

2021) as disclosed in note 17. In 2022 the tax inspection

carried out by the Tax Authorities regarding the period

2014-2017 has ended with the payment of 19 million

euros and the proceeds from 2020 and 2021 income

tax totaling 41 and 73 million euros, respectively and

the proceeds from the execution of the agreement

resolution by Spanish Audiencia Nacional of October

24, 2022 as explained in note 17 amounting to 791

million euros.

In this regard, the main amounts passed on to

subsidiaries of the tax group were as follows:

•Telefónica Móviles España, S.A.U.: total collection of

295 million euros, corresponding to: 186 million euros

for the 2021 income tax settlement and 109 million

euros in payments on account of 2022 income tax.

In 2021, there was an income collection of 67 million

euros, corresponding to: 27 million euros for the

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	77

2020 income tax settlement and 40 million euros in

payments on account of 2021 income tax.

•Telefónica de España, S.A.U.: collection of 199 million

euros, corresponding to: 53 million euros for the 2021

income tax settlement refund, 207 million euros in

collections on account of 2022 income tax partially

offset by the 31 million euros collection for the 2020

income tax settlement and 30 million euros

collection for the Tax inspection 2014-2017 carried

out by the Tax Authorities.

In 2021 there was an income collection of 46 million

euros, corresponding to: 3 million euros for the 2020

income tax settlement refund and 49 million euros in

payments of account of 2021 income tax.

•Telefónica  Latinoamérica Holding, S.L.: collection of

15 million euros, corresponding to: A payment of

account for the 2022 income tax by 52 million euros

partially offset by proceeds of 23 million euros raised

by the Decision 117/2022 of Audiencia Nacional

regarding 2008 to 2018 fiscal years and 14 million

euros of proceeds from the 2021 income tax.

In 2021 there was an income collection of 130 million

euros, corresponding to: 60 million euros for the

2020 income tax settlement, 3 million euros in

payments of account of 2021 income tax and 67

million euros for the 2005-2007 income tax

settlement signed in dispute.

•Telefónica Hispanoamérica, S.A.: There has been a

total net collection of 354 million euros

corresponding to: 392 million euros due to the

Inspection process carried out by the Tax Authorities

for the fiscal years 2014-2017 partially offset by the

payments for 2021 income tax by 31 million euros

and the payments of account of 2022 income tax

amounting to 7 million euros.

Cash flows from/(used in) investing

activities

“Payments on investments” under “Cash flows from/

(used in) investing activities" included a total payment of

6,290 million euros (12,410 million euros in 2021). The main

transactions to which these payments refer are as

follows:

•Capital increases: the main disbursements correspond

to Telefónica Hispanoamérica, S.A. amounting to 1,192

million euros, Telefónica Infra, S.L. amounting to 555

million euros and Telefónica Cybersecurity & Cloud

Tech, S.L. amounting to 342 million euros. These capital

increases, as well as other minor disbursements of this

same concept are disclosed fully in notes 8.1.a.

•New credits granted: The main proceeds have been

paid to Bluevía Fibra, S.L. amounting to 526 million

euros and Telefónica Cybersecurity & Cloud Tech, S.L.

amounting to 140 million pounds sterling equivalent to

166 million euros. The disclosure of all the new credits

granted are described in note 8.5.

•Payments of financial investments related to the

reinvestment of treasury overage amounting to 300

million euros.

•Payments of collaterals related to financial derivative

instruments amounting to 2,199 million euros.

Proceeds from disposals totaling 3,521 million euros in

2022 (13,275 million euros in 2021) includes:

•Proceeds from reserves distributed by Telefónica

Centroamérica Inversiones, S.L. amounting to 66 million

euros (see note 8).

•Proceeds totaling 86 million euros as a result of the

liquidation of the treasury of Sao Paulo

Telecomunicaçoes, Ltda. (see note 8).

•The cancellation according to the maturity schedule of

credits granted to Telxius Telecom, S.A. amounting to

100 million euros.

•Proceeds from financial investments related to the

reinvestment of treasury overage amounting 300

million euros.

•Proceeds from collaterals related to financial derivative

instruments amounting to 2.925 million euros.

Cash flows from/(used in) financing

activities

This caption mainly includes the following items:

i.Proceeds from financial liabilities:

a)Debt issues: The main collections comprising this

heading are as follows:

Millions of euros	2022	2021
Telefónica Emisiones, S.A.U. (Note 15)	1,100	—
Bank loans	150	1,000
Telfisa Global, B.V. (Note 15)	2,710	—
Telefónica de Argentina, S.A. (Note 15)	—	314
Telefónica Europe B.V. (Note 15)	750	1,750
Bilateral loans (Note 14)	—	300
Other collections	33	154
Total	4,743	3,518

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	78

b)Prepayments and redemption of debt: The main

payments comprising this heading are as follows:

Millions of euros	2022	2021
Bilateral loans with several entities	1,279	850
Telfisa Global, B.V. (Note 15)	—	2,731
Telefónica Europe, B.V. (Note 15)	750	1,750
Telefónica Europe, B.V. promissory notes (Note 15)	504	248
Promissory notes redemption (Note 13)	30	239
Telefónica Emisiones, S.A.U. (Note 15)	2,787	4,471
Structured Financing	—	320
Telefónica Participaciones, S.A.U, (Note 15)	—	565
Telefónica de Argentina, S.A. (Note 15)	173	335
Credit (Note 14.4)	100	116
Other payments	54	6
Total	5,677	11,631

Debt redemption of loans mainly refers to a bank

loan signed in December 2021, amounting to 1,000

million euros which is included as new debt in the

debt issues chart for 2021. The maturity date of the

loan was March 2022 and it has been redeemed

accordingly.

The commercial paper transactions with Telefónica

Europe, B.V. are stated at their net balance as

recognized for the purposes of the cash flow

statement, being high-turnover transactions where

the interval between purchase and maturity never

exceeds six months.

The financing obtained by the Company from

Telfisa Global, B.V. relates to the Group's integrated

cash management (see note 15). These amounts

are stated net in the cash flow statement as new

issues or redemptions on the basis of whether or

not at year-end they represent current investment

of surplus cash or financed balances payable.

ii.Acquisition of treasury shares, as indicated in note 11.a.

iii.Payments of dividends amount to 959 million euros

(617 million euros in 2021). The figure differs from the

one shown in note 11.1.d) because of the withholding

taxes deducted in the payment to certain major

shareholders, which will be paid to Tax Authorities in

2023 and also the withholding taxes referred to the

dividend distribution made in December 2021 which

have been paid to the Tax Authorities in January 2022.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	79

Note 22. Events after the

reporting period

The following events regarding the Company took place

between the reporting date and the date of preparation

of the accompanying financial statements:

Financing

•On January 13, 2023, the first annual extension of the

sustainability-linked syndicated loan facility for 5,500

million euros of Telefónica, S.A. was exercised. The new

expiration date is January 13, 2028.

•On January 23, 2023, Telefónica Emisiones, S.A.U.

redeemed 1,277 million euros of its notes issued on

January 22, 2013. These notes were guaranteed by

Telefónica, S.A.

•In January 2023, Telefónica Europe, B.V. carried out the

following transactions related to its capital structure:

◦a new issue amounting to 1,000 million euros,

guaranteed by Telefónica, S.A. An amount equal to

the net proceeds of the issue of the securities will be

subject to specific eligibility criteria to be applied to

finance new or refinance existing projects, as

detailed in Telefónica's SDG Framework. The

settlement took place on February 2, 2023; and

◦a tender offer for the following hybrid instruments: (i)

any outstanding 1,250 million euros Undated 5.7 Year

Non-Call Deeply Subordinated Guaranteed Fixed

Rate Reset Securities (the "September 2023 Notes")

and (ii) any outstanding 1,000 million euros Undated

10 Year Non-Call Deeply Subordinated Guaranteed

Fixed Rate Reset Securities (the "March 2024

Notes"), irrevocably guaranteed by Telefónica, S.A.

Telefónica Europe, B.V. accepted the purchase in

cash of the tendered securities for an aggregate

principal amount, with respect to the September

2023 Notes, of 388 million euros, and an aggregate

principal amount, with respect to the March 2024

Notes, of 612 million euros. The tender offer settled

on February 3, 2023.

•On February 3, 2023 Bluevía Fibra, S.L. has reimbursed,

prior to its maturity, the credit facility by Telefónica, S.A.

(See note 8), as well as the uncollected interests as of

the payment date. The total amount repaid amounts to

528 million euros.

•On February 14, 2023, Telefónica, S.A. signed a bilateral

loan of 150 million euros and maturing in 2033.

Investments

•On January 13, 2023 the Company sold the investment

in Telefónica Ingeniería de Seguridad, S.A.U. to

Telefónica Filiales España, S.A.U. by 6 million euros.

•On January 18, 2023, Telefónica informed that, once the

corresponding regulatory and competition approvals

were obtained, Pontel Participaciones, S.L., Telefónica’s

subsidiary held 83.35% by Telefónica and 16.65% by

Pontegadea Inversiones, S.L., acquired 40% of the

share capital of Telxius Telecom, S.A. from Taurus

Bidco S.à r.l. (a company managed by KKR). As a result

of the transaction, Pontel Participaciones, S.L., which

held the remaining 60% of Telxius Telecom, S.A.'s share

capital, has become the sole shareholder of Telxius

Telecom, S.A. Within the framework of the transaction,

and on the same date, Pontel Participaciones, S.L. has

carried out a capital increase fully subscribed and paid

by its shareholders' in the proportion agreed between

them so that Telefónica, S.A. has paid 111 million euros

reducing its ownership interest to 70%. On January 17

and February 2, 2023, Telefónica granted  two loans

amounting to 0.6 and 175 million euros both with 1 year

maturity date. On February 7, 2023, the shareholders of

Pontel Participaciones, S.L. approved a dividend

distribution out of share premium and shareholder

contributions, of which a total amount of 552 million

euros corresponds to Telefónica, and will be paid no

later than 31 May 2023. Finally, on February 8, 2023, the

merger by absorption of Pontel Participaciones, S.L. by

Telxius Telecom, S.A. was agreed.

•On January 26, 2023, the deed of the capital increase

carried out by Telefónica Digital España, S.A.U. by 45

million euros has been filed. This share capital increase

has been fully subscribed and paid by Telefónica.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	80

Note 23. Additional note for

English translation

These annual financial statements were originally

prepared in Spanish and were authorized for issue by the

Company’s Directors in the meeting held on February 22,

2023. In the event of a discrepancy, the Spanish

language version prevails.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	81

Appendix I: Details of subsidiaries and

associates at December 31, 2022

Millions of euros	% Ownership					Income (loss)
Name and corporate purpose	Direct	Indirect	Capital	Rest of equity	Dividends	From operations	For the year	Net carrying amount
Telefónica Latinoamérica Holding, S.L.U. (SPAIN) Holding Company Distrito Telefónica. Ronda de la Comunicación s/n 28050 Madrid	100%	—	291	9,431	—	1,452	2,004	11,371
Telefónica Móviles España, S.A.U. (SPAIN) Wireless communications services provider Distrito Telefónica, Ronda de la Comunicación s/n 28050 Madrid	100%	—	209	306	—	929	678	5,561
Telfin Ireland Limited (IRELAND) Intragroup financing 28/29 Sir John Rogerson’s Quay, Dublin 2	100%	—	—	2	—	—	—	2
Telefónica O2 Holdings Limited (UNITED KINGDOM) Holding Company Highdown House, Yeoman Way, Worthing, West Sussex,  BN99 3HH	99.99%	0.01%	13	6,904	909	3,559	4,500	11,473
Telefónica Móviles México, S.A. de C.V. (MEXICO) Holding Company Prolongación Paseo de la Reforma 1200 Col. Cruz Manca, México D.F. CP.05349	100%	—	601	(559)	—	—	3	45
Telefónica de España, S.A.U. (SPAIN) Telecommunications service provider in Spain Gran Vía, 28 - 28013 Madrid	100%	—	1,024	1,586	—	3,171	2,553	2,455
O2 (Europe) Ltd. (UNITED KINGDOM) Holding Company Highdown House, Yeoman Way, Worthing, West Sussex,  BN99 3HH	100%	—	6,895	1,597	—	—	1	8,421
Telefónica Filiales España, S.A.U. (ESPAÑA) Organization and operation of multimedia service- related activities and businesses Distrito Telefónica, Ronda de la Comunicación s/n, Madrid 28050	100%	—	226	982	—	(28)	(27)	1,181
Telfisa Global, B.V. (NETHERLANDS) Integrated cash management, consulting and financial support for Group companies Strawinskylaan 1259; tower D; 12th floor 1077 XX - Amsterdam	100%	—	—	712	14	(2)	8	712
O2 Oak Limited (UNITED KINGDOM) Holding Company Highdown House, Yeoman Way, Worthing, West Sussex,  BN99 3HH	100%	—	—	—	—	—	—	—
Telefónica Hispanoamérica, S.A. (SPAIN) Holding Company Ronda de la Comunicación, s/n – 28050 Madrid	100%	—	78	48	—	(341)	(402)	1,486
TIS Hispanoamérica, S.L.  (SPAIN)                                                                    Holding Company                                                                                                  Ronda de la Comunicación, s/n  Distrito Telefónica Edificio Central - 28050 Madrid	100%	—	—	7	—	(1)	(1)	6

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	82

Millions of euros	% Ownership					Income (loss)
Name and corporate purpose	Direct	Indirect	Capital	Rest of equity	Dividends	From operations	For the year	Net carrying amount
Telefónica Soluciones de Criptrografía, S.A. (SPAIN) Engineering, development, production, sale and maintenance of telecommunication and electronic equipment Gran Vía 28, 28013 Madrid	100%	—	—	1	—	—	—	2
Telefónica Tech , S.L. (SPAIN) Promotion of business initiatives and holding for securities Gran Vía 28-28013 Madrid	100%	—	65	850	—	(5)	(4)	905
O2 Worldwide Limited (UNITED KINGDOM) Private Limited Company C/O Stobbs Building 1000, Cambridge Research Park, Cambridge,  CB25 9PD	100%	—	—	—	—	—	—	—
Telefónica Capital, S.A.U. (SPAIN) Finance Company Gran Vía, 28 - 28013 Madrid	100%	—	7	202	—	—	7	110
Telefónica Digital España, S.L.U. (SPAIN) Holding Company Ronda de la Comunicación, s/n Distrito Telefónica Edificio Central - 28050 Madrid	100%	—	26	385	—	(41)	(130)	281
TLH Holdco, S.L. (SPAIN)                                                                                   Holding Company                                                                                                                Ronda de la Comunicación, s/n  Distrito Telefónica Edificio Central - 28050 Madrid	100%	—	85	1,561	—	(17)	(15)	1,646
Telefónica Internacional USA, Inc. (U.S.A.) Financial Advisory services 1221 Brickell Avenue suite 600 - 33131 Miami - Florida	100%	—	—	1	—	—	—	—
Lotca Servicios Integrales, S.L. (SPAIN) Ownership, operation and aircraft leases Gran Vía, 28 - 28013 Madrid	100%	—	17	39	—	(5)	(4)	53
Telefónica Ingeniería de Seguridad, S.A.U. (SPAIN) Security services and systems Ramón Gómez de la Serna, 109-113 Posterior 28035 Madrid	100%	—	8	5	—	(5)	(2)	6
Telefónica Infra, S.L. (SPAIN) Portfolio Company (Holding) Ronda de la Comunicación S/N - 28050 Madrid	100%	—	12	736	—	(14)	(9)	738
Telefónica Finanzas, S.A.U. (TELFISA) (SPAIN) Integrated cash management, consulting and financial support for Group companies Ronda de la Comunicación, s/n – 28050 Madrid	100%	—	3	(76)	182	(3)	100	13
Telefónica Global Solutions, S.L.U. (SPAIN) International services provider Ronda de la Comunicación, s/n – 28050 Madrid	100%	—	1	77	—	(20)	(31)	47
Telefónica Investigación y Desarrollo, S.A.U. (SPAIN) Telecommunications research activities and projects Ronda de la Comunicación, s/n – 28050 Madrid	100%	—	7	6	—	(2)	1	13
Telefónica Luxembourg Holding S.à.r.L. (LUXEMBOURG) Holding Company 26, rue Louvingny, L-1946- Luxembourg	100%	—	3	175	—	—	—	4
Telefónica Servicios Globales, S.L.U. (SPAIN) Management and administrative services provider Ronda de la Comunicación, s/n – 28050 Madrid	100%	—	1	81	—	—	—	82
Telefónica Participaciones, S.A.U. (SPAIN) Issues of preferred shares and/or other debt financial instruments Gran Vía, 28 - 28013 Madrid	100%	—	—	1	—	—	—	—

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	83

Millions of euros	% Ownership					Income (loss)
Name and corporate purpose	Direct	Indirect	Capital	Rest of equity	Dividends	From operations	For the year	Net carrying amount
Telefónica Emisiones, S.A.U. (SPAIN) Issues of preferred shares and/or other debt financial instruments Gran Vía, 28 - 28013 Madrid	100%	—	—	14	—	(2)	1	—
Telefónica Europe, B.V. (NETHERLANDS) Fund raising in capital markets Strawinskylaan 1259; tower D; 12th floor 1077 XX – Amsterdam	100%	—	—	3	2	(1)	2	—
Toxa Telco Holding, S.L. (SPAIN) Holding Company Ronda de la Comunicación s/n Madrid 28050	100%	—	—	—	—	—	—	—
Pontel Participaciones, S.L. (SPAIN) Holding Company Distrito Telefónica, Ronda de Comunicación, s/n	83.35%	—	—	794	—	—	—	785
Telefónica Centroamérica Inversiones, S.L (SPAIN) Holding Company Ronda de la Comunicación, s/n. - 28050 Madrid	60%	—	1	8	—	(8)	(12)	(2)
Telefónica Global Solutions Argentina, S.A.                (ARGENTINA) Telecommunications services                                              Av. Corrientes 707, Planta Baja,                                    Ciudad de Buenos Aires, Argentina	5%	95%	3	—	—	1	—	—
Telefónica Consumer Finance E.F.C., S.A. (SPAIN) Lending and consumer loans c/Caleruega, 102 -28033 Madrid	50%	—	5	29	2	6	4	15
Aliança Atlântica Holding B.V. (NETHERLANDS) Portfolio Company Strawinskylaan 1725 – 1077 XX – Amsterdam	50%	37%	150	(106)	—	—	—	22
Telefónica Renting, S.A. (SPAIN) Purchase, sale and leasing of all kinds of movable property and provision of services ancillary to the leasing thereof.                                                                                        Avda. de Manoteras, 20. Edificio París.  Madrid	50%	—	—	2	—	—	—	1
Telefônica Brasil, S.A. (BRAZIL) (1) (*) (**) Wireline phone operator                                              Avenida Engenheiro Luiz Carlos Berrini, 1.376, Bairro Cidade Monções, Sao Paulo - Brazil	38.14%	36.65%	23,164	(10,672)	309	1,254	785	7,907
Wayra Argentina,S.A.  (ARGENTINA) Telecommunications activities                                              Av. Corrientes 707, Planta Baja,                                    Ciudad de Buenos Aires, Argentina	5%	95%	20	(13)	—	1	(3)	—
Telefónica Correduría de Seguros y Reaseguros Compañía de Mediación, S.A. (previously named Pleyade Peninsular) (SPAIN) Insurance contracts, operating as a broker Distrito Telefónica, Ronda de la Comunicación, s/n Edificio Oeste 1 – 28050 Madrid	16.67%	83.33%	—	—	1	2	4	—
Telefónica Telecomunicaciones México, S.A. de C.V. (MÉXICO) Factoring Prolongación Paseo de la Reforma 1200 Col. Cruz Manca, México D.F. CP.05349	49%	—	—	—	—	—	—	—
Telefónica Factoring España, S.A. (SPAIN) Factoring Zurbano, 76, 8 Plta. - 28010 Madrid	50%	—	5	2	4	10	10	3
Telefónica Factoring México, S.A. de C.V. SOFOM ENR (MEXICO) Factoring                                                                      Prolongación Paseo de la Reforma 1200 Col. Cruz Manca, México D.F. CP.05349	40.50%	9.50%	2	1	—	—	—	1

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	84

Millions of euros	% Ownership					Income (loss)
Name and corporate purpose	Direct	Indirect	Capital	Rest of equity	Dividends	From operations	For the year	Net carrying amount
Telefónica Factoring Perú, S.A.C. (PERÚ) Factoring                                                                            Avenida República de Panamá Nro 3030 piso 6to. San Isidro  Lima, Perú	40.50%	9.50%	1	2	1	(1)	1	—
Telefónica Factoring Colombia, S.A. (COLOMBIA) Factoring                                                                              CALLE 72 N 10 34 LOCAL 136 Bogotá D.C	40.50%	9.50%	1	—	1	3	2	—
Telefónica Deutschland Holding, A.G. (*) (GERMANY)                                                                      Telecommunications business holding company    Georg-Brauchle-Ring 23-25 MUENCHEN,            Germany 80992	1.36%	69.22%	2,975	3,182	4	(2)	(20)	98
Telefónica Factoring Do Brasil, Ltd. (BRAZIL) Factoring Avda. Paulista, 1 106 – Sao Paulo	40%	10%	2	(2)	3	(1)	6	1
Torre de Collçerola, S.A. (SPAIN) Operation of telecommunications mast and technical assistance and consulting services.  Ctra. Vallvidrera- Tibidabo, s/n - 08017 Barcelona	30.40%	—	5	—	—	—	—	1
Other Companies					18
Total group companies and associates					1,450			55,445

(1) Consolidated data.

(*) Companies listed on international stock exchanges at December 31, 2022.

(**) % of ownership calculated over share capital offset by treasury shares.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	85

Appendix II: Board and Senior

Management Compensation

TELEFÓNICA, S.A.

(Amounts in euros)

Directors	Salary1	Fixed remunera- tion2	Allowances 3	Short-term variable remuneration 4	Remuneration for belonging to the Board Committees5	Other items6	Total
Mr. José María Álvarez-Pallete López	1,923,100	—	—	4,198,897	—	6,085	6,128,082
Mr. Isidro Fainé Casas	—	200,000	—	—	80,000	—	280,000
Mr. José María Abril Pérez	—	200,000	9,000	—	91,200	—	300,200
Mr. José Javier Echenique Landiríbar	—	200,000	24,000	—	113,600	—	337,600
Mr. Ángel Vilá Boix	1,600,000	—	—	2,911,200	—	24,514	4,535,714
Mr. Juan Ignacio Cirac Sasturain	—	120,000	30,000	—	33,600	—	183,600
Mr. Peter Erskine	—	120,000	19,000	—	113,600	—	252,600
Ms. Carmen García de Andrés	—	120,000	32,000	—	33,600	—	185,600
Ms. María Luisa García Blanco	—	120,000	32,000	—	44,800	—	196,800
Mr. Peter Löscher	—	120,000	23,000	—	113,600	—	256,600
Ms. Verónica Pascual Boé	—	120,000	7,000	—	11,200	—	138,200
Mr. Francisco Javier de Paz Mancho	—	120,000	33,000	—	124,800	—	277,800
Mr. Francisco José Riberas Mera	—	120,000	—	—	—	—	120,000
Ms. María Rotondo Urcola	—	120,000	20,000	—	22,400	—	162,400
Ms. Claudia Sender Ramírez	—	120,000	18,000	—	22,400	—	160,400

1Salary: Regarding Mr José María Álvarez-Pallete López and Mr Ángel Vilá Boix, the amount includes the non-variable remuneration earned from their executive

functions.

2Fixed remuneration: Amount of the compensation in cash, with a pre-established payment periodicity, whether or not it can be consolidated over time, earned

by the member for his/her position on the Board, regardless of the effective attendance of the member to board meetings.

3 Allowances: Total amount of allowances for attending Advisory or Steering Committee meetings.

4Short-term variable remuneration (bonuses): Variable amount linked to the performance or achievement of a series of individual or group objectives

(quantitative or qualitative) within a period of time equal to or less than a year, corresponding to the year 2022 and to be paid in the year 2023. In reference to

the bonus corresponding to 2021, which was paid in 2022, Executive Board Member Mr José María Álvarez-Pallete López received 3,807,738 euros and

Executive Board Member Mr Ángel Vilá Boix received 2,640,000 euros.

5Remuneration for belonging to the Board Committees: Amount of items other than allowances, which the directors are beneficiaries through their position on

the Executive Commission and the Advisory or Steering Committees, regardless of the effective attendance of the board member such Committee meetings.

6Other concepts: This includes, among others, the amounts received as remuneration in kind (general medical and dental coverage and vehicle insurance), paid

by Telefónica, S.A.

 

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	86

The following table breaks down the amounts accrued

and/or received from other companies of the Telefónica

Group other than Telefónica, S.A. individually, by the

Board Members of the Company, by the performance of

executive functions or by their membership to the Board

of Directors of such companies:

OTHER COMPANIES OF THE TELEFÓNICA GROUP

(Amounts in euros)

Directors	Salary1	Fixed remunera- tion2	Allowances3	Short-term variable remuneration4	Remuneration for belonging to the Board Committees5	Other items6	Total
Mr. José María Álvarez-Pallete López	—	—	—	—	—	—	—
Mr. Isidro Fainé Casas	—	—	—	—	—	—	—
Mr. José María Abril Pérez	—	—	—	—	—	—	—
Mr. José Javier Echenique Landiríbar	—	90,000	—	—	—	87,500	177,500
Mr. Ángel Vilá Boix	—	—	—	—	—	—	—
Mr. Juan Ignacio Cirac Sasturain	—	—	—	—	—	90,457	90,457
Mr. Peter Erskine	—	80,000	—	—	—		80,000
Ms Carmen García de Andrés	—	—	—	—	—	—	—
Ms. María Luisa García Blanco	—	—	—	—	—	87,500	87,500
Mr. Peter Löscher	—	119,000	—	—	—	—	119,000
Ms. Verónica Pascual Boé	—	—	—	—	—	60,457	60,457
Mr. Francisco Javier de Paz Mancho	—	170,727	—	—	—	155,000	325,727
Mr. Francisco José Riberas Mera	—	—	—	—	—	—	—
Ms. María Rotondo Urcola	—	—	—	—	—	—	—
Ms. Claudia Sender Ramírez	—	—	—	—	—	127,957	127,957

1. Salary: Amount of non-variable remuneration earned by the Director from other companies of the Telefónica Group for his/her executive functions. 

2. Fixed remuneration: Amount of the compensation in cash, with a pre-established payment periodicity, subject to consolidation over time or not, earned by the

member for his/her position on the boards of other companies of the Telefónica Group.

3. Allowances: Total amount of the allowances for attending the board meetings of other companies of the Telefónica Group.

4. Variable short-term remuneration (bonuses): Variable amount linked to the performance or achievement of a series of individual or group objectives

(quantitative or qualitative) within a period of time equal to or less than a year, corresponding to the year 2022 and to be paid in the year 2023 by other

companies of the Telefónica Group.

5. Remuneration for belonging to the Board Committees of other companies of the Telefónica Group: Amount of items other than allowances, which the

directors are beneficiaries through their position on the Advisory or Steering Committees of other companies of the Telefónica Group, regardless of the

effective attendance of the board member such Committee meetings.

6. Other concepts: This includes, among others, the amounts received as remuneration in kind (general medical and dental coverage and vehicle insurance),

paid by other companies of the Telefónica Group. Also included are the amounts received for membership of the Advisory Boards of Telefónica España,

Telefónica Hispanoamérica, Telefónica Tech and Telefónica Ingeniería de Seguridad.

Additionally, as mentioned in the Remuneration Policy

section, the Executive Board Members have a series of

Assistance Services. Below, the contributions made

during 2022 are detailed for the Company to long-term

savings systems (Pension Plans and Social Welfare Plan):

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	87

LONG-TERM SAVINGS SYSTEMS

(Amounts in euros)

Directors	Contributions for fiscal year 2022
Mr. José María Álvarez-Pallete López	673,085
Mr. Ángel Vilá Boix	560,000

The breakdown of the long-term saving systems

includes contributions to Pension Plans, to the Benefit

Plan and to the Unit link-type Insurance, as set out

below:

(Amounts in euros)

Directors	Contribution to Pension Plans	Contribution to Executive Social Welfare Plan1	Contributions to Unit link- type Insurance/ Pension Plan Surplus2
Mr. José María Álvarez- Pallete López	7,574	540,968	124,543
Mr. Ángel Vilá Boix	6,721	487,840	65,439

1. Contributions to the Executive Social Welfare Plan established in 2006,

financed exclusively by the Company, to complement the current Pension

Plan, which involves defined contributions equivalent to a certain

percentage of the fixed remuneration of the Director, depending on the

professional levels in the organization of the Telefónica Group.

2. Contributions to Unit link-type Insurance/Pension Plan Surplus: In 2015

and 2021, applicable law reduced the financial and tax limits of the

contributions to Pension Plans; for this reason, in order to compensate for

the difference in favor of the Beneficiaries, a Unit-link type group insurance

policy was arranged to channel such differences that occur during each

fiscal year.

This Unit-link type insurance is arranged with the entity Plus Ultra, Seguros

Generales y Vida, S.A. de Seguros y Reaseguros (after the merger through

absorption of Seguros de Vida y Pensiones Antares, S.A.U. by Plus Ultra), and

covers the same contingencies as those of the “Pension Plan” and the same

exceptional liquidity events in case of serious illness or long-term

unemployment.

LIFE INSURANCE PREMIUMS

The 2022 amounts for life insurance premiums were as

follows:

(Amounts in euros)

Directors	Life insurance premiums
Mr. José María Álvarez-Pallete López	74,699
Mr. Ángel Vilá Boix	58,820

REMUNERATION PLANS BASED ON

SHARES

As regards to remuneration plans based on shares

(involving Executive Directors), the following long-term

variable remuneration plans were in existence during

the year 2022:

The so-called Performance Share Plan ("PSP"), made

up of 3 cycles (2018-2021; 2019-2022; 2020-2023),

approved by the General Shareholders' Meeting held on

June 8, 2018.

The maximum number of Telefónica shares to be

delivered depends (i) 50% of the compliance with the

targets set out for Total Shareholder Return ("TSR") on

Telefónica, S.A. shares with respect to the TSRs of a

comparison group of companies in the

telecommunications sector weighted according to their

relevance to Telefónica, and (ii) 50%, of the Free Cash

Flow (the "FCF") of the Telefónica Group.

The target measurement period for the First Cycle

started on January 1, 2018 and ended on December 31,

2020, resulting in a weighted payout ratio of 50%.

Notwithstanding the foregoing, the Executive Chairman

stated to the Nominating, Compensation and Corporate

Governance Committee, at its meeting of February 23,

2021, that he considered it appropriate to propose his

waiver of the incentive, as a gesture of responsibility

towards the company, customers, shareholders and

employees of Telefónica, as well as a measure of

prudence following the economic effects derived from

COVID-19. The CEO expressed the same view. The

resignation was accepted by the Board of Directors.

The target measurement period for the Second Cycle

started on January 1, 2019 and ended on December 31,

2021, resulting in a weighted payout ratio of 50%. The

evaluation of the degree of compliance was carried out

on the basis of the evolution of the share price, as well as

the audited results of the Company. Thus, at the end of

the Plan's Second Cycle, Executive Directors received

234,000 gross shares in the case of the Executive

Chairman, Mr. José María Álvarez-Pallete López, and

173,500 gross shares in the case of the Chief Operating

Officer (C.O.O.) Mr. Ángel Vilá Boix. 

The target measurement period of the Third and last

Cycle started on January 1, 2020 and ended on

December 31, 2022.

This Cycle had a maximum of 465,000 shares allocated

on January 1, 2020, to the executive Directors, with a unit

fair value of 3.2136 euros per share for FCF ("Free Cash

Flow") and 1.6444 euros for TSR ("Total Shareholder

Return"). At the end of the cycle date, Kepler has

submitted the Nominating, Compensation and Good

Governance Committee the calculation of Total

Shareholder Return for Telefónica, S.A., which has

concluded below the median according to the

performance scale. Therefore, there is no right to

perceive the number of shares linked to the relative TSR

objective.

With respect to Free Cash Flow objective, considering

the partial fulfillment of 2020, 2021 and 2022, the average

weighted payment coefficient is 50%. Performance

assessment has been carried out based on the results

audited both by independent and internal auditors of the

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	88

Company, analyzed firstly by the Audit and Control

Committee and subsequently submitted to the

Nominating, Compensation and Corporate Governance

Committee and approved by the Board of Directors.

Thus, at the end of the Plan's Third and last Cycle,

Executive Directors are entitled to receive 133,500 gross

shares in the case of the Executive Chairman, Mr. José

María Álvarez-Pallete López, and 99,000 gross shares in

the case of the Chief Operating Officer (C.O.O.) Mr Ángel

Vilá Boix.

On the other hand, the denominated Performance

Share Plan (PSP), consisting of three cycles

(2021-2024; 2022- 2025; 2023-2026), approved by

the Ordinary General Meeting of Shareholders held on

April 23, 2021, was also in force during the financial year

2022.

There were two Cycles of the Plan in force during the

2022 financial year. The First Cycle, which started on

January 1, 2021 and will end on December 31, 2023. If

targets are met, the shares will be delivered in 2024. And

the Second Cycle, which started on January 1, 2022 and

will end on December 31, 2024. If targets are met, the

shares will be delivered in 2025.

In both Cycles, the number of Telefónica, S.A. shares that,

within the established maximum, could be delivered, as

the case may be, to the Participants, is conditioned and is

determined based on the compliance of the established

targets: 50% of the compliance of the Total Shareholder

Return objective (the TSR) of the Telefónica, S.A. share,

40% of the generation of Free Cash Flow of the

Telefónica Group (the FCF), and 10% of the Neutralization

of CO2 Emissions.

To determine compliance with the TSR target and

calculate the specific number of shares to be delivered

for this concept, the performance of the TSR on

Telefónica, S.A.'s shares will be measured during the

measurement period of each three-year cycle, in relation

to the TSRs experienced by certain companies in the

telecommunications sector, weighted according to their

relevance to Telefónica, S.A., which for purposes of the

Plan will constitute a comparison group (hereinafter the

"Comparison Group"). The companies included in the

Comparison Group are listed below: América Móvil, BT

Group, Deutsche Telekom, Orange, Telecom Italia,

Vodafone Group, Proximus, Koninklijke KPN, Millicom,

Swisscom, Telenor, TeliaSonera, TIM Brasil, and Liberty

Global.

With regard to complying with the TSR objective, the

Plan will foresee that the number of shares to be

delivered associated with meeting this objective will

range from 15% of the number of theoretical shares

assigned, assuming that the TSR performance of

Telefónica, S.A. shares is at least the median of the

comparison group, to 50%if the performance is in the

third quartile or above in the Comparison Group, with the

percentage calculated by linear interpolation for cases

falling between the median and third quartile.

In order to determine the compliance with the FCF

objective and calculate the specific number of shares to

be delivered for this concept, the FCF level generated by

the Telefónica Group during each year will be measured

and compared to the value set in the budgets approved

by the Board of Directors for each financial year.

With regard to the FCF, for each of the two cycles in

force during the fiscal year 2022, the Board of Directors,

at the proposal of the Appointments, Remunerations and

Corporate Governance Committee, determined a scale of

achievement that includes a minimum threshold of 90%

compliance, below which no incentive is paid and

compliance with which will entail the delivery of 20% of

the theoretical shares assigned, and a maximum level of

100% compliance, which will entail the delivery of 40% of

the theoretical shares assigned.

To determine compliance with the CO2 Emissions

Neutralization target and calculate the specific number of

shares to be delivered for this item, the level of CO2

emissions neutralization achieved at the end of the cycle

will be measured, with the incentive being paid upon

reaching a certain level of scope 1 + 2 emissions

reduction.

The level of direct and indirect CO2 emissions from our

daily activity shall be calculated according to the

following:

CO2 Emission = Activity x Emission Factor, where:

-  Activity: Amount of energy, fuel, gas, etc. consumed by

the Company.

-  Emission Factor: Amount of CO2 emitted to the

atmosphere by the consumption of each unit of activity.

The emission factor provided by official sources

(European Union, Ministries, CNMC, etc.) is used for

electricity and the GHG Protocol emission factors are

used for fuels.

At the beginning of both cycles, the Board of Directors, at

the proposal of the Appointments, Remunerations and

Corporate Governance Committee, determined a scale of

achievement that includes a minimum threshold of 90%

compliance, below which no incentive is paid and

compliance with which will entail the delivery of 5% of the

theoretical shares assigned, and a maximum level of

100% compliance, which will entail the delivery of 10% of

the theoretical shares assigned. In addition, a minimum

level of emission reductions of Scope 1 + 2 will need to be

achieved for the incentive to be paid.

In any case, 100% of the shares delivered under the Plan

to the Executive Directors and other Participants as

determined by the Board of Directors shall be subject to a

two-year holding period.

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	89

In addition, in accordance with the provisions of the

Remuneration Policy for Directors of Telefónica, SA, the

Executive Directors must maintain (directly or indirectly) a

number of shares (including those delivered as

remuneration) equivalent to two years of their Gross

Fixed Remuneration, as long as they continue to belong

to the Board of Directors and perform executive

functions. Until such time as this requirement is met, the

holding period for any shares delivered under the Plan to

Executive Directors will be three years.

The maximum number of allocated shares to be delivered

in the event of maximum compliance with the TSR (Total

Shareholder Return), FCF (Free Cash Flow) and CO2

Emission Neutralization targets set for the First and

Second Cycle of the Plan is shown below.

PSP - First Cycle / 2021-2024

Directors	Maximum number of shares (*)
Mr. José María Álvarez-Pallete López	1,094,000
Mr. Ángel Vilá Boix	819,000

(*) Maximum possible number of shares to be received in case of maximum

completion of TSR, FCF and Neutralization of CO2 Emissions  target. 

In any case, it is noted that no shares have been delivered

to Executive Directors under the first cycle of the PSP

and that the above table only reflects the number of

potentially deliverable shares, without in any way

implying that all or part of the shares will actually be

delivered.

PSP - Second Cycle / 2022-2025

Directors	Maximum number of shares (*)
Mr. José María Álvarez-Pallete López	995,000
Mr. Ángel Vilá Boix	745,000

(*) Maximum possible number of shares to be received in case of maximum

completion of TSR, FCF and Neutralization of CO2 Emissions target.

In any case, it is noted that no shares have been delivered

to Executive Directors under the second cycle of the PSP

and that the above table only reflects the number of

potentially deliverable shares, without in any way

implying that all or part of the shares will actually be

delivered.

On the other hand, Telefónica, S.A. General Meeting of

Shareholders held on April 8, 2022, approved a new

Global Telefónica, S.A. Incentive Share Purchase Plan for

Telefónica Group Employees, in which the Executive

Directors participate as a token of their commitment to

the Company and in order to encourage other employees

to participate in the Global Plan. The Plan will end in

March 2024, and the maximum amount that each

employee can allocate to it is 1,800 euros.

In addition, it should be noted that the external directors

of the company do not perceive nor have perceived

remuneration during the year 2022 in concept of

pensions or life insurance, nor do they participate in

compensation plans referenced to the value of the share

price. 

Furthermore, the company does not grant nor has

granted during the year 2022, an advance, loan or credit

in favor of its Board Members or its Senior Management,

complying with the requirements of the Sarbanes-Oxley

Act published in the United States, which is applicable to

Telefónica as a listed company in this market.  

Remuneration of the Company’s

Senior Management

As for the Directors who made up the Senior

Management1 of the company in the year 2022,

excluding those who form an integral part of the Board of

Directors, have accrued a total amount of 9,381,900

euros during the 2022 fiscal year. 

In addition, and in terms of long-term savings systems,

the contributions made by the Telefónica Group during

the year 2022 to the Social Security Plan described in the

"Income and expenditure" note with regard to these

directors increased to 943,754 euros; the contributions

corresponding to the Pension Plan increased to 214,600

euros; the contributions to the Seguro Unit link-Excess

Pension Fund increased to 112,712 euros.

Furthermore, the amount related to the remuneration in

kind (which includes the fees for life insurance and other

insurance, such as the general medical and dental

coverage, and vehicle insurance) was 185,657 euros.

On the other hand, regarding share-based remuneration

plans, during the year 2022, there were in force the

following long-term variable remuneration plans:  

The so-called "Performance Share Plan" ("PSP"),

made up of three cycles (2018-2021; 2019-2022;

2020-2023), approved by the General Shareholders'

Meeting held on June 8, 2018.

The target measurement period of the First Cycle started

on January 1, 2018 and ended on December 31, 2020,

resulting in a weighted payment coefficient of

50%.Consequently, the number of shares corresponding

to the First Cycle (2018-2021) of the Performance Share

Plan that were delivered in the 2021 financial year to the

Company's Senior Executives amounted to 220,085

gross shares.

The target measurement period of the Second Cycle

started on January 1, 2019 and ended on December 31,

2021, resulting in a weighted payment coefficient of 50%.

Consequently, the number of shares corresponding to

the Second Cycle (2019-2022) of the Performance Share

Plan that were delivered in the 2022 financial year to the

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	90

Company's Senior Executives amounted to 256,246 gross

shares.

The target measurement period of the Third and last

Cycle started on January 1, 2020 and ended on

December 31, 2022. This cycle had a maximum of 316,762

shares allocated on January 1, 2020 to the group of

directors forming part of the Company's Senior

Management, with a unit fair value of 3.2136 euros per

share for FCF and 1.6444 euros for TSR. At the end of the

cycle date, Kepler has submitted the Nominating,

Compensation and Good Governance Committee the

calculation of TSR for Telefónica, S.A., which has

concluded below the median according to the

performance scale. Therefore, there is no right to

perceive the number of shares linked to the relative TSR

objective.

With respect to Free Cash Flow objective, considering

the partial fulfillment of 2020, 2021 and 2022, the average

weighted payment coefficient is 50%. Performance

assessment has been carried out based on the results

audited both by independent and internal auditors of the

Company, analyzed firstly by the Audit and Control

Committee and subsequently submitted to the

Nominating, Compensation and Corporate Governance

Committee and approved by the Board of Directors.

Thus, at the end of the Third Cycle (2020-2023) of the

Performance Share Plan, the Company's Senior

Executives are entitled to receive 158,381 gross shares.

On the other hand, the Performance Share Plan (PSP),

consisting of three cycles (2021-2024; 2022-2025;

2023- 2026), approved by the Ordinary General Meeting

of Shareholders held on April 23, 2021, was also in force

during the financial year 2022.

The target measurement period of the First Cycle started

on January 1, 2021 and will end on December 31, 2023.

The maximum number of shares allocated to be delivered

in 2023 in the event of maximum compliance with the

TSR (Total Shareholder Return), FCF (Free Cash Flow)

and CO2 Emission Neutralization targets set for the First

Cycle (2021-2024) for all the Company's Senior

Executives was 1,333,081.

The target measurement period of the Second Cycle

started on January 1, 2022 and will end on December 31,

2024. The maximum number of shares allocated to be

delivered in 2025 in the event of maximum compliance

with the TSR (Total Shareholder Return), FCF (Free Cash

Flow) and CO2 Emission Neutralization targets set for the

Second Cycle (2022-2025) for all the Company's Senior

Executives was 1,241,015.

On the other hand, Telefónica, S.A. General Meeting of

Shareholders held on April 8, 2022, approved a new

Global Telefónica, S.A. Incentive Share Purchase Plan for

Telefónica Group Employees, in which the Senior

Management participate as a token of their commitment

to the Company and in order to encourage other

employees to participate in the Plan. The Plan will end in

March 2024, and the maximum amount that each

employee can allocate to it is 1,800 euros.

(1) For these purposes, Senior Management is understood to be those

persons who perform, de jure or de facto, senior management functions

reporting directly to the Board of Directors or Executive Committees or

Managing Directors of the Company, including, in all cases, the person

responsible for Internal Audit. 

Financial Statements 2022

Individual Annual Report  2022	Telefónica, S. A.	91

Management report 2022

.

This Management Report has been prepared taking into

consideration the ‘Guidelines on the preparation of

annual corporate governance reports for listed

companies’, published by CNMV in July 2013.

In accordance with Law 11/2018 of December 28, and

following the amendment of the article 262 of Commerce

Law, the Company is not complied to include non-

financial information in the Management Report. The

disclosure of this information can be found in the

Consolidated Management Report of the Telefónica

Group (whose parent Company is Telefónica, S.A.)  which

will be filed as well as the consolidated financial

statements in the Companies' Register of Madrid.

Business Model

Traditionally, the telecommunications business has

been based on the investment and operation of a series

of assets, mainly network assets, on which operators

build services targeted at all their customer segments.

Nowadays, networks are moving towards models more

akin to software platforms. This enables the creation of

new business models, based on making the main

capabilities of our networks available to different players

(not only end customers) through connectors or

Application programming interface (APIs).

The traditional value chain of telecommunications

operators includes the following elements: 

•Assets: a set of tangible and intangible elements,

developed through investment, which is typically

capital-intensive. These are mainly fixed and mobile

networks, their subsequent developments, business

and service platforms and other intangible elements

(licences, spectrum, brands, etc.).

•Services: companies in the sector typically develop

their own services based on the assets deployed (or

may offer third-party services). The core business

includes the main fixed and mobile communications

businesses, although operators have been shifting

towards businesses adjacent to connectivity.

•Customers: integrated telecommunications

companies, such as Telefónica, usually have a very

diverse portfolio of customers in each of their markets

(residential, corporate, public administrations, etc.). The

commercial offering is adapted to each of these

segments to meet their needs.

In recent years, networks have been incorporating new

technologies that allow innovative services to be

developed and new business models to be built around

them.

The combination of cloud computing with the

softwarisation of network elements and functions

enables Network as a Service (NaaS) business models.

NaaS facilitates the development of more flexible models

for customers, with lower upfront investments and a

higher degree of control over their communications.

With the advent of 5G and the modernisation of

platforms, new network capabilities have been

developed. Edge computing technologies allow services

to be moved closer to the end customer, improving the

customer experience. This capability is essential for

reducing latency and developing many use cases.

The new networks also include the possibility of

developing network slicing, which allows the creation of

multiple virtual networks (slices) on the same physical

network. These slices can be tailored to provide different

operating parameters (bandwidth, latency, availability,

etc.), adapted to customer needs.

Meanwhile, telecommunication companies have been

upgrading their information systems (IT) and the software

platforms that operate the networks. These allow

operators to provide certain functions securely through

standardised interfaces (APIs).Other companies can

develop services based on these APIs.

The combination of all these technologies will have a

direct impact on traditional telco business models. There

is an opportunity to refocus connectivity based on

different network quality tiers. The transformation will

be dictated by the possibility of monetising two elements

simultaneously:

•On the developers' side, to improve the user experience

of their services. These companies would be willing to

pay for access to premium network capabilities.

•On the end-customer side, the commoditisation of data

is reversed, allowing end users (telco customers) to

pay for particular service capacities depending on

how they will use the connection.

To seize the opportunity for these new businesses,

operators will need to become orchestrators of all of

the above elements (networks, platforms, developers,

end customers).

The transition to tiered connectivity, based on quality

(speed, latency, security or other characteristics) requires

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a change in the current regulatory model. The current

focus on price competition leads to the commoditisation

of telcos' services. A forward-looking regulatory model

must encourage innovation and fairly reward investment

in the networks that underpin the economy of the future.

Telefónica's organization

Telefónica Group's organisational structure reflects the

needs of each of its businesses in order to best serve

both our residential and business customers with

traditional connectivity services  and an increasing

number of advanced digital services that the Group is

developing.  We outline our principle organisations below:

Domestic telecommunications

operators

Telecommunications businesses operate relatively

autonomously, deploying infrastructure and serving their

customers within their given territories:

•Telefónica Spain (100% owned by Telefónica, not

individually listed): Spanish convergent operator,

domestic network leader and leader in all customer

segments (individuals, households, corporate and

wholesale), with over 40 million connections. 

•Telefónica Brazil (74.8% owned by Telefónica, a

company listed on the Brazilian Stock Exchange):

leading convergent operator in Brazil, where it operates

a network with over 110 million customer accesses.

Regional leader in fibre-to-the-home (FTTH)

deployment, with over 22 million homes reached.

•Telefónica Deutschland (70.58% owned by

Telefónica, a company listed on the Frankfurt Stock

Exchange): one of the leading mobile operators in

Germany, where it operates mainly under the O2 brand

and has over 50 million accesses.

•Virgin Media - O2 UK (VMED O2) (50% joint venture

with Virgin Media, not listed): leading domestic

convergent operator after the largest provider. Created

from the merger of Liberty Media's fixed assets and O2

UK's mobile assets. It currently manages over 50 million

total accesses (fixed, mobile and TV) and operates a

cable network of more than 16 million homes reached

(in the process of transformation to fibre).

•Telefónica Hispam: groups together Telefónica's

businesses in eight Latin American countries

(Argentina, Chile, Peru, Colombia, Mexico, Ecuador,

Venezuela and Uruguay), with over 110 million customer

accesses.

Global businesses

In November 2019, Telefónica changed its business

strategy, making five key decisions for the Company's

future development. These included the creation of two

independent global businesses, with the aim of

accelerating growth and maximising the value of our

infrastructure.

•Telefónica Tech: unit dedicated to the development

of cloud services, cybersecurity, IoT and big data, with

a focus on the B2B segment. Since its creation,

Telefónica Tech has become the Group (with double-

digit growth, outperforming the market year after year).

This growth has been achieved organically and by

acquiring businesses that complement our capabilities.

Telefónica Tech operates both in the markets where

the Group is present and outside them, thanks to a

diversified team of approximately 6,000 professionals

representing over 60 different nationalities, all of

whom are highly qualified.

Telefónica Tech has developed a portfolio of over 100

products and services, 58% of which have been certified

as sustainable under the Eco Smart label, encompassing

cybersecurity, the cloud, Internet of Things (IoT), big data,

artificial intelligence (AI) and blockchain. 

Telefónica AI of Things Tech is at the forefront of IoT

solutions, complementing them with advanced platforms

and Artificial Intelligence (AI). We help customers to

optimise the use of production resources in various

sectors.

Telefónica Cyber and Cloud Tech combines the potential

of cybersecurity and cloud technologies and solutions. As

a result, we are a global leader in cloud communications

and managed security solutions, with end-to-end

consulting and managed services.

Within Cloud services, Telefónica Tech is developing a

hybrid multi-cloud model, which includes solutions in

the private and public cloud. Telefónica Tech builds

partnerships with the major providers and industry

leaders to integrate and migrate the main business

applications (PaaS, or Platform as a Service) to the cloud.

Cybersecurity is of paramount importance to Telefónica:

we have made security an integral part of all our solutions

and increased capabilities to protect the continuity of our

business and our customers. 

We have over 3,500 certifications, a Digital Operational

Centre (DOC), and 12 Security Operational Centres

(SOCs) across Europe and America, from where we

monitor potential threats and take preventive and

corrective measures.

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•Telefónica Infra:  a global unit dedicated to the

management of various Group infrastructure assets. In

recent years, Telefónica Infra has managed to unlock

the value of Telefónica's assets (for example with the

sale of Telxius' mobile towers) and has helped the

operating businesses to grow by developing innovative

investment models. It currently manages Telxius'

submarine cable and is focused on fibre deployment in

the main countries where Telefónica operates. To date,

Telefónica Infra has announced fibre deployments

under a FibreCo model (with external investors) which

are operated on a wholesale basis in Germany, Brazil,

Spain and in the UK..

Telefónica Group´s corporate entities

Following the adoption of the five strategic decisions in

2019, the activities of the corporate units have been

realigned towards a more flexible operating model,

focusing solely on the activities that add the most value

to our businesses.

•Global Business Units (GBUs): these include certain

activities (marketing, support for major customers,

network design, globally managed platforms, etc.) that

add value due to their centralised management.

◦Chief Data Officer (CDO): management of the

residential value proposition, the development of digital

products and services, customer experience,

innovation and partnerships. The area also centralises

the development of the data management platforms

(Kernel) and the main APIs that allow third parties to

integrate our capabilities.

◦Chief Technology and Information Officer (CTIO):

design and development of networks and systems,

assisting the operational businesses in the selection

and implementation of technologies, management of

main suppliers, technology observatory and positioning

of the Group in terms of the main forums and

standards.

◦Chief Business Solutions Officer (CBSO): value

proposition for customers in the business segment,

product marketing, business support and design of

technical solutions for multinationals, management of

global services (roaming and private networks), etc.

•Corporate Centre: development of common activities

to take advantage of the Group's size, for example, the

centralised management of purchasing or advertising

and branding costs, and to generate savings for

Telefónica. The Corporate Centre also includes legal

and regulatory compliance units, which together with

the ESG team guarantee the exemplary management

of the Company. Lastly, other generic staff units

required by any large corporation (accounting, finance,

tax, etc.) are represented here.

Economic results of

Telefónica, S.A.

Telefónica, S.A. obtained negative net results of 880

million euros in 2022. Highlights of the 2022 income

statement include:

•Revenue from operations, amounting to 1,949 million

euros, lower than 2021 figure due to the decrease in

dividends registered as revenues (disclosed in note 19).

•The figure of “Impairment losses and other losses”

amounting to a write down of 1,590 million euros in

2022 (a write down of 4,574 million euros in 2021).

•Net financial expense totaled 1,401 million euros in 2022

(1,166 million euros of financial expense in 2021). This

figure is mainly due to finance costs with Group

companies and associates, principally from Telefónica

Europe, B.V. amounting to 417 million euros (458 million

euros in 2021) and Telefónica Emisiones, S.A.U. totaling

902 million euros (986 million euros in 2021).Net

exchange rate losses amount to (181) million euros (5

million of exchange rate gains in 2021).

•Income tax caption amounts to positive 661 million

euros, including the impact of the liquidation of Sao

Paulo Telecomunicaçoes, Ltda. by 363 million euros

(See note 8) and partially offset by the disposal of

deferred tax assets by 203 million euros (See note 17).

Investment activity

The investment activity of the Company regarding

additions, sales, valuation criteria and impact of this

valuation in 2022 is described in note 8 of these financial

statements.

Share price performance

In 2022, European and US equity and bond markets

suffered historic declines amid high levels of uncertainty

and volatility. Among the main European markets (EURO

STOXX 50 ‑11.7%), the DAX performed the worst (‑12.3%),

followed by the CAC 40 (-9.5%), while the IBEX 35

recorded a better relative performance (‑5.6%) and the

FTSE 100 closed with slight gains (+0.9%). While most

European indices had their worst annual performance

since 2018, in the US they suffered their biggest falls

since 2008 (Nasdaq ‑33.1%, S&P ‑19.4% and Dow Jones

‑8.8%). The MSCI World index fell by 19.5%. As for the

Western bond market, there were the largest price cuts in

decades, with an unprecedented rally in yields (e.g. the

10-year US Treasury bond closed 2022 at 3.9% vs. 1.5% in

2021).

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The determining factors for the performance of the

markets in 2022 were high inflation and monetary policy

by central banks, alongside a monetary stimulus

withdrawal process and interest rate hikes to control

inflation, the unfolding war in Ukraine, the situation and

reopening of the economy in China and the global

macroeconomic scenario. These factors led to a strong

sector rotation and high levels of uncertainty and

volatility in the markets, and their behaviour remains key

to market performance in 2023.

The performance of the telecommunications sector was

divided into two clear parts in 2022. In the first half, it

outperformed in relative terms (STOXX

Telecommunications stable vs. STOXX 600 ‑16.5%)

favoured by the rotation towards defensive and value

stocks, hopes of consolidation in certain markets (as in

Spain with the proposed merger between Orange and

MásMóvil) and low valuations, coupled with industrial

interest in the sector. Telefónica, which also benefited

from the appreciation of Latin American currencies and

speculation about its return to the EURO STOXX 50, was

the best performing operator (+26.2%). In the second half

of the year, despite solid results, STOXX

Telecommunications had suffered a reversal in its

fortunes (‑17.7% vs. STOXX 600 +4.3%), as it was

perceived as a less defensive sector than initially

expected, due to increased concerns about companies'

growth prospects due to energy costs and inflation,

leverage and the effects of interest rate hikes. This was in

addition to disappointment in relation to expectations of

consolidation and better regulation in the markets, a

preference for "quality" defensive stocks and profit-taking

after the rallies in the first half of the year.

Telefónica continues to implement its strategy and, in

2022, a difficult year from a macroeconomic and

geopolitical point of view, met its growth targets, which it

revised upwards following the results of the first six

months of the year. Telefónica delivered profitable and

sustainable revenues and OIBDA growth and continued

to allocate capital efficiently, prioritising growth

investments. Telefónica ended the 2022 financial year

with a market capitalisation of €19.5 billion,  price per

share of €3.39, ‑12.1% in the year, and total shareholder

return of ‑5.3%.

Regarding the dividend payment, €0.30 per share was

paid in 2022 (€0.15 per share in June under the voluntary

flexible dividend and €0.15 per share in December in

cash). The 2022 shareholder remuneration policy

provides for a dividend of €0.30 per share in cash (€0.15

per share paid in December 2022 and €0.15 per share to

be paid in June 2023). The 2022 dividend yield stood at

8.9%. In addition, in April 2022, 139.3 million treasury

shares were redeemed.

Contribution and

innovation

Telefónica has been recognised from the outset as being

an innovative company. We understand innovation as the

ability to anticipate the future, to understand the needs

and challenges of society and our customers, and to be

able to build an organisation that fosters a culture that

drives transformation and entrepreneurship.

Innovation is a strategic building block that allows us to

both develop solutions and products that tackle social

and environmental challenges and transform ourselves to

become a company that has a greater positive impact.

To achieve these targets we have adopted two working

models. One is based on incremental innovation, with

continuous improvements of existing technologies to

adapt them to new societal demands, such as making

them more efficient and greener. The second model

focuses on disruptive innovation with the development of

new products or business models that transform or alter

the market and contribute to having a positive social or

environmental impact.

These models are reflected on the activity developed

transversally into the organization by the Core Innovation

unit, commercial business units or the network and IT

areas, and at the same time in fostering the external

entrepreneurship and start-ups ecosystem to benefit

from the innovation developed outside the Company.

Strategic disruptive innovation

2.13.4.1.Core disruptive innovation

Our priority is to develop new digital services that

improve people's lives. To do so, we leverage the

Company's main assets, such as networks, digital

platforms, data, etc.

The current global business units, such as Internet of

Things (IoT), big data and video, have their roots in

projects developed years ago by the Core Innovation

teams.

The main lines of activity are related to innovation in new

network capacities, innovation in new technologies and

services and applied research.

Innovation in new technologies and services

At Telefónica we are analysing new opportunities in the

metaverse. We are working on developing

communications networks to meet all the needs that will

arise due to the development of the metaverse and

virtual reality. During 2022, we had a virtual space at

AltspaceVR as part of the Innovation and Talent Hub and

joined the Metaverse Standards Forum.

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Another line of work focuses on Web3, which provides a

financial layer on top of the web that facilitates

frictionless financial transactions online, creating

opportunities for innovative business models. We have

launched our own NFT marketplace, a platform for the

creation and sale of digital art where we have

collaborated with Fundación Telefónica and other social

organisations.

In entertainment and video, in 2022, we enhanced the

Living Apps element of Movistar Plus+ in Spain and Vivo

Play TV in Brazil to host experiences in areas such as

retail(offering shopping through the TV), education

(LinkedIn Learning) and sport (Estadio Infinito). We also

improved the integration of social media with the TV

platform, creating cross-platform interaction experiences

between the two worlds with the new Living Apps for

Twitter and TikTok Extra.

In addition, we analysed cognitive digital marketing

opportunities, applying artificial intelligence (AI)

algorithms to data. The aim is to achieve better marketing

results while ensuring consumer privacy, our ethical

commitments in the development of algorithms and AI

and to meet the needs of our customers. We are

currently working with other operators to create an

advertising identification solution through which

customers retain control over when, how and with whom

they share their data.

Lastly, we would like to highlight how we are harnessing

AI to improve sport. As our testing ground, we are

working with the elite sportsmen and women sponsored

by Telefónica in cycling (Movistar Team), badminton

(Carolina Marín) and tennis (Rafael Nadal).

Applied research

In order to be a pioneer in the technological world, we

dedicate part of our innovation efforts to improving the

state of the art of certain technologies. We collaborate

with public and private organisations and universities

both nationally and internationally.

Highlights in this regard include work on improving AI as

applied to the Spanish language (in collaboration with the

Royal Spanish Academy), projects aimed at preserving

privacy and new systems for collaboration between

humans and machines through cross-modal

communication.

Open innovation

Our open innovation strategy seeks to attract talent,

technology and new businesses. We promote the

innovation that comes from startups and scaleups, under

a venture capital model, with a triple aim:

•Generate additional revenue by incorporating the

technology/products developed by these startups into

our range of digital services and transform internal

Company processes.

•Seize growth opportunities beyond the telecoms sector

by investing in game changers, companies that are

developing disruptive technologies and products that

could revolutionise the market.

•Obtain a financial return by increasing the value of the

startups we have invested in.

Thanks to these targets, out of the more than 1,000

enterprises in which we have invested, 300 have ended

up working with Telefónica, generating €500 million for

the Company. Most importantly, they enable us to take

their innovative solutions to our customers to help them

in their digital transformation and use them internally to

generate efficiencies.

There are also other initiatives to support the progress of

startups at earlier stages of development or those related

to the academic world.

•Open Future: launched in 2014, this is a strategic

regional entrepreneurship programme developed in

collaboration with public and private partners. Open

Future supports local startups in their early stages to

foster the creation of an entrepreneurial ecosystem

outside the big cities. Since its launch, it has

accelerated 1,296 projects, creating around 4,900 jobs.

Open Future currently has 30 hubs in Spain and

Argentina.

In 2022, two new entrepreneurship spaces were opened

in Andalusia (Spain), in Port of Huelva and Zona Franca

de Cádiz, as well as one in Valencia, called Opentop.

•Open Innovation Campus: through this initiative we

design and develop models of collaboration with the

academic world to connect with young people and

incorporate new talent into the Company.

•In relation to education, Wayra invested in online

learning platforms such as Crehana, aimed at creatives

and digital professionals; Poliglota, for learning

languages; Stackfuel, AI and data analytics training for

professionals; and Alicerce, which focuses on early

childhood education in Brazil.

•In addition, in the health sector, we invested in

Behavidence, a mobile application for mental health

and Idoven, software powered by AI algorithms aimed

at detecting and preventing heart disease. Meanwhile,

Telefónica Ventures invested in Durcal, a telecare start-

up for the elderly.

Investment funds and partners

In 2022, we set up two new funds together with other

Group business units.

In May, Vivo Ventures was created, a €60 million fund to

invest directly in growth stage start-ups with solutions in

the fields of healthcare, education, financial services,

smart home, and entertainment and technology

marketplaces, among others.

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ÍOPE Ventures, launched with Telefónica Seguros in

September to invest in 15 Insurtech & Fintech start-ups

with tickets of up to 200,000 euros.

Moreover, during the year, we participated in over 30

open innovation projects with strategic partners,

including:

•Alaian, an alliance of six of the world's leading

telecommunications companies with the goal of

discovering disruptive start-ups and giving them

access to its network of 700 million customers.

•Edison Accelerator, a healthcare provider acceleration

and collaboration programme designed by GE

Healthcare in partnership with Wayra UK. 

•CIV-LAC (Corporate Impact Venturing in Latin America

and the Caribbean), sponsored by the Inter-American

Development Bank (IDB) and designed and

implemented by Wayra, which connects large

corporations in Latin America and the Caribbean with

technology impact start-ups in various sectors.

•BNDES Garagem, an initiative of BNDES (Brazilian

Development Bank), Wayra and other partners, whose

mission is to develop and foster entrepreneurship in

Brazil by supporting entrepreneurs and startups. 

•Opentop, a project with the Port of Valencia (Spain) to

find and support ideas related to technology.

Innovation in products and services

Examples of solutions developed to make a positive

contribution include the following:

Financial inclusion

We facilitate access to loans and insurance through

mobile financial products (Movistar Money), thereby

reducing barriers to accessing finance and financial

resources.

Health solutions

We support telemedicine projects for remote care such

as Movistar Salud in Spain or Vida V in Brazil. In this

regard, for example, Vida V is an affordable alternative

between private health plans and the public health

network in Brazil. It offers multidisciplinary medical care

with guidance by telephone, online consultations by

video call and face-to-face consultations, as well as

access to clinics and laboratories for imaging and

laboratory tests and even discounts on medicines.

We also provide services in this sector that enable remote

surgical interventions and solutions that help patients

with degenerative diseases.

Digitalisation and connectivity of the rural

environment

Our services include programmes such as Smart Agro

which informs farmers about factors such as soil moisture

and soil water consumption, and allows them to optimise

irrigation thereby improving crop yields. This solution has

been designed to promote a more sustainable agriculture

model able to cope with the challenges caused by

climate change and encourage rural development.

Data and AI solutions

These are services that look to solve social or

environmental problems (Big Data for Social Good/

Artificial Intelligence for Social Good) with applications

for monitoring infectious diseases or analysing air quality

in large urban environments.

Security services

The products in this category help guarantee the security

and integrity of people and businesses, such as the range

of commercial services offered through Movistar

Prosegur Alarmas.

Responsibility by Design

Responsibility by Design is an internal assessment

framework that allows us to ensure we incorporate

ethical and sustainability principles right from the

initial development of a new product or service (P&S) and

through to its delivery to the customer, and to be certain

they comply with our Responsible Business Principles.

These principles make up our code of ethics and guide us

in making decisions based on integrity, commitment and

transparency.

It is important to note that organisational culture,

awareness raising and training are key to successful

implementation.

Environment

Vision

Companies play a key role in protecting the environment,

both in terms of the impacts they can cause and the

environmental risks and opportunities which affect and

influence the value of companies.

Customers, investors and employees are significantly

more environmentally conscious, which is reflected in

their need to carry out their activities in a more

sustainable way and to seek partnerships with companies

that have incorporated these values into their strategy.

At Telefónica, we are striving to ensure our environmental

impact is minimal and are committed to decoupling the

growth of our business from our environmental footprint.

Furthermore, we believe it is vital to enhance the

synergies between the digital, green and energy

transition in order to achieve a competitive, resilient and

sustainable economy. This is why digitalisation

becomes a crucial tool in facing environmental

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challenges: climate change, circular economy, water

management and biodiversity.

This commitment is part of the Company's general

strategy, for which the Board of Directors is ultimately

responsible. Our performance in this area is regularly

supervised by the Board's Sustainability and Quality

Committee as well as by the Responsible Business Office,

made up of the global areas that execute said strategy

alongside the business units.

We have global environmental and energy

management policies and take action at all levels of the

organisation. The environment is a central issue

throughout the Company, involving both operational and

management areas as well as business and innovation

areas. The emissions reduction targets are part of the

variable remuneration of all the Company's employees,

including the Executive Committee.

Risks and opportunities

The Company's environmental and climate-related risks

are controlled and coordinated under the Telefónica

Group's global risk management model, based on the

precautionary principle.

The main risk of our environmental aspects is related with

the wide geographical spread of our infrastructure, which

is controlled through environmental management based

on standardised procedures, certified according to the

ISO 14001 standard.

In 2022, the Telefónica Group contracted, both locally

and globally, several insurance programmes in order to

mitigate the possible occurrence of any incident arising

from the risks of environmental liability and/or natural

disasters, so as to guarantee business continuity. We

currently have fully comprehensive insurance and

coverage for all risks, material damages and loss of profit,

in order to cover any material losses, damage to assets

and loss of income and/or customers, among other

problems, as a consequence of natural events. We also

have insurance to cover the environmental liabilities set

out by applicable laws and regulations. Both policies

consist of limits, sub-limits and hedges appropriate to the

risks and exposures of Telefónica and its Group of

companies.

However, the opportunities arising from sound

environmental management outweigh the risks. By

being proactive, establishing preventive measures and

integrating environmental criteria in decision-making, we

manage to increase the Company's sustainable financing,

reduce our dependence on fossil fuels and reduce our

CO2 emissions in absolute terms, despite the increase in

network traffic. We also manage to increase reuse and

recycling rates, promote eco-design and purchasing

based on circular criteria, and help to minimise the

environmental footprint of our customers with our Eco

Smart products and services.

Action plans and compromises

Our environmental strategy seeks to minimise our

impact on the planet and maximise the

environmental benefits generated by our digital

products and services. The strategy is built around three

levels.

•The first level is related to the responsibility we

assume as a company that is committed to our

environment, to ensure compliance with environmental

legislation, to manage our risks and opportunities, to

implement management systems, to set stringent

environmental targets and to carry out proactive

advocacy work on environmental issues.

•The second level concerns the Company's

decarbonisation and circularity, thanks to the use of

renewable energies, the implementation of energy

efficiency projects, extending the lifespan of electronic

equipment, reducing the consumption of resources and

reintroducing our waste as raw materials in the value

chain through recycling.

Lastly, the third level is linked to our raison d'être, the

digitalisation of our customers, through services with

a positive impact on the environment thanks to

connectivity technologies such as IoT, cloud and big data.

In addition, as part of the integration of the environment

into the Company's strategy, we are progressively

increasing the Company's sustainable financing.

Targets

Our major targets are to:   

•Achieve net zero emissions by 2040, including our

value chain. To this end, we set interim targets for

2030, such as reducing 80% of our Scope 1 and 2 CO2

emissions compared to 2015 and reducing 56% our

Scope 3 CO2 emissions compared to 2016.

•Continue to use 100% renewable electricity in our main

markets and also reach 100% globally by 2030. 

•Be a zero-waste company by 2030, through eco-

design, procurement with circular criteria, reuse and

recycling.

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Management policies and systems

The Environmental Management System (EMS) in

accordance with ISO 14001 is the model we have chosen

to monitor the environmental impact of our activities. All

our operators have an externally-certified EMS.

We have a series of global standards (in addition to our

environmental, energy management and supply chain

sustainability policies) that guide the Company in

improving its environmental performance and that

incorporate a life-cycle perspective. This allows us to

integrate the environmental aspects of our value chain

and involve our employees in environmental

management.

Having in place certified EMSs allows us to ensure that

we successfully control and comply with the

environmental legislation applicable in each of our

markets, with this preventive model of compliance

being associated with the Company's overall compliance

process. We were not subject to any significant

environmental penalties in 2022.

We manage all our main environmental aspects, such as

energy and waste, but also others such as noise,

biodiversity and water, in order to reduce progressively

our environmental impact.

We maintain the Energy Management Systems

certification (ISO 50001) for our operations in Spain and

Germany, and in 2022 we extended it to other operations,

such as Chile and Brazil (the last one with two certified

operating centres, including the Eco Berrini

headquarters).

Responsible network and biodiversity

We work to make our network the most eco-efficient and

environmentally responsible, promoting the circular

economy in all our assets. We have managed to keep

electricity consumption stable, despite increased

digitalisation, thanks to our energy efficiency and

renewable energy plans. In addition, our circular economy

strategy has enabled us to reuse 229,907 units of network

equipment and to recycle 98% of our waste in 2022.

In order to minimise the impact of network deployment,

we implement best practices, such as noise insulation

measures when necessary and co-location of our

facilities with other operators. This enables us to optimise

land occupation and reduce visual impact, energy

consumption and waste generation

RESPONSIBLE NETWORK LIFE CYCLE
PLANNING AND CONSTRUCTION
Environmental licences and permits	1,199
Visual impact reduction measures	104
Base stations with renewable energy	485
OPERATION AND MAINTENANCE
Energy efficiency and managements projects	128
Renewable energy in own facilities (%)	82
GHG emissions (Scopes 1+2) (tCO2eq)	353,346
Energy consumption by traffic (MWh/PB)	49
DISMANTLING
Network equipment reused	229,907
Hazardous waste (t)	2,566
Total waste recycled (%)	98

Regarding biodiversity, the impact of our facilities is very

limited. Nevertheless, we conduct environmental impact

assessments and implement corrective measures when

necessary, for instance in protected areas.

To analyse the impact of the Group's infrastructure on

biodiversity in greater detail, a Geographic Information

System was used to put together the area occupied by

each type of infrastructure and the different layers of

information about protected areas and species obtained

from renowned international organisations, such as the

International Union for Conservation of Nature (IUCN).

This allows us to determine the quality of habitats where

any of the Company's infrastructure is located and to

assess the potential impact on biodiversity. The main

finding is that 98% of Telefónica's facilities are located in

habitats with low or very low biodiversity value, such as

urban areas, and we have no facilities located in habitats

of major importance, which means that the organisation

has a relatively insignificant direct impact on biodiversity.

Furthermore, aware of the importance of enhancing the

urban biodiversity of our sites, the facilities of Telefónica

District (headquarters in Spain) have participated in the

European LIFE BooGI-BOP project, which aims to provide

companies with solutions aimed at improving biodiversity

in their business facilities. The analysis found the design

and management of the site's green areas to be excellent

and recommended some additional measures related to

habitat enhancement or information for employees

regarding the biodiversity improvement measures

implemented.

In addition, in 2022, we joined the World Economic

Forum's 1t.org initiative, which seeks to accelerate

nature-based solutions and mobilise companies to

conserve, restore and grow one trillion trees by 2030.

Aligned with our target of achieving net zero emissions by

2040, as well as neutralising unabated Scope 1 and 2

emissions from our main operations by 2025, we have

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committed, under the 1t.org project, to grow and

conserve 1.5 million trees between 2020 and 2030. This

commitment will not only avoid and absorb 700,000

tonnes of CO2 from the atmosphere in 10 years, but will

also help to conserve forest ecosystems, reducing

biodiversity loss.

Human Capital

People stand at the heart of our strategy, and our

corporate mission is to “make our world more human by

connecting lives”.

Human capital remains key in our increasingly digital work

environment. We understand this factor as the value

stemming from the sum of all the skills, knowledge and

experience that our employees bring to the table.

However, social capital is also especially important

because this is what consolidates the connections that

are made between people and teams within the

organisation. These two factors combined represent our

people capital, in other words, the value of people as an

intangible asset for the Company.

This helps us to boost our growth mindset and enables

teams to meet company targets:

•Attain a target of 33% of executive positions held by

women in 2024. Reaching this target is linked to the

variable remuneration of our employees and  attraction

of sustainable financing.

•Achieve an adjusted gender pay gap of +/-1% in 2024.

This is the basis for progression towards total

elimination of the gross pay gap.

•Achieve gender parity in the Company’s highest

governance bodies in 2030. Parity is defined as no

more than 60% and no less than 40% representation of

each gender.

•Be included in the Bloomberg Gender-Equality Index.

•Maintain perception in our team about work-life

balance above 70% in the motivation survey.

•Double the number of employees with disability in

2024, in line with the commitments made to The

Valuable 500.

•Attain participation of over 50% of the workforce in skill

development programmes each year.

•Have 100% of eligible workers (those whose activity

can be carried out remotely) in hybrid work in 2024.

•Reach an Employee Net Promoter Score (eNPS) of at

least 60%.

The strategic lines of action for global talent management

and the applicable targets are defined by the Global

Human Resources Committee. Meeting on a monthly

basis, this committee is made up of all the heads of the

various People areas at Telefónica’s main operators and

regions.

Global Executive Committee: this committee analyses

and monitors key aspects of global employee

management, from skills and critical talent for the future

to Telefónica’s remuneration and organizational strategy.

People-related issues are also regularly reported to three

committees of our Board:

•Quality and Sustainability Committee: once a year, the

targets and corporate and local progress on issues of

talent management and diversity are presented in line

with the Group’s ESG strategy.

•Governance Committee: among other roles, this

committee verifies and supervises appointments and

remuneration of the Chairman of the Board of

Directors, the executive directors and senior

executives.

•Audit and Control Committee: this committee oversees

control of the Company’s and the Group's financial and

non-financial risks (including operating, technological,

legal, social, environmental, political and reputational

risk as well as those related to corruption).

We also have specific bodies and roles for managing our

diversity strategy.

The main challenges we face in human capital

management no longer simply stem from the rapid digital

transformation in which we are engaged and is clearly

being reflected in the labour market. We must also learn

to tackle even greater uncertainty and the confusing

times in which we live.

The context of high inflation in which we find ourselves,

the strong competition for highly qualified talent and the

development of new internal skills will be our major

challenges.

We therefore have a huge opportunity to prepare

ourselves now and start building the skills that the

company will need to implement its strategy.

The pandemic has given us a window to rethink our

culture and how we work and to innovate to boost

productivity in the new digital age. At Telefónica, we

believe that the key lies in developing hybrid

environments capable of harnessing the best of both

worlds for promoting co-creation, communication and

team spirit.

We could not lead the digital revolution without having

the best talent, ensuring that all our people - without

exception - thrive in a diverse and inclusive work

environment. This also allows us to empathise better with

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our customers, to innovate and to reflect their diversity in

our commercial value proposition.

The swift pace of exponential change that we are

experiencing due to the digital transformation, economic

uncertainty and political tensions must help our

employees overcome these changes and reduce any

impact on their work and well-being. Similarly, we work to

strengthen consistency between the company’s vision

and the personal goals of each employee in order to

further cement their ties to the company.

These challenges are included in the Telefónica Risk

Management Model as emerging risks in the People area.

Telefónica’s people strategy aims to transform and adapt

our teams to the context of permanent change in which

we find ourselves.

In this respect, our main lines of action (further explained

in the following chapters) are focused on:

•Attraction, retention and skill development: we are

shifting towards a model that can guarantee business

sustainability and let our people thrive and grow. To

that end, we foster lifelong learning with large-scale re-

skilling and up-skilling programmes, and talent

management that is based on skills, including

leadership skills.

•Diversity, equality and inclusion with an inclusive work

culture and leadership style to guarantee a working

environment in which all our people can give their best

and develop personally on a level playing field.

•Flexible ways of working and agile high-performance

ecosystems capable of improving team effectiveness

and efficacy; boosting motivation, talent attraction and

a sense of belonging; and fostering innovation and

corporate transformation.

•Occupational health, safety and well-being from a

comprehensive vision of the individual that considers

mental, emotional and physical factors as the pillars of

well-being while encouraging autonomy and

responsibility.

Attracting, developing and retaining talent is fundamental

to the success of our Company. We want our teams to

have whatever they need to overcome present and

future challenges. We know that professional careers

have shifted from being vertical and stable to more cross-

cutting and flexible, meaning that our development is no

longer conditioned by our current job, but rather by what

we want to become in the future.

We engage in strategic, skill-related preparation via our

Skills Workforce Planning process, which seeks to ensure

alignment between the skills we possess in the

organisation and the skills that we need to grow our

businesses. This enables us to make the right decisions to

close the skills gap. We are therefore firmly committed to

developing any new skills that we need internally, in

combination with incorporating external talent.

For internal skill development, we promote large-scale re-

skilling and up-skilling programmes that can develop

critical skills for our business while improving the

employability of our professionals. With that in mind, we

are evolving the learning model to personalise and adapt

the range of training we offer to the preferences of each

professional based on artificial intelligence engines

(learning on demand).

Besides the traditional talent recruitment tools, we also

use new channels to ensure we attract suitable profiles in

a more global, digital and efficient way, establish a long-

term relationship with candidates and simplify our

selection processes. More specifically, we maintain a very

active presence at digital job fairs and in forums,

employability round tables, social media, and universities

with technology specialities.

Furthermore, we strengthen our pool of young talent with

Talentum, a scholarship programme forming part of the

Telefónica Innovation and Talent Hub. This initiative

strengthens university/company cooperation by

combining academic learning with technical business

knowledge and cross-cutting skills such as emotional

intelligence, teamwork, innovation and creativity

The situation arising from the COVID-19 pandemic has

presented us with an opportunity to accelerate the

digitalization of learning.

On the one hand, we are evolving the profiles and skills of

our professionals to meet specific business-related

challenges and the challenges faced by each area. We

offer profile specialization so our people can remain on

the cutting edge (robotization, cloud, IT sales, data, web

developer, 5G, etc.).

On the other hand, we provide an open choice of training

options so that each employee can play a leading role in

their own development. The formats (videos, podcasts,

video games, interviews, role play sessions, articles, etc.)

are tailored to the needs of each person in hybrid and

collaborative environments.

SkillsBank is a key element of our skills development

model, a software tool developed internally and

recognized externally. Built on big data and artificial

intelligence, it gives us real-time information about the

skills that are present within our organisation.

We use SkillsBank to create a unique and personalized

value proposition for each professional, with

recommendations on vacancies and development paths.

In order for new skills to be developed, we also

encourage geographic and job mobility as a key factor in

talent retention. We therefore foster an open and

innovative environment that makes it easier to match our

employees’ interests and backgrounds with real

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opportunities that can maximize learning and movement

into the roles of the future.

All these initiatives are aimed at promoting the

development and promotion of our employees within the

Company. This has meant that 25% of the vacancies

published have been filled by internal applicants. Of those

employees who received a promotion, 40% are women

Universitas Telefónica is the exclusive platform on which

all our professionals can find a carefully curated range of

training experience options designed to accelerate the

transformation and achievement of strategic targets for

the company, to encourage uptake of the new and

necessary working and leadership methods, and to

encourage and foster a unique culture that defines us

and makes us stronger by aligning priorities and

empowering employees.

Having undertaken an enormous technological

transformation, Telefónica has boosted the Innovation

and Talent Hub by opening a new Universitas campus. Its

physical location is at our central offices in Madrid (Spain)

and it is equipped with advanced in-person, virtual and

hybrid executive education resources.

The commitment of our professionals has always been

high on Telefónica’s agenda and it forms part of our

active listening strategy. For several years now, we have

been measuring this through the employee Net Promoter

Score (eNPS), which indicates the degree to which the

Company's employees recommend the organisation by

answering the question:

How likely would you be to recommend your company to

people close to you as a good place to work? (1=Definitely

would not recommend, 10=Definitely would recommend).

This procedure lets us align ourselves with the customer

satisfaction measurement by using the same logic as the

Net Promoter Score, which measures the percentage of

promoters (those who give scores of between 9 and 10)

against the percentage of detractors (those who give

scores from 1 to 6).

We achieved a result of 69% in 2022, which is an

improvement of 2 percentage points on the 2021 result.

This clearly highlights our commitment and sense of pride

in belonging.

A result above 40% is considered excellent and we are

part of the select group of companies that are above

60%. Our challenge now is to keep increasing our

professionals’ sense of pride in belonging to our

Company, under the conviction that their motivation is

the multiplying factor that drives these results.

In addition to this annual measurement, we conduct

various internal listening exercises in each of our

operations (such as opinion surveys) and regular

engagement pulse surveys to gauge the level of

commitment. This is all complemented by professional

performance appraisals, exit interviews, incident tracking

and the availability of a Responsible Business Channel

that employees can always use to report conflictive

situations.

Culture of Recognition: Valuable people

This programme aims to promote a culture of meritocracy

through personal recognition by leaders towards

employees and among employees themselves, giving

visibility to those individuals and teams that excel through

both their outstanding contribution and their day-to-day

behaviour.

It also recognises "social volunteers or volunteer teams"

for their extraordinary contribution to a social cause or in

an emergency or humanitarian crisis.

Telefónica’s remuneration strategy is characterized by

our competitive and demanding nature, and our main

focus is to attract, retain and motivate the Company’s

professionals so that we can meet our strategic

objectives within the globalized framework in which we

operate, fostering the generation of long-term value in a

sustainable manner for our shareholders.

In this regard, we encourage the growth of our team

through variable remuneration, increasing operating

income and return on investment for shareholders, as

well as efficiency through improving our OIBDA margin

and generating free cash flow. Similarly, Telefónica is a

company that is fully committed to sustainability. Such

factors as customer trust, the trust of society at large,

diversity, and contributing to the fight against climate

change, have therefore been given weight in the variable

remuneration of our entire team since 2019.

Telefónica is a company that fosters meritocracy and

equal opportunities. We therefore offer a competitive and

fair remuneration package that can comprise fixed

amounts and both short and long-term variable amounts

(tied to the achievement of financial, business, value

creation and sustainability targets, which should be

specific, quantifiable and aligned with the Company’s

strategic plan), as well as remuneration in kind and other

social benefits adapted to local practices in the markets

where we operate, allowing for customization and tax

efficiency through flexible compensation plans.

Telefónica’s professionals are consistently remunerated

according to their level of responsibility, leadership and

performance within the organisation. To maintain this

premise, we ensure that we do not discriminate on the

basis of gender, age, origin, sexual orientation and

identity, religion, disability or race when applying

remuneration practices and policies.

Similarly, Telefónica is committed to ensuring that the

salaries paid to all its employees are decent and always

exceed what is considered to be the ‘minimum living

wage’. This not only allows basic needs to be met, but

also guarantees good quality of life in each of the

countries where the Group operates.

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By way of example only, the social benefits offered by the

Company include health insurance, life insurance, a

pension fund, share purchase programme, discount

programmes, childcare assistance (including nursery

services) and food assistance, among other things. All

these benefits increase job quality. Our social benefits are

especially focused on improved well-being for our

employees. They help to maintain physical and mental

health while supporting their families and adapting

healthcare coverage to new circumstances and needs.

To foster the retention and motivation of key

professionals and to attract the best talent, emotional

salary is another relevant factor. This is expressed

through new ways of working, work-life balance,

psychological well-being, a firm commitment to learning

and professional development, and a culture of

commitment and recognition of our employees.

Furthermore, Telefónica launched an incentivized global

share purchase plan in 2022 - “Plan 100” - aimed at all

employees of the Group, without exception. For every

share bought under this plan, until it ends in 2024,

Telefónica rewards the buyer with another share. As part

of our Company’s centenary celebrations, each employee

who takes part in the plan will receive 100 additional

shares for free.

With respect to our Board of Directors, Telefónica, S.A.

boasts a Policy of Executive Remuneration assessing the

best practices regarding Corporate Governance.

Telefónica has a worldwide performance review process

for all employees of the Group. The same timetable,

guidelines and tools are shared everywhere. Although the

process is coordinated globally, it is managed locally so as

to better adapt to the needs of our business.

At Telefónica, diversity, in addition to fulfilling the

principles of social justice, helps us to achieve better

business results. We therefore design initiatives aimed at

promoting diversity in our teams and fostering an

organizational culture of equity, diversity and inclusion.

Diversity management helps us to attract and retain high-

potential professionals, get the best out of our

employees, empathise with our customers and innovate.

We have internal bodies and roles that monitor our

progress on equality, diversity and inclusion. These

bodies also monitor compliance with performance

indicators and alignment with strategic targets and

ensure the involvement of senior management:

•Global Diversity Council: made up of top-level

executives. It aims to implement and monitor the

company’s diversity strategy.

•Transparency Committee: made up of the Chairman

and four executives, it ensures the presence of both

genders in the shortlists for internal and external

selection processes for management positions.

•Chief Diversity Officer: this role supports the Diversity

Council and the People department. This officer is a

member of the Executive Committee of Telefónica, S.A.

•Diversity Champions: team leaders who act as internal

change agents in all areas of the Company.

•Monitoring Committees for local Equality Plans.

They govern the Company's commitment to diversity and

inclusion:

•The Group's Diversity and Inclusion Policy: the policy

guarantees equal opportunities and non-discriminatory,

fair and impartial treatment of people in all areas of our

Company, without prejudice associated with

nationality, ethnic origin, skin color, marital status,

family responsibility, religion, age, disability, social

status, political opinion, HIV or health status, gender,

sex, sexual orientation, or gender identity or expression.

•The Diversity Policy in relation to the Board of Directors

and the Selection of Directors: this ensures that

proposals to appoint or re-elect Directors are based on

a prior analysis of the competencies required by the

Board of Directors, favoring diversity in terms of

knowledge, experience, age and gender.

•Global Equality Policy: approved by the Board of

Directors in 2022, it establishes the Company's

commitment to the implementation and dissemination

of a set of basic measures with regard to gender

equality in all countries where the Group operates.

•Protocol for Action in Situations of Workplace or Moral

Harassment, Sexual Harassment and Discrimination:

this policy establishes a framework for action in cases

of harassment or discrimination

Telefónica's strategic lines for diversity and inclusion are

established globally by the Global Diversity Council. This

strategy is adapted and developed locally, taking into

account the business priorities and the sociocultural

context of each country.

Our starting point is to ensure that our workforce is

representative of the diversity existing in the societies in

which we operate and that it is managed with an

inclusive culture and leadership style. In this way, our

employees feel comfortable to be themselves and can

give their best.

In order to move forward, we have made a number of

commitments in the short, medium and long term. In the

short term, we have set a target of attaining 33% of

women in management positions and an adjusted gender

pay gap of +/- 1% by 2024. We have anticipated the

fulfillment of this objective in 2022.  In addition, we want

to double the number of employees with disabilities by

the same year.

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In the medium term, we aim to achieve gender parity in

the Company's highest governing bodies by 2030, while

in the long term our north star is to eliminate the gross

gender pay gap.

The Global Diversity and Inclusion Policy ensures equal

treatment and equal opportunities. It promotes working

conditions that prevent workplace and sexual

harassment, in both a face-to-face and a digital

environment, and establishes specific procedures for its

prevention.

In addition, our Responsible Business Principles course,

which is mandatory for all employees, includes a training

module on workplace and sexual harassment. At a local

level, equality plans establish protocols for action in cases

of workplace and sexual harassment.

Besides, the whistleblowing channel allows all employees

and stakeholders to report, anonymously or personally, if

they experience any form of discrimination.

At Telefónica, we apply the principle of equal pay for

equal work or for work of equal value. That is to say, we

compensate equally for equal work regardless of the

employee's gender.

We carry out detailed analyses of gender pay data within

the Group in order to identify possible inequalities and

establish measures to rectify them. We do this by

considering all items related to salary, benefits and other

short and long-term incentives, i.e. all payments received

by the employee during the year.

Gender pay inequalities or gender pay gaps are based on

a comparison between the average total pay of men

versus the average total pay of women in the workforce.

When making this comparison, it is important to

understand the way the comparison is made, what items

are included and how the difference between the

average total pay of men and women is measured.

When calculating it, in addition to gender, if the country,

the legal entity, the professional category, the functional

area in which each employee works, seniority and the

work schedule (full or part-time) are taken into account,

we would be talking about the adjusted wage gap (0.74%

in 2022). This concept allows us to approach pay equity:

equal pay for positions of equal value.

If we only compare the average total remuneration,

without taking into account other factors except gender,

we would be talking about the gross wage gap (16.80% in

2022). Eliminating this gap implies structural, social and

cultural changes that require a long-term commitment.

For this reason, at Telefónica, we are working on five lines

to address this ambition. The basis for moving forward is

to ensure equal pay under the same circumstances,

which is why we have anticipated two years to meet the

objective of reducing the adjusted gender pay gap to

+-1% in 2024.

•Ensuring equal pay. As a starting point, we must ensure

that men and women earn the same pay for the same

job.

•Increasing the proportion of women in leadership (33 %

by 2022) and income generation positions (40 %).

•Promoting gender parity in the Company’s highest

governing bodies.

•Strengthening the commitment to work-life balance

and co-responsibility. Seven out of ten employees with

reduced working hours are women. Awareness-raising

and new models of flexible working are key elements to

reverse this situation.

•Increasing the weight and prominence of women in

digital and STEM environments. Currently, 21 % of the

Company’s STEM positions are held by women. We

promote initiatives to attract and give visibility to our

female digital talent, since we believe it to be critical for

the social and economic progress.

According to international estimations, the gender wage

parity will not be reach until the year 2175. In Telefonica,

we aspire to reach it on the 2050 horizon.

In Telefónica, we encourage the recruitment of female

talent, young talent and/or talented people with

disabilities through “Talentum” scholarships and other

initiatives.

Aware of the low participation of women in digital

professions, we encourage women to pursue digital and

STEM careers through a number of initiatives, including

our internship programmes. In addition, we develop

career acceleration and visibility enhancement

programmes for female employees, which aim to train

them in leadership skills and enrich their network of

contacts.

Furthermore, we implement measures to facilitate a

work-life balance and promote a cultural change with the

aim of encouraging co-responsibility for care among our

male and female employees, after identifying that a lack

of co-responsibility hinders women's professional

development.

With regard to people with disabilities, in line with the

2024 target, we support their integration through

agreements with external entities specialized in the

search for professionals with disabilities. In addition, we

offer resources to facilitate teamwork, such as the guide

“Disability at Work: Everyone’s Responsibility”.

At the same time, we work to ensure the accessibility of

our facilities, communication channels, products and

services.

In terms of disability, Telefónica counts on ATAM, a

private social protection system for the families of

employees with situations of disability and dependency.

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The association offers specialized comprehensive advice

and direct financial aid.

Furthermore, in relation to our supply chain, we include

diversity criteria in the assessment of our high-risk

suppliers through an external tool. In addition, we are

increasing the range of social suppliers, particularly

Special Employment Centers, in which most of the

employees have a recognized disability on our

procurement platform.

The value of differences, awareness of unconscious bias

and prejudice, and the importance of inclusive leadership

are some of the issues we address during our workshops,

manuals, and online courses. In addition, we offer training

resources for areas and roles with special responsibilities

to support the performance and integration of all

employees. In addition, we have conducted mandatory

diversity workshops for members of the Board of

Directors.

Telefónica collaborates to close gender gaps in society.

Along these lines, we encourage women to take up digital

and STEM careers and entrepreneurship. Through Scale

Up Women, women entrepreneurs improve their network

of contacts and seek new business opportunities.

The pandemic has unquestionably produced a new

reality in the labour market worldwide. Nonetheless,

physical presence at the office and personal contact

between team members also brings added value. With

that in mind, Telefónica is committed to a hybrid working

model (on-site and remote) across the Group that

combines the best of both working models. In general, we

establish a minimum percentage of face-to-face time and

a maximum percentage of remote time, which differs in

the countries in which we operate and can change

depending on the nature of the position whenever

possible.

Our model is based on universality (it applies to all

employees unless their role cannot be performed while

working from home) and safeguards the health and

safety of our workforce. It fully complies with local

legislation and has been agreed with the main trade

union organizations in the countries where we operate.

There is a growing social demand for work-life balance.

At Telefónica, we work hard for that to be the reality.

These efforts are clearly reflected in the results from our

annual motivation survey, according to which 78% of our

employees feel they have a good work-life balance.

Thanks to our digital disconnection awareness initiatives,

this percentage has risen by 10 points since 2019.

Telefónica is improving the compatibility of various

lifestyles with professional demands, thereby fostering

inclusion. We harness the potential of all employees in

this way, regardless of their personal characteristics or

circumstances.

The redefinition of our workspaces to be more digital,

flexible and collaborative, in addition to a commitment to

digital disconnection (Telefónica was a pioneer in this

regard following an agreement in 2019 with all trade

union organisations), and the physical and emotional

well-being of our people, also form part of this new work

model.

Leadership and our culture play a fundamental role in this

transformation.

A key target for this new way of working is to boost

employee commitment and loyalty, as well as to evolve

towards a simpler and more flexible organisation. We

therefore promote skills based on a culture of flexibility,

trust and commitment, as well as the necessary skills

required for a collaborative and dynamic work

environment based on project management, autonomy

and teamwork.

Our flexible work models should be a valuable tool for

attracting and retaining talent, as well as for giving us

access to new professionals located all over the world.

The new agile ways of working are much more than a

methodology for Telefónica; they are a means of boosting

a cultural transformation underpinned by the various local

Agile offices. These offices combine Business,

Transformation and People teams to align work

frameworks to the specific characteristics of each

business and the strategic priorities of each unit. We

continue to work on the implementation of more liquid

and flexible organizational models that can help to

empower teams and support business activity, within a

context of process simplification based on an e2e and

project-based work approach.

This new hybrid and flexible context has led to far-

reaching changes in our leadership and our culture,

changes that are highly necessary for achieving the best

results. We are therefore undertaking an unprecedented

cultural transformation to help us obtain an effective and

sustainable employment experience that can evolve the

relationship model between managers and their teams.

We are fully aware that we need new ways of leading to

help us adapt to these new paradigms. As a result, in the

various countries where we operate, we are working to

reorganize the skills of our leaders so they can be a

source of inspiration and transformation within this new

hybrid context. We also want them to promote a culture

of confidence, conversations and productivity.

With a hybrid work model, the office becomes less of a

place to perform a task and more of a space for

inspiration, co-creation and networking between

colleagues.

Telefónica’s workspaces are therefore open and shared,

and are technologically equipped for the hybrid model.

We also have space management tools that are either up

and running already or undergoing a trial period,

depending on the location.

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The new Universitas campus, located at Telefónica

District (Madrid) within the Innovation and Talent Hub,

boasts 2,000 square metres of the latest technology for

in-person and remote training, including live-streaming

services, multi-purpose spaces and recording studios.

Furthermore, we strive to enrich the vending areas and

relaxation spaces at our offices to provide a cozy

atmosphere that lets us network within our work

environment while enjoying a nice break.

Collaborative technology, such as Microsoft Teams and

the Workplace corporate social network, encourages

interaction between employees and helps them to stay

on top of the latest news and to share inspiring ideas and

content.

Depending on the geographical area where we operate,

we provide our professionals with ergonomic chairs,

mobile telephones with unlimited data tariffs, and the

option to buy office furniture under good terms and

conditions. Additionally, we create spaces to promote

emotional well-being with virtual cafés where we

encourage networking.

In Spain, we also provide our employees with various

tools so that they can record the start and end of their

working day from any location, as required by current

local labour legislation.

We develop the hybrid model by focusing on the

employee and his or her family and by taking care of their

digital health.

Reinforcing the digital disconnection agreement that the

Company signed in 2019, we deliver courses including

new routines and tips on how to maintain a healthy

balance between work and free time, and organize

teamwork in the best possible way.

We encourage co-responsibility of care between our

male and female employees through awareness

initiatives, because it has been demonstrated that a

culture in which the weight of family and domestic

responsibilities falls mainly on women is detrimental to

their development and prevents the gender pay gap from

being closed.

We foster measures that guarantee digital disconnection

based on a commitment to “disconnect to reconnect”. A

combination of company, team and individual

agreements is essential to achieving this goal. Such

agreements regulate times at which communications

should not be sent and at which replies are not expected

(except under exceptional circumstances), as well as

guidelines on the planning and organisation of meetings.

We complement all this with training resources on

disconnecting and relaxing, reasonable use of

technology, and awareness about respecting personal

relaxation time.

We have various measures aimed at achieving work-life

balance and avoiding physical and mental exhaustion in

employees: flexible working hours, part-time work,

reduced working hours, subsidized flexible working week,

paid and unpaid leave, extended leave for personal

reasons and hybrid working.

At the Telefónica Group, we are fully aware of the context

of high uncertainty and volatility that has been

accentuated by various overlapping crises (health, social,

energy, political and economic). These situations have led

to a very strong economic impact that has caused

inflation and interest rates to rise. We are therefore

adopting several economic measures in the various

territories where we do business (internally and always

based on collective bargaining) to help our employees

withstand the effect that this exceptional situation is

having on them and their families.

At Telefónica, we are committed to the core standards of

the International Labour Organization (ILO) in every

country where we operate, particularly regarding

freedom of association and the right to collective

bargaining.

We ensure that worker representatives receive fair

treatment that is free of discrimination and that they have

all the tools they need to be able to perform their duties

of representation. We have mechanisms and procedures

to promote the involvement of workers in the

management of the company, in terms of information,

consultation and participation.

In terms of any significant organizational changes,

Telefónica respects the period of prior notice set by the

legislation of the countries where we operate, as well as

those prior notice periods defined by collective

bargaining agreements or policies.

As a company, we reaffirm the important role played by

trade unions in defending the interests of workers and we

recognize UNI (Global Union) and the European Works

Council as key partners in worldwide labour

management.

At a local level, we also understand that works council

management is steered through policies and rules

established by the legal entity and, therefore, the

procedures on reporting, consultation and negotiation

have different meanings but are always in line with

Telefónica’s guiding principles.

Maintaining a neutral position on trade union activity is

essential to ensuring a free and open environment that

enables exercise of the right to free association. If

workers wish to become members of a trade union,

Telefónica will recognize trade unions that meet the

terms and conditions set by ILO Convention 87, and

always in accordance with local legislation.

At Telefónica we understand occupational health and

safety as a concept that encompasses a state of

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complete physical, mental and social well-being in

harmony with the environment. Measures that promote

health within the company not only help employees and

ensure long-term business success, but also have

positive effects on society as a whole.

At Telefónica, we continue to make progress on

positioning ourselves as a global benchmark for business

well-being and renew our commitment to employee good

health and well-being year after year.

We are aware that we still live in a situation of uncertainty

and that the recent health, social, political and economic

crises increase the risk of health-related tensions,

especially of a psychological nature.

Furthermore, we are encountering new ways of

organising work, which are characterised by flexible

models encompassing on-site working, remote working

and working from home. Preventive management

therefore requires this to be adapted to the new

environments and risks that emerge in those new models.

As a result, we continue to build a solid culture of health

and safety focused on people at all levels: work

environment, mental well-being, the promotion of health,

physical activity and healthy eating, and personal

environment.

Our goal is to be capable of generating confidence and

optimism in the future, and this requires management

and improvement of individual psycho-social health by

offering psycho-social risk response and prevention

programmes that can guarantee a preventive response to

any health issues. We have therefore begun conducting

psycho-social risk assessments that will provide us with a

psycho-social diagnosis aimed at being able to define

improvement actions that are appropriate to the risks

identified and the environment in which these actions

should be undertaken.

We also want to be a Company with zero accidents.

Hence the importance we attach to reducing the

accident rate and not exposing workers to unnecessary

risks.

The Quality and Sustainability Committee is responsible

for promoting the development of the Global Responsible

Business Plan, which was approved by the Board of

Directors and places emphasis on safeguarding and

promoting the Health, Safety and Well-being (HSW) of

our employees in the workplace.

The processes for identifying hazards, assessing risks and

preventing accidents and occupational diseases are set

out in the Global Health and Safety Policy and displayed

locally adapted to the reality of each country..

We establish procedures to identify hazards and assess

risks in order to prevent work-related accidents and

occupational diseases, ensuring compliance with the

legal requirements in force in each country. Safety and

health care guides are available for the engineers and

office staff.

We have health services with essentially preventive and

health promotion functions with the Joint Occupational

Risk Prevention Service.

We have an Emergency Plan in place under which teams

of people who have received first aid training

All employees have online courses available to them on

occupational health, safety and well-being. Ongoing and

specific training is also undertaken with the local teams in

the various countries on the implementation of health,

safety and well-being management systems, as well as

numerous health and awareness-raising campaigns.

We promote information, consultation and participation

for workers and other stakeholders to ensure safe and

healthy workplaces. Worker representation on joint

health and safety committees is the established model in

the countries where we operate and 90% of our

employees are represented on these committees.

In line with our target to be a benchmark for corporate

well-being with a positive impact on our employees,

partners, the environment and the organisation, we

implement initiatives that promote a culture of well-being

at all levels of the organisation. Furthermore, we offer

digital disconnection measures and seek to guarantee

work-life balance for our employees.

We know that employees value the right to a safe and

healthy work environment. We therefore base our action

on communication and open dialogue while seeking to

make employees feel comfortable in sharing their

incidents and concerns. This is reflected in the annual

climate survey, in which 78% feel that Telefónica supports

employee well-being.

We believe that we are responsible for preventing and

responding to the present and future psycho-social risks

that may jeopardize the health of our employees. We

have therefore begun to assess psycho-social risks

throughout the Company. The goal is to use these

assessments as a tool for identifying and monitoring

those working conditions that might affect physical and

mental health.

At the same time, we continue to promote emotional

well-being and the psycho-social environment in the

workplace in order to reduce emotional and mental

stress. This has become a priority for our Company

following recent global events (war in Ukraine, energy

crisis, inflation, COVID-19).

We offer a portfolio of social benefits tailored to local

practices in the markets where we operate, including

universal health insurance for all employees and a

support service for people with disabilities aimed at

employees and their families. Our social benefits include

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the care of mental health as a cornerstone for the well-

being of our employees.

We facilitate workers’ access to these wellness services

and programmes through comprehensive

communication campaigns. We also run training courses

on emotional health, stress management, time

management, leadership style and suicide prevention,

among others.

We have platforms that help us promote physical activity

in most countries, such as Gympass. In addition, we are

transforming our relaxation spaces and catering areas to

provide our employees with healthy products and other

healthy ideas. We are also engaged in various nutrition

programmes with nutritionists who draw up a dietary plan

tailored to each person who takes part.

To complement these activities, we help to build

environments that promote a higher quality of life and

greater comfort by creating breastfeeding rooms, bicycle

parking and changing rooms on our premises. We strive

to foster accessibility to our spaces and thereby

guarantee barrier-free environments for our employees

with disabilities.

Our management, in response to the coronavirus, was

focused on maintaining the safety of our employees,

customers and partners. The formula that has allowed us

to deal with this pandemic is a balanced mix of data

analysis, active participation in international forums

(WHO and United Nations) and daily interpretation of

qualitative information (press, trends, news agencies,

specialised studies).

With minor adaptations to existing tools, we have

harnessed the full potential of the data and made safe

progress on both health protection objectives and

business challenges.

Liquidity and capital

resources

Financing

The main financing transactions carried out in the bond

market in 2022 are as follows:

Description	Issue date	Maturity date	Amount in millions (nominal)	Currency of issue	Amount in millions (nominal)	Coupon
Telefónica Emisiones, S.A.U.
EMTN Bond	04/05/2022	07/13/2040	100	100	EUR	1.864%
EMTN Bond (1)	05/25/2022	05/25/2031	1,000	1,000	EUR	2.592%

(1) Sustainable bond

These transactions are guaranteed by Telefónica, S.A. On

the same dates Telefónica, S.A. perceived loans from

Telefónica Emisiones, S.A.U. of similar amount, terms and

conditions.

The main transaction arranged in 2022 in the bank

market is as follows:

•On January 13, 2022, there was a maturity extension of

the syndicated credit facility of Telefónica, S.A.  for

5,500 million euros. The loan has two annual extension

options at Telefónica, S.A. request with a maturity

maximum up to 2029.

•On September 26, 2022, Telefónica, S.A. signed a 150

million euros bilateral loan and maturing in 2032. At

December 31, 2022 the loan was fully draw down.

•On December 23, 2022, Telefónica, S.A. signed a 125

million euros of a bilateral loan and maturing in 2032.

There was no outstanding balance at December 31,

2022.

Available funds

At December 31, 2022 Telefónica, S.A.’s available funds

from undrawn lines of credit in different financial

institutions totaled 9,994 million euros (of which 9,859

million euros maturing in more than 12 months).

Additionally, cash and cash equivalents as of December

31, 2022 amount to 4,989 million euros.

Additional information on sources of liquidity and

undrawn lines of credit available to the Company, on

liquidity risk management, on the Company’s debt levels,

and on capital management is provided in notes 13, 14, 15

and 16 of the financial statements.

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Contractual commitments

Note 19 to the financial statements provides information

on firm commitments giving rise to future cash outflows

and associated with operating leases, primarily.

Credit risk management

The credit risk in Telefónica, S.A. mainly refers to the one

associated with financial derivative instruments arranged

with different entities. The detailed description of how

those risks are managed and hedged is included in note

16.

Credit rating

At December 31, 2022, Telefónica, S.A.’s long-term issuer

default rating is "BBB stable outlook" from Fitch, “BBB-

stable outlook" from Standard & Poor's and “Baa3 stable

outlook" from Moody's. During 2021, there have not been

changes in the long-term credit ratings by any of the

three agencies. Last changes in the credit ratings took

place in 2020 when Standard and Poor’s revised the

outlook to “negative“ from “stable” on April 1, 2020 and

later, on November 20, 2020 downgraded the rating to

“BBB - stable” from “BBB negative”. On November 7, 2016

Moody's downgraded the rating to “Baa3 stable” from

“Baa2 negative” and on September 5, 2016 Fitch

downgraded the rating to “BBB stable” from “BBB+

stable”.

In 2022, measures taken to protect the credit rating

included an active portfolio management through the

closing of the sale of the entire share capital of Telefónica

Móviles El Salvador.

Telefónica also closed various strategic deals to reinforce

its business profile, such as the agreement reached

between Telefónica Colombia and a Colombian company

controlled by KKR, for the sale of fiber assets and for the

provision of connectivity services and deployment of fiber

network. And in December, the agreement with Vauban

Infrastructure Partners and Crédit Agricole Assurances

for the deployment and commercialization of a fiber FTTH

network mainly in rural areas in Spain.

Additionally, Telefonica maintains a solid liquidity position

and conservative approach to debt refinancing, as the

Group took advantage of the historical low refinancing

rates to extend average debt life and smooth its maturity

profile in coming years.

Dividend policy

Telefónica, S.A.’s dividend policy is revised yearly based

on the Group’s earnings, cash generation, solvency,

liquidity, flexibility to make strategic investments. 

On March 2017 the Board of Directors of Telefónica, S.A.

decided to define the corresponding payment periods of

the dividends. Therefore, from there on, the dividend

payment in the second quarter will take place in June,

and the dividend payment in the fourth quarter will take

place in December, in both cases on or before the third

Friday of the corresponding month.

In February 2021, Telefónica announced the dividend

policy for the year 2021, which consists of an amount of

0.30 euros per share, payable in December 2021 (0.15

euros per share) and in June 2022 (0.15 euros per share).

The Annual General Shareholders Meeting held on April

23, 2021 approved the Proposals of the scrip dividend,

which were executed in June and December, 2021. 

In February 2022, Telefónica announced the dividend

policy for the year 2022, which consists of an amount of

0.30 euros per share in cash, payable in December 2022

(0.15 euros per share) and in June 2023 (0.15 euros per

share).

The Annual General Shareholders Meeting held on April

8, 2022 approved the Proposals of the scrip dividend

executed in June 2021, and the cash dividend paid in

December, 2022. 

For the payment in June 2023, the adoption of the

corresponding corporate resolutions will be proposed to

the Annual General Meeting to be held in 2023.

Treasury shares

Telefónica has performed, and may consider performing,

transactions with treasury shares and financial

instruments or contracts that confer the right to acquire

treasury shares or assets whose underlying is Company

shares.

Treasury share transactions will always be for legitimate

purposes, including:

•Undertaking treasury share acquisitions approved by

the Board of Directors or pursuant to General

Shareholders' Meeting resolutions.

•Honoring previous legitimate commitments assumed.

•Covering requirements for shares to allocate to

employees and management under stock option plans.

•Other purposes in accordance with prevailing

legislation. In the past, treasury shares purchased on

the stock market were exchanged for other shares-

securities (as in the case of preferred capital securities),

swapped for stakes in other companies (e.g. the share

exchange with KPN) acquired to reduce the number of

shares in circulation (by redeeming the shares

acquired), thereby boosting earnings per share, the

delivery of treasury shares in exchange for the

acquisition of a stake in another company (such as the

agreement with Prosegur Compañía de Seguridad,

S.A.).

Treasury share transactions will not be performed in any

event based on privileged information or in order to

intervene in free price formation. In particular, any of the

conduct referred to in Articles 83.ter.1 of the Spanish

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Securities Market Law and 2 of Royal Decree 1333/2005

of November 11 implementing the Spanish Securities

Market Law, with regards to market abuse will be

avoided.

The disclosure of number of treasury shares at the end of

2022 and 2021, as well as the explanation about the

evolution of the figure and the transactions involving

treasury shares in 2022, are described in note 11 of these

financial statements.

Risk Factors

The Telefónica Group is affected by a series of risk

factors that affect exclusively the Group, as well as a

series of external factors that are common to businesses

of the same sector. The main risks and uncertainties

faced by Telefónica, which could affect its business,

financial condition, results of operations and/or cash

flows are set out below and must be considered jointly

with the information set out in the Financial Statements.

These risks are currently considered by the Telefónica

Group to be material, specific and relevant in making an

informed investment decision in respect of Telefónica.

However, the Telefónica Group is subject to other risks

that have not been included in this section based on the

Telefónica Group’s assessment of their specificity and

materiality based on the Telefónica Group’s assessment

of their probability of occurrence and the potential

magnitude of their impact.  The assessment of the

potential impact of any risk is both quantitative and

qualitative considering, among other things, potential

economic, compliance, reputational and environmental,

social and governance ("ESG") impacts.

The Telefónica Group, taking into account the global risks

identified by the World Economic Forum, as well as the

increase in legal information requirements and the

expectations of stakeholders in this area, monitors risks

directly related to sustainability, as well as other risks with

potential impact on ESG, highlighting those most relevant

in the context of Telefónica's operation, including the

adaptation to ESG expectations and information

requirements and climate change.

Risks are presented in this section grouped into four

categories: business, operational, financial, and legal and

compliance.

These categories are not presented in order of

importance. However, within each category, the risk

factors are presented in descending order of importance,

as determined by Telefónica at the date of this Annual

Report. Telefónica may change its vision about their

relative importance at any time, especially if new internal

or external events arise.

Risks Related to Telefónica's Business

Activities.

Telefónica's competitive position in some

markets could be affected by the evolution of

competition and market consolidation.

The Telefónica Group operates in highly competitive

markets and it is possible that the Group may not be able

to market its products and services effectively or respond

successfully to the different commercial actions carried

out by its competitors, causing it to not meet its growth

and customer retention plans, thereby jeopardizing its

future revenues and profitability.

The reinforcement of competitors, the entry of new

competitors (either new players or providers of OTT

Services), or the merger of operators in certain markets

(for example, market consolidation in the United Kingdom

following a potential merger of mobile operators

Vodafone UK and Three UK), may affect Telefónica’s

competitive position, negatively affecting the evolution of

its revenues and market share or increasing its costs. In

addition, changes in competitive dynamics in the

different markets in which the Telefónica Group operates,

such as in Chile, Colombia, Peru, Mexico and Argentina,

where there are aggressive customer acquisition offers,

including unlimited data and discounts on certain

services, among others, can affect the competitive

position and the efficiency of Telefónica’s operations.

If Telefónica is not able to successfully face these

challenges, the Group's business, financial condition,

results of operations and/or cash flows could be

adversely affected.

The Group requires government concessions

and licenses for the provision of a large part of

its services and the use of spectrum, which is a

scarce and costly resource.

The telecommunications sector is subject to laws and

sector-specific regulations. The fact that the Group's

business is highly regulated affects its revenues,

operating income before depreciation and amortization

("OIBDA") and investments.

Many of the Group’s activities (such as the provision of

telephone services, Pay TV, the installation and operation

of telecommunications networks, etc.) require licenses,

concessions or authorizations from governmental

authorities, which typically require that the Group

satisfies certain obligations, including minimum specified

quality levels, and service and coverage conditions. If the

Telefónica Group breaches any of such obligations, it

may suffer consequences such as economic fines or

other measures that would affect the continuity of its

business. In addition, in certain jurisdictions, the terms of

granted licenses may be modified before the expiration

date of such licenses or, at the time of the renewal of a

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license, new enforceable obligations could be imposed or

the renewal of a license could be refused.

Additionally, the Telefónica Group could be affected by

the regulatory actions of antitrust authorities. These

authorities could prohibit certain actions, such as new

acquisitions or specific practices, create obligations or

impose heavy fines. Any such measures implemented by

the antitrust authorities could result in economic and/or

reputational loss for the Group, in addition to a loss of

market share and/or harm to the future growth of some of

its businesses.

Any of the foregoing could have an adverse effect on the

business, financial condition, results of operations and/or

cash flows of the Group.

Access to new concessions/ licenses of spectrum.

The Group requires sufficient spectrum to offer its

services. The Group's failure to obtain sufficient or

appropriate spectrum capacity in the jurisdictions in

which it operates, or its inability to assume the related

costs, could have an adverse impact on its ability to

maintain the quality of existing services and on its ability

to launch and provide new services, which may materially

adversely affect Telefónica’s business, financial condition,

results of operations and/or cash flows.

The intention of the Group is to maintain current

spectrum capacity and, if possible, to expand it, through

the participation of the Group in spectrum auctions

which are expected to take place in the next few years,

which will likely require cash outflows to obtain additional

spectrum or to comply with the coverage requirements

associated with some of the related licenses.

In Spain, the Ministry of Economic Affairs and Digital

Transformation launched a public consultation on the

National Frequency Allocation Table, raising the

possibility of making available 450 MHz of the 26 GHZ

spectrum band, to companies, industries and

organizations operating in a specific sector, that deploy

private networks to support their connectivity needs

(verticals). This could mean more competition in the

private corporate network segment.

In the UK, in May 2022, the Office of Communications

("Ofcom") launched a public consultation on opening

access to the 26 GHz and 40 GHz bands for mobile use.

This is the first of a series of detailed consultations on the

award, with a process possible towards the end of 2024

at the earliest. The consultation outlines the proposal to

offer a range of local and city-wide licenses,

differentiating between low- and high-density areas.

In Latin America, several auction processes are expected

in the near term: (i) in Colombia, in December 2022, the

Ministry of Information Technologies and

Communications (“MinTIC”) asked the industry to express

their interest in participating in a possible auction for the

spectrum that remains available in the 700 MHz, 1900

MHz and 2500 MHz bands as well as for 5G spectrum

(3.5 GHz and 26 GHz bands). In such expression of

interest, which is non-binding, Telefónica expressed its

interest in obtaining spectrum in all the proposed bands

except 26GHz. In its expression of interest Telefónica also

highlighted the need to delay all spectrum auctions until

the review on the spectrum pricing methodology

currently underway is completed, and there is an

alignment between spectrum cost and its value

generation capacity, and until measures to avoid an

excessive control of this resource by the dominant

operator are defined. To date, no specific dates have

been proposed for an eventual spectrum auction; (ii) in

Peru, the authorities have indicated their interest in

resuming the auction on the 1750 – 1780 MHz, 2150 –

2180 MHz and 2300 – 2330 MHz bands, but no specific

date or conditions have been set for it. With regards to

5G and the spectrum auction for the 3.5 GHz and 26 GHz

band, the government has not yet taken a decision; and

(iii) in Argentina, the government has made public its

intention to auction 5G spectrum in 2023, but no specific

date for the process has been published. Pursuant to

Resolution 2385/2022 published on December 28, 2022,

the Ente Nacional de Comunicaciones (Enacom)

approved the General Rules for Intelligent and Reliable

Telecommunications Services that preliminarily sets the

conditions for the implementation of 5G in Argentina; iv)

in Uruguay on December 28, 2022 the Executive Power

signed the decree authorizing an auction process for the

3.5 GHz band to occur in the first quarter of 2023.

Existing licenses: renewal processes and modification of

conditions for operating services.

The revocation or failure to renew the Group’s existing

licenses, authorizations or concessions, or any challenges

or amendments to their terms, could materially adversely

affect Telefónica’s business, financial condition, results of

operations and/or cash flows.

In Spain, and in accordance with the new

Telecommunications Act (second transitory provision),

Telefónica requested the Administration to extend the

duration of its spectrum licenses up to a maximum of 40

years.

In Germany, in the allocation procedure for the

frequencies at 800 MHz, 1800 MHz and 2.6 GHz, which

will partially expire at the end of 2025, the

Bundesnetzagentur has submitted a position paper for

consultation as a follow-up to the consultation of

orientation points which were connected with an initial

survey of demand. In the position paper, it considers a

spectrum scarcity to be obvious and is considering an

auction as the award format. In order to reflect the

importance of the 800 MHz band for mobile coverage,

the Bundesnetzagentur proposes a swap in the term of

the frequencies to be awarded at 800 MHz with an equal

amount of 900 MHz frequencies. The frequencies at 900

MHz, 1800 MHz and 2.6 GHz would then be auctioned off.

The frequencies at 800 MHz would have a term until the

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end of 2033. Next steps in the spectrum allocation

procedure in the form of cornerstones and a formal

demand survey are expected in the first half of 2023.

In the UK, mobile spectrum licenses are generally

indefinite in term, subject to an annual fee after a fixed

period (usually 20 years) from the initial auction. There

are no fee decisions now pending until 2033, when the

fixed term for VMO2’s 800 MHz licenses will expire.

With respect to Latin America:

In Brazil, the Agencia Nacional de Telecomunicações

(“ANATEL”) approved on February 8, 2021, Resolution

741/2021 which sets the Regulation for the Adaptation of

Fixed Commuted Telephony Service (“STFC”)

concessions. ANATEL has presented an estimated value

for calculating the migration balancing from the

concession to the authorization regime, which will be

validated by the Federal Court of Accounts. There is a risk

that consensus between the parties on the migration

calculation may not be reached. In any case, if a decision

is made by Telefónica not to migrate, the STFC

concession held by Telefónica will remain in force until

December 31, 2025. In addition, Resolution 744/2021 of

April 8, 2021 (the “Continuity Regulation”) establishes

that, at the end of the life of the concession contracts, the

transfer of the right of use of shared-use assets will be

guaranteed under fair and reasonable economic

conditions, in the event that the granting authority or the

company that succeeds the provider wishes to make use

of these assets to maintain the continuity of the provision

of STFC under the public regime. In relation to the

process that is being carried out before the Federal Court

of Accounts, the technical area of the Court proposed the

revision of the Continuity Regulation's terms so that it

provides for the reversion, to the concessionaires, of the

assets used in the provision of STFC. This proposal is still

subject to deliberation by the Plenary of the Federal

Court of Accounts.

In addition, on December 8, 2022, ANATEL revoked

Telefónica's 450 MHz spectrum authorization (451-458

MHz and 461-468 MHz) covering the states of Alagoas,

Ceará, Minas Gerais, Paraíba, Pernambuco Piauí, Rio

Grande do Norte, Sergipe and part of São Paulo. The

decision was motivated by the fact that Telefónica could

not provide evidence of service activation in the 450 MHz

band as a result of the unavailability of a 450 MHz

devices ecosystem. The revocation of the spectrum

license does not impact the services currently provided

by Telefónica. 

Furthermore, regarding the extension of the 850 MHz

band authorizations, if the legal and regulatory

requirements are met, ANATEL agreed to extend the

current authorizations for the use of radio frequencies in

Bands A and B, proposing their approval, on a primary

basis, until November 29, 2028. However, specific

conditions for renewal, including those related to the

economic valuation criteria and obligations, were

challenged by the affected service providers (including

Telefónica). After ANATEL dismissed the appeals filed by

the providers, ANATEL referred the case to the federal

court of accounts of Brazil (“TCU”), and in September

2022, TCU decided that the possibility of successive

extensions brought by Law 13.879/19 should be

considered as an exception, applicable only when certain

requirements are met (art. 167 of Law 13.879/19 and article

12 of decree 10.402/20). Telefónica appealed that

decision, defending the successive extension of licenses

as a rule and not as an exception, in accordance with Law

13.879/19.  Additionally, in August 2022, when deciding on

an extension request made by the provider TIM for the

850 MHz, 900 MHz and 1.8 GHz bands, ANATEL issued a

decision for the possibility of extending the 900 MHz and

1.8 GHz bands only until 2032, when the Agency intends

to carry out a refarming action of these bands. This

decision may impact Telefónica’s extension requests for

the aforementioned bands.

In Peru, an arbitration process was started by Telefónica,

to challenge the decision adopted by the Ministry of

Transportation and Communications (“MTC”), denying

the renewal of concessions for the provision of fixed-line

services, valid until 2027, which ended with a favorable

award for Telefónica. The award recognizes that the

methodology applied to assess compliance with the

concession obligations in the concession renewal

process was not in accordance with the provisions of the

concession contract. The MTC, following this award,

must issue a new regulation for renewals in a period of

time yet to be determined. Nevertheless, Telefónica del

Perú S.A.A. holds other concessions for the provision of

fixed-line services that allow it to provide these services

beyond 2027. The renewal of the 1900 MHz band in all of

Peru, except for Lima and Callao, which expired in 2018,

and of other licenses to offer telecommunications

services were requested by the Group and a decision by

the MTC is still pending. Nevertheless, these concessions

are valid while the procedures are in progress.

In Colombia, in 2023, Telefonica will have to renew 30

MHz of spectrum in the AWS band. The spectrum

renewal process has not been initiated.

In Argentina, in connection with Decree of Necessity and

Urgency 690/2020 (“DNU 690/2020”), Telefónica de

Argentina, S.A. and Telefónica Móviles Argentina, S.A.

(collectively, “Telefónica Argentina”) filed a lawsuit

against the Argentine State, in relation to a series of

contracts for licenses to provide services and spectrum

use authorizations entered into between Telefónica

Argentina and the Argentine State, including the licenses

resulting from the 2014 spectrum auction. These

contracts and their regulatory framework stated that the

services provided by Telefónica Argentina were private

and prices would be freely set by Telefónica Argentina.

However, DNU 690/2020, by providing that the services

will be “public services” and that prices will be regulated

by the Argentine State, substantially modifies the legal

status of those contracts, affecting the compliance with

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their obligations and substantially depriving Telefónica

Argentina of essential rights derived from those

contracts. The lawsuit filed by Telefónica Argentina was

rejected in September 2021 and Telefónica Argentina

appealed this decision. On December 17, 2021, the first

instance ruling was revoked and the application of

articles 1, 2, 3, 5 and 6 of DNU 690/2020 and Resolutions

1666/2020, 204/2021 and 1467/2020 (relating to the

control of tariffs and the universal basic service) was

suspended for six months or until the final decision is

adopted. On June 10, 2022, the Federal Contentious

Administrative Court extended the precautionary

suspension of the effects of DNU 690/2020 for an

additional six months in Telefónica's favor. On December

27, 2022, the Federal Contentious Administrative Court

extended the precautionary suspension of the effects of

DNU 690/2020 for another six months in Telefónica's

favor. During this period, Telefónica Argentina will not be

subject to the provisions contained in the DNU 690/2020

in relation to price and public service regulations.

In Ecuador, Telefónica will seek to renew in 2023 the

concession contract that authorizes the provision of

telecommunication services and includes the spectrum

licenses (25 MHz in the 850 MHz band and 60 MHz in the

1900 MHz band).

During 2022, the Group’s consolidated investment in

spectrum acquisitions and renewals amounted to 173

million euros, mainly due to the acquisition of spectrum in

Colombia (compared to 1,704 million euros in 2021, mainly

due to the acquisition of spectrum in Brazil and the

United Kingdom, and to 126 million euros in 2020). In the

event that the licenses mentioned above are renewed or

new spectrum is acquired, it would involve additional

investments by Telefónica.

Further information on certain key regulatory matters

affecting the Telefónica Group and the concessions and

licenses of the Telefónica Group can be found in

Appendix VI of the Consolidated Financial Statements.

Telefónica could be affected by disruptions in

the supply chain or international trade

restrictions, or by the dependency on its

suppliers.

The existence of critical suppliers in Telefónica's supply

chain, especially in areas such as network infrastructure,

information systems or handsets with a high

concentration in a small number of suppliers, poses risks

that may affect Telefónica’s operations. In the event that

a participant in the supply chain engages in practices that

do not meet acceptable standards or does not meet

Telefónica’s performance expectations (including delays

in the completion of projects or deliveries, poor-quality

execution, cost deviations or reduced output due to the

suppliers own stock shortfalls), this may harm Telefónica's

reputation, or otherwise adversely affect its business,

financial condition, results of operations and/or cash

flows. Further, in certain countries, Telefónica may be

exposed to labor contingencies in connection with the

employees of such suppliers. 

As of December 31, 2022, the Group depended on three

handset suppliers (none of them located in China) and

seven network infrastructure suppliers (two of them

located in China), which, together, accounted for 81% and

80%, respectively, of the aggregate value of contracts

awarded in the year ended December 31, 2022 to

handset suppliers and network infrastructure suppliers,

respectively. One of the handset suppliers represented

40% of the aggregate value of contracts awarded in the

year ended December 31, 2022 to handset suppliers.

If suppliers cannot supply their products to the Telefónica

Group within the agreed deadlines or such products and

services do not meet the Group’s requirements, this

could hinder the deployment and expansion plans of the

network. This could in certain cases affect Telefónica’s

compliance with the terms and conditions of the licenses

under which it operates, or otherwise adversely affect the

business and operating results of the Telefónica Group. In

addition, the possible adoption of new protectionist

measures in certain parts of the world, including as a

result of trade tensions between the United States and

China, and/or the adoption of lockdown or other

restrictive measures as a result of the COVID-19

pandemic or any other crisis or pandemic, as well as

those derived from geopolitical tensions such as the

current war in Ukraine, could disrupt global supply chains

or may have an adverse impact on certain of Telefónica’s

suppliers and other players in the industry. The

semiconductor industry in particular is facing various

challenges, as a result mainly of supply problems at a

global level, which in turn is affecting multiple sectors

(including technology) through delivery delays and price

increases, which could affect the Telefónica Group or

others who are relevant to its business, including its

customers, suppliers and partners. During 2020, 2021 and

2022 a specific monitoring has been carried out and

action plans have been developed by the Group with

respect to the supply chain challenges resulting from the

COVID-19 pandemic, the armed conflict in Ukraine as well

as the potential discontinuation of use of some suppliers

as a result of tensions between the United States and

China.

The imposition of trade restrictions and any disruptions in

the supply chain, such as those related to international

transport, could result in higher costs and lower margins

or affect the ability of the Telefónica Group to offer its

products and services and could adversely affect the

Group's business, financial condition, results of

operations and/or cash flows.

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Telefónica operates in a sector characterized by

rapid technological changes and it may not be

able to anticipate or adapt to such changes or

select the right investments to make. 

The pace of innovation and Telefónica's ability to keep up

with its competitors is a critical issue in a sector so

affected by technology such as telecommunications. In

this sense, significant additional investments will be

needed in new high-capacity network infrastructures to

enable Telefónica to offer the features that new services

will demand, through the development of technologies

such as 5G or fiber.

New products and technologies are constantly emerging

that can render products and services offered by the

Telefónica Group, as well as its technology, obsolete. In

addition, the explosion of the digital market and the

entrance of new players in the communications market,

such as mobile network virtual operators ("MNVOs"),

internet companies, technology companies or device

manufacturers, could result in a loss of value for certain of

the Group's assets, affect the generation of revenues, or

otherwise cause Telefónica to have to update its

business model. In this respect, revenues from traditional

voice businesses are shrinking, while new sources of

revenues are increasingly derived from connectivity and

digital services. Examples of these services include video,

Internet of Things (IoT), cybersecurity, big data and cloud

services.

One of the technologies currently being developed by

telecommunications operators, including Telefónica (in

Spain and Latin America), is the new FTTx type networks

which allow the offering of broadband accesses over

fiber optics with high performance. However, the

deployment of such networks, in which the copper of the

access loop is totally or partially replaced by fiber,

requires high levels of investment. As of December 31,

2022, in Spain, fiber coverage reached 28.0 million

premises. There is a growing demand for the services that

these new networks can offer to the end customer.

However, the high levels of investment required by these

networks result in the need to continuously consider the

expected return on investment, and no assurance can be

given that these investments will be profitable.

In addition, the ability of the Telefónica Group's IT

systems (operational and backup) to adequately support

and evolve to respond to Telefónica's operating

requirements is a key factor to consider in the commercial

development, customer satisfaction and business

efficiency of the Telefónica Group. While automation and

other digital processes may lead to significant cost

savings and efficiency gains, there are also significant

risks associated with such transformation processes. Any

failure by the Telefónica Group to develop or implement

IT systems that adequately support and respond to the

Group's evolving operating requirements could have an

adverse effect on the Group's business, financial

condition, results of operations and/or cash flows.

The changes outlined above force Telefónica to

continuously invest in the development of new products,

technology and services to continue to compete

effectively with current or future competitors. Any such

investment may reduce the Group’s profit and margins

and may not lead to the development or

commercialization of successful new products or

services. To contextualize the Group’s total research and

development effort, the total expenditure in 2022 was

656 million euros (835 million euros in 2021, with the year-

on-year change being impacted by deconsolidation of

the entities that comprised our former Telefónica United

Kingdom segment in June 2021, and 959 million euros in

2020) representing 1.6% of the Group’s revenues (2.1%

and 2.2% in 2021 and 2020, respectively). These figures

have been calculated using the guidelines established in

the Organization for Economic Co-operation and

Development (“OECD”) manual.

If Telefónica is not able to anticipate and adapt to the

technological changes and trends in the sector, or to

properly select the investments to be made, this could

negatively affect the Group's business, financial

condition, results of operations and/or cash flows.

The Telefónica Group's strategy, which is

focused on driving new digital businesses and

providing data-based services, involves

exposure to risks and uncertainties arising from

data privacy regulation.

The Telefónica Group’s commercial portfolio includes

products and/or services which are based on the use,

standardization and analysis of data, as well as the

deployment of advanced networks and the promotion of

new technologies related to Big Data, cloud computing,

cybersecurity, Artificial Intelligence and IoT. 

The large amount of information and data that is

processed throughout the Group (related to

approximately 383.1 million accesses associated with

telecommunications services, digital products and

services and Pay TV as of December 31, 2022 and an

average number of employees of 102,563 in 2022),

increases the challenges of complying with privacy

regulations. Moreover, there is a risk that measures

adopted in response to these regulations may stifle

innovation. Conversely, the Group’s efforts to promote

innovation may result in potential increased compliance

privacy risks and, where applicable, costs.

Telefónica is subject to Regulation (EU) 2016/679 of the

European Parliament and Council of April 2016, on the

protection of natural persons with regard to the

processing of personal data and on the free movement of

such data (“GDPR”), whose content has become the

common standard for all countries where the Telefónica

Group operates. In addition, progress continues to be

made on the proposal for a future European regulation

concerning the respect for privacy and protection of

personal data in electronic communications (“e-Privacy

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Regulation”), which would repeal Directive 2002/58/EC. If

approved, this proposal could establish additional and

more restrictive rules than those established in the GDPR,

with the consequent increase in the risks and costs that

this could entail for Telefónica.

Moreover, considering that the Telefónica Group

operates its business on a global scale, it frequently

carries out international data transfers concerning its

customers, users, suppliers, employees and other data

subjects to countries outside the EEA that have not been

declared to have an adequate level of data protection by

the European Commission, either directly or through third

parties. In this context, it is particularly relevant to have

the necessary controls in place to ensure that such

international data transfers are carried out in accordance

with the GDPR, in an environment marked by uncertainty

on this issue as to the adequate and effective measures

to mitigate such risks.

One of the relevant contractual measures to ensure the

lawfulness of international data transfers to any country

outside the EEA not found by the European Commission

to have an adequate level of data protection, is the

signing, between the data importer and the data

exporter, of the new standard contractual clauses

(“SCC”) approved by the European Commission

according to Implementing Decision (EU) 2021/914 of

June 4, 2021. These new SCC, which entered into force

on June 27, 2021, repeal the old SCC and include a

modular set of clauses for their application according to

the data processing role of both the exporter and the

importer. Furthermore, the entry into force of the new

SCC obliges companies that are going to use them for

their transfers to assess and adopt additional measures

deemed appropriate for the due protection of the data

transferred to the third country. This is because SCC, in

general, according to the Court of Justice of the

European Union (CJEU), are not sufficient for this

purpose, as the public authorities of the third country, in

accordance with their local regulations, may have the

power to access or request access to the data

transferred. The additional measures to be adopted are

mainly technical such as data encryption and derive in

particular from the impact analysis of each transfer and

the country of destination, all following the guidelines

issued by the European Data Protection Board in its

Recommendations 01/2020. Furthermore, the adoption

of the new SCC by the European Commission as the

main legal tool for transfers, obliges companies to replace

the old SCC, as the old SCC ceased to be legally valid at

the end of 2022 in accordance with the aforementioned

Implementing Decision. The implementation of the new

SCC and their module structure and dispositive parts,

which need to be negotiated between data exporters and

importers, the obligation to assess and analyze each

international transfer, the changing nature of the local

regulations of the countries of destination, as well as the

obligation to renew all agreements that include the old

SCC, pose a challenge for the Group and, with it, a

potential risk of non-compliance in the performance of

international data transfers in accordance with the GDPR.

With regard to the international data transfer to the

United States of America, on October 7, 2022, the U.S.

President signed an executive order directing the steps

that the United States will take to implement the U.S.

commitments to improve the European Union–U.S. Data

Privacy Framework in light of the judgment of the CJEU

C-311/18. In connection with this U.S. initiative, the

European Commission published in December 2022 a

draft adequacy decision that would facilitate the transfer

of data to the United States of America, which, like its

predecessors, the International Safe Harbor Privacy

Principles and the EU-U.S. Privacy Shield, is based on a

self-regulatory approach, whereby U.S. companies that

undertake to comply with the principles set out in the

Privacy Framework will be able to self-certify as

"adequate undertakings". They will thus be able to import

data from the EU to the U.S. if they commit to providing

an adequate level of protection to the data transferred. 

While this represents an improvement in the regulatory

landscape for international data transfers and the risks

associated with them, the approval of this new adequacy

decision for the United States is subject to the non-

binding review by the European Data Protection

Committee and the Civil Liberties Committee of the

European Parliament, as well as the mandatory and

binding approval by the Member States in the Council,

which is not expected to occur until mid-2023.

In addition, the United Kingdom's exit from the European

Union on January 1, 2021 means that the Group must

monitor how its operations and business in the United

Kingdom are affected in terms of applicable privacy

regulations and, specifically, the flow of data to and from

the United Kingdom. The European Commission declared

the United Kingdom as a country with an adequate level

of data protection according to the Adequacy Decision of

June 28, 2021. Accordingly, entities that transfer data

between both territories will not be required to adopt

additional tools or measures for international transfers.

The Adequacy Decision establishes an initial period of

validity of four years, which may be extended only if the

United Kingdom demonstrates that it continues to ensure

an adequate level of data protection. In this regard, since

European Union regulations no longer apply in the United

Kingdom, the UK government has published a draft

reform of its local privacy and data protection regulations

in June 2022, which, if it finally passes through

parliamentary procedures and is approved, aims to

update these regulations to address new technological

challenges and business opportunities in the use of data.

The result and approval of this amendment could impact

the Telefónica Group’s business in the United Kingdom

and the aforementioned international data transfers to

and from the United Kingdom, either because additional

regulatory restrictions or impositions are imposed that

reduce the capacity for innovation and the development

of new services and products, or because the European

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Union authorities consider that the United Kingdom is no

longer a country with an adequate level of data

protection, in which case the Telefónica Group may face

similar challenges and risks as it is currently facing with

respect to data transfers to the United States or other

territories not declared as having an adequate level of

protection.

In Latin America, Law No. 13,709 in Brazil imposes

standards and obligations similar to those required by the

GDPR, including a sanctioning regime which is in force

from August 2021, with fines for non-compliance of up to

2% of the Group’s income in Brazil in the last financial

year subject to a limit of 50 million Brazilian reais

(approximately 9.1 million euros based on the exchange

rate as of December 31, 2022) per infraction which may

increase compliance risks and costs. In addition, in 2022

the Brazilian data protection authority, Autoridade

Nacional de Proteção de Dados (ANPD), became an

independent agency not linked to the presidency of the

Republic, thus providing it with additional autonomy to

develop its control and supervision functions.

Furthermore, in Ecuador, the Organic Law on Data

Protection has entered into force, aligned with the

principles of the European GDPR, although the

effectiveness of the sanctioning regime is postponed for

a two-year adaptation period which ends in 2023. In

addition, Argentina has ratified Convention 108+, which is

an international treaty of the Council of Europe which is

open to accession by any state outside Europe, and

which regulates the protection of the rights of individuals

with regard to the automated processing of their data, in

a very similar way to the protection granted by virtue of

the GDPR. Likewise, in Chile and other territories in the

region where Telefónica operates, there are regulatory

proposals to bring regulation more in line with the

provisions set forth in the GDPR, which may increase

compliance risks and costs. 

Data privacy protection requires careful design of

products and services, as well as robust internal

procedures and rules that can be adapted to regulatory

changes where necessary, all of which entails

compliance risk. Failure to maintain adequate data

security and to comply with any relevant legal

requirements could result in the imposition of significant

penalties, damage to the Group’s reputation and the loss

of trust of customers and users.

Telefónica’s reputation depends to a large extent on the

digital trust it is able to generate among its customers

and other stakeholders. In this regard, in addition to any

reputational consequences, it is important to note that, in

the European Union, very serious breaches of the GDPR

may entail the imposition of administrative fines of up to

the larger of 20 million euros or 4% of the infringing

company’s overall total annual revenue for the previous

financial year. Furthermore, once it is approved, the e-

Privacy Regulation may set forth sanctions for breaches

of it similar to those provided for in the GDPR.

Any of the foregoing could have an adverse effect on the

business, financial condition, results of operations and/or

cash flows of the Group.

Telefónica may not anticipate or adapt in a

timely manner to changing customer demands

and/or new ethical or social standards, which

could adversely affect Telefónica's business and

reputation.

To maintain and improve its position in the market vis-à-

vis its competitors, it is vital that Telefónica: (i) anticipates

and adapts to the evolving needs and demands of its

customers, and (ii) avoids commercial or other actions or

policies that may generate a negative perception of the

Group or the products and services it offers, or that may

have or be perceived to have a negative social impact. In

addition to harming Telefónica's reputation, such actions

could also result in fines and sanctions.

In order to respond to changing customer demands,

Telefónica needs to adapt both (i) its communication

networks and (ii) its offering of digital services.

The networks, which had historically focused on voice

transmission, are evolving into increasingly flexible,

dynamic and secure data networks, replacing, for

example, old copper telecommunications networks with

new technologies such as fiber optics, which facilitate the

absorption of the exponential growth in the volume of

data demanded by the Group's customers.

In relation to digital services, customers require an

increasingly digital and personalized experience, as well

as a continuous evolution of the Group’s product and

service offering. In this sense, new services such as

“Smart Wi-Fi”, “Connected Car”, “Smart Cities”, “Smart

Agriculture” and “Smart Metering” which facilitate certain

aspects of the Group’s customers’ digital lives, are being

developed. Furthermore, new solutions for greater

automation in commercial services and in the provision of

the Group’s services are being developed, through new

apps and online platforms that facilitate access to

services and content, such as new video platforms that

offer both traditional Pay TV, video on demand or multi-

device access. However, there can be no assurance that

these and other efforts will be successful. For example, if

streaming television services, such as Netflix or others,

become the principal way television is consumed to the

detriment of the Group’s Pay TV service, the Group’s

revenues and margins could be affected.

In the development of all these initiatives it is also

necessary to take into account several factors: firstly,

there is a growing social and regulatory demand for

companies to behave in a socially responsible manner,

and, in addition, the Group’s customers are increasingly

interacting through online communication channels, such

as social networks, in which they express this demand.

Telefónica’s ability to attract and retain clients depends

on their perceptions regarding the Group’s reputation

and behavior. The risks associated with potential damage

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to a brand’s reputation have become more relevant,

especially due to the impact that the publication of news

through social networks can have.

If Telefónica is not able to anticipate or adapt to the

evolving needs and demands of its customers or avoid

inappropriate actions, its reputation could be adversely

affected, or it could otherwise have an adverse effect on

the business, financial condition, results of operations

and/or cash flows of the Group.

Operational Risks

Information technology is key to the Group's

business and is subject to cybersecurity risks.

The risks derived from cybersecurity are among the

Group’s most relevant risks due to the importance of

information technology to its ability to successfully

conduct operations. Despite advances in the

modernization of the network and the replacement of

legacy systems in need of technological renewal, the

Group operates in an environment increasingly prone to

cyber-threats and all of its products and services are

intrinsically dependent on information technology

systems and platforms that are susceptible to

cyberattacks. Successful cyberattacks could prevent the

effective provision, operation and commercialization of

products and services in addition to affecting their use by

customers. Therefore, it is necessary to continue to

identify and remedy any technical vulnerabilities and

weaknesses in the Group’s operating processes, as well

as to strengthen its capabilities to detect, react and

recover from incidents. This includes the need to

strengthen security controls in the supply chain (for

example, by focusing on the security measures adopted

by the Group’s providers and other third parties), as well

as to ensure the security of the services in the cloud.

Telecommunications companies worldwide face

continuously increasing cybersecurity threats as

businesses become increasingly digital and dependent

on telecommunications, computer networks and cloud

computing technologies. As a result of the circumstances

brought by the COVID pandemic, remote access and

teleworking of employees and collaborators has spread

and is now a common practice, increasing the use of

cloud services; thus, the risks associated with their use,

and forcing companies to review the security controls

beyond the perimeter of the corporate network. Further,

the Telefónica Group is aware of the possible

cybersecurity risks arising from the conflict in Ukraine,

monitoring cyberattacks that may affect our

infrastructure, and maintaining contact with national and

international organizations to obtain cyberintelligence

information, without having so far detected a significant

increase in attacks in our perimeter compared to other

previous periods, though this may change in the future.

Cybersecurity threats may include gaining unauthorized

access to the Group’s systems or propagating computer

viruses or malicious software, to misappropriate sensitive

information like customer data or disrupt the Group’s

operations. In addition, traditional security threats, such

as theft of laptop computers, data devices and mobile

phones may also affect the Group along with the

possibility that the Group’s employees or other persons

may have access to the Group’s systems and leak data

and/or take actions that affect the Group’s networks or

otherwise adversely affect the Group or its ability to

adequately process internal information or result in

regulatory penalties.

In particular, in the past three years, the Group has

suffered several cybersecurity incidents. Attacks during

this period include (i) intrusion attempts (direct or

phishing), exploitation of vulnerabilities and corporate

credentials being compromised; (ii) Distributed Denial of

Service (DDoS) attacks, using massive volumes of

Internet traffic that saturate the service; and (iii)

exploitation of vulnerabilities to carry out fraud through

online channels, usually through the subscription of

services without paying for them. None of these incidents

had material consequences for the Telefónica Group, but

this may change in the future.

Although Telefónica seeks to manage these risks by

adopting technical and organizational measures as

defined in its digital security strategy, such as the use of

early vulnerabilities detection, access control, log review

of critical systems and network segregation, as well as

the deployment of firewalls, intrusion-prevention

systems, virus scanners and backup systems, it can

provide no assurance that such measures are sufficient

to avoid or fully mitigate such incidents. Therefore, the

Telefónica Group has insurance policies in place, which

could cover, subject to the policies terms, conditions,

exclusions, limits and sublimits of indemnity, and

applicable deductibles, certain losses arising out of these

types of incidents. To date, the insurance policies in place

have covered some incidents of this nature, however due

to the potential severity and uncertainty about the

evolution of the aforementioned events, these policies

may not be sufficient to cover all possible losses arising

out of these risks.

Climate change, natural disasters and other

factors beyond the Group's control may result in

physical damage to our technical infrastructure

that may cause unanticipated network or

service interruptions or quality loss or otherwise

affect the Group's business.

Climate change, natural disasters and other factors

beyond the Group's control, such as system failures, lack

of electric supply, network failures, hardware or software

failures, theft of network elements or cyber-attacks can

damage our infrastructure and affect the quality of, or

cause interruption to, the provision of the services of the

Telefónica Group.

Further, changes in temperature and precipitation

patterns associated with climate change may increase

the energy consumption of telecommunications

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networks or cause service disruption due to extreme

temperature waves, floods or extreme weather events.

These changes may cause increases in the price of

electricity due to, for example, reduction in hydraulic

generation as a result of recurrent droughts. Further, as a

result of global commitments to tackle climate change,

new carbon dioxide taxes may be imposed and could

affect, directly or indirectly, Telefónica, and may have a

negative impact on the Group’s operations results.

Telefónica analyses these risks in accordance with the

recommendations of the Task Force on Climate-Related

Financial Disclosures (“TCFD”).

Network or service interruptions or quality loss or climate-

related risks could cause customer dissatisfaction, a

reduction in revenues and traffic, the realization of

expensive repairs, the imposition of sanctions or other

measures by regulatory bodies, and damage to the image

and reputation of the Telefónica Group, or could

otherwise have an adverse effect on the business,

financial condition, results of operations and/or cash

flows of the Group.

Financial Risks

Worsening of the economic and political

environment could negatively affect

Telefónica's business. 

Telefónica’s international presence enables the

diversification of its activities across countries and

regions, but it exposes Telefónica to diverse legislation, as

well as to the political and economic environments of the

countries in which it operates. Any adverse developments

in this regard, including inflationary pressures, rapid

normalization of monetary policy, exchange rate or

sovereign-risk fluctuations, as well as growing

geopolitical tensions, may adversely affect Telefónica’s

business, financial position, debt management, cash

flows and results of operations and/or the performance of

some or all of the Group’s financial indicators.

Russia’s invasion of Ukraine opened a period that has

been characterized by extraordinary uncertainty and the

simultaneous concurrence of multiple negative shocks.

Inflationary pressures, arising from bottlenecks

associated with the rapid recovery from the pandemic,

have been exacerbated by two phenomena that are

closely related to the Russian invasion; i) the largest

energy crisis since 1970s (17.7% of GDP spent on energy

in 2022 vs. 10.2% in 2019 in OECD countries) and ii) the

highest increase in world food prices in recent history,

resulting in inflation rates not seen in the last 40 years.

The persistence of shocks led inflationary pressures to

become more broad-based, with higher costs

increasingly being passed through to the final prices of

other goods and services, leading to strong response

from central banks (interest rate hikes and liquidity

withdrawal) and a significant loss of consumer

purchasing power. Further, it is likely that the

transmission of past increases in energy prices and other

imported goods to final prices has not yet been

completed, which will continue to put some upward

pressure in the short term. These inflationary pressures

have also been contributed to by the increasing wage

demands that have been observed at the international

level, reflecting both the strength of labor markets,

especially those of the main developed economies, and

the prevalence (although to a lesser extent than in the

past) of wage indexation mechanisms. Moreover, there is

a risk that global liquidity reduction and high interest

rates could generate greater financial volatility leading to

episodes of stress, such as those observed in the United

Kingdom, especially if inflation turns out to be more

persistent than previously expected. Also, premature

monetary easing by central banks could lead to

inflationary rebound that could generate a new period of

stagflation as in the 1970s. Going forward, elements that

could worsen the effects of the current situation include

the escalation of the armed conflict and potential

disruptions to energy supply and possible further

increases in commodity prices, with a potential de-

anchoring of inflation expectations and higher-than-

expected wage demands, prolonging and amplifying the

inflation-recession scenario. As a result of the above,

economic growth is expected to decelerate further in the

near term, with a significant risk of recession in many

parts of the world.

So far, the main European countries where the Group

operates have been affected through the price channel

(higher commodity prices, intermediate inputs and salary

costs, among others), as their trade and financial

exposure is limited. However, in Europe there is concern

about the energy situation for both this and next winter if

climate conditions worsen in the face of a possible gas

shortage. Latin America could be affected by lower

external demand associated with slower global growth,

deteriorating terms of trade and tighter financial

conditions. 

As of December 31, 2022, the contribution of each

segment to Telefónica Group's total assets was as

follows: Telefónica Spain 25.5% (22.9% as of December

31, 2021), VMO2 9.8 % (11.1% as of December 31, 2021),

Telefónica Germany 17.5% (18.3 % as of December 31,

2021), Telefónica Brazil 22.7% (19.7% as of December 31,

2021) and Telefónica Hispam 14.5% (14.3% as of

December 31, 2021). Part of the Group's assets are

located in countries that do not have an investment

grade credit rating (in order of importance, Brazil,

Argentina, Ecuador and Venezuela). Likewise, Venezuela

and Argentina are considered countries with

hyperinflationary economies in 2022 and 2021.

The main risks are detailed by geography below:

In Europe, there are several risks of an economic and

political nature. First, the development of the armed

conflict between Russia and Ukraine constitutes the main

risk factor on growth and inflation prospects. Any

worsening of the supply of gas, oil or food (such as the

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total shutdown of flows from Russia) would have a

negative impact on their prices with a consequent impact

on disposable income. In the medium term, this could

lead to a stronger pass-through to final consumer prices,

which could result in higher-than-expected wage

increases, a persistent rise in inflation expectations and

an even tighter monetary policy. All of the above would

be added to the economic risks existing prior to the

conflict, such as the consequences of an increase in the

cost of financing conditions, both for the private and

public sectors (more accelerated than expected a few

months ago) which could trigger episodes of financial

stress. Finally, there is a risk of financial fragmentation in

the transmission of monetary policy in the Eurozone,

which means that interest rates may react differently in

different countries across the Eurozone, leading to

differences in the yields of bonds issued by peripheral

countries (such as Spain) and those issued by central

countries, which would make access to credit more

difficult for the former.

•Spain: there are several local sources of risks. One of

them stems from the risk that supply disruptions will

have a more persistent negative economic impact than

expected, and high commodity prices and/or the

emergence of second round effects, prolonging the

inflationary episode with a deeper impact on household

income. Secondly, and although the disbursement of

European funds (NGEU) appears to be gaining traction,

further delays or even designing flaws could limit their

final impact on GDP growth and employment. In

addition, as one of the most open countries in the

world, from a commercial point of view, being among

the top ten countries in respect of capital outflows and

inflows globally, the rise of protectionism and trade

restrictions could have significant implications. Lastly,

the impact of rising interest rates could be a source of

financial stress due to high public indebtedness and

lead to a possible correction in the real estate market.

•Germany: in the short term, the main sources of risk

relate to the country’s energy supply (as 35% of energy

came from Russia before the conflict) and the

prolongation of bottlenecks in the supply of raw

materials and intermediate goods in the manufacturing

sector, which could continue to limit the expansion of

economic activity. Among the risks associated with

energy supply, there is a risk of unusually low

temperatures that could lead to higher gas

consumption requirements and may affect the ability to

secure necessary gas supplies. On the other hand,

there is concern that higher-than-expected wage

growth could lead to a stronger inflationary cycle. As

for the medium to long term, there is a risk that a

potential escalation of geopolitical tensions could

reduce international trade, with a consequent impact

on the country’s potential growth, which is dependent

on exports. In addition, long-term challenges remain,

such as the aging of the population.

•United Kingdom: an intensification of inflationary

pressures could weigh on consumption and further

depress economic growth. In particular, there is a

concern that wage growth could lead to a further

increase in the prices of goods and services, preventing

inflation rates from normalizing as quickly as

anticipated. On the other hand, although the UK

economy has few direct trade links with Russia and

Ukraine, it is vulnerable to developments in the global

energy market as it is the second European economy

with the largest share of gas in the energy mix. In

addition, Britain imports gas and electricity from the

European continent during the coldest months, so a

confluence of an abnormally cold winter and a cut-off

of Russian gas to Europe could lead to energy

shortages. On the political front, recent social

polarization could detract political capital from the

incoming executive, becoming another source of

uncertainty in the short to medium term. Finally, the

formal exit of the United Kingdom from the European

Union on December 31, 2020 (Brexit) has created new

barriers to trade in goods and services, mobility and

cross-border exchanges, which will entail an economic

adjustment in the medium term. Northern Ireland's

post-Brexit status and the difficulties associated with

the implementation of the Northern Ireland Protocol

will continue to be a source of tension.

•In Latin America, the exchange risk is moderate but

may increase in the future. The end of electoral events

and rapid central bank actions to contain inflation may,

at least partially, limit the impact of external risks (global

trade tensions, abrupt movements in commodity prices,

concerns about global growth, tightening U.S.

monetary policy and financial imbalances in China) and

internal risks (managing the monetary normalization

and the possible underlying fiscal deterioration).

•Brazil: fiscal sustainability remains the main domestic

risk, especially considering the recent approval of

extraordinary spending of ~2% of GDP by 2023. The

new administration’s initial signals are towards greater

economic interventionism, the repeal of the spending

cap and the review of the privatization agenda. Political

negotiations could be affected by social polarization.

Uncertainty now centers on the unknown economic

guidelines for the coming years of the new

government, including the definition of a new fiscal

rule, expenditure increase and the economic reform

agenda. Given this context, domestic asset prices,

including the exchange rate, continue to show high

volatility. In addition, higher fiscal risks have also

affected inflation expectations, which have increased

since December 2022, remaining above the targets for

the monetary policy’s relevant horizon (2023 and 2024).

In this regard, there is a risk that interest rates will be

above the levels expected a few months ago, which

would imply a downward bias for GDP growth in 2023. 

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•Argentina: macroeconomic and exchange rate risks

remain high. The main domestic challenges are

achieving political consensus to reduce the public

deficit and rebuilding international reserves in a context

of high inflation, in order to allow the country to meet

the targets agreed with the International Monetary

Fund. On the external front, a global slowdown

resulting in lower demand for exported products and

their prices would imply lower hard currency inflows,

which would increase vulnerability to volatility in

international financial markets. Finally, the application

of unorthodox price control measures and increasing

foreign exchange restrictions could affect Telefónica's

profitability.

•Chile, Colombia and Peru: these countries are exposed

not only to changes in the global economy, given their

vulnerability and exposure to changes in commodity

prices, but also to tightening of global financial

conditions. On the domestic side, existing political

instability and the possibility of further social unrest and

the resurgence of populism could have a negative

impact in both the short and medium term. In this

regard, measures that result in excessive growth in

public spending that jeopardize fiscal balance could

have a negative impact on sovereign credit ratings,

further deteriorating local financing conditions. High

inflation threatens to be more persistent than expected,

which would limit central banks' ability to respond to an

abrupt drop in activity levels and would also increase

the risk on financial stability. In political terms,

uncertainty prevails both in Chile, due to the new

constituent process underway, and in Colombia, due to

the impact that the tax and pension reforms promoted

by the President may have on private investment. In

Peru, political instability could continue despite the

installation of the new government due to the lack of

support both in chambers and at the grassroots level. 

As discussed above, the countries where the Group

operates are generally facing significant economic

uncertainties and, in some cases, political uncertainties.

The worsening of the economic and political environment

in any of the countries where Telefónica operates may

materially adversely affect the Group’s business, financial

condition, results of operations and/or cash flows.

The Group has and, in the future, could

experience impairment of goodwill, investments

accounted for by the equity method, deferred

tax assets or other assets.

In accordance with current accounting standards, the

Telefónica Group reviews on an annual basis, or more

frequently when the circumstances require it, the need to

introduce changes to the book value of its goodwill

(which as of December 31, 2022, represented 16.8% of the

Group’s total assets), investments accounted for by the

equity method (which represented 10.6% of the Group's

total assets as of December 31, 2022), deferred tax assets

(which as of December 31, 2022, represented 4.5% of the

Group’s total assets), or other assets, such as intangible

assets (which represented 11.0% of the Group’s total

assets as of December 31, 2022), and property, plant and

equipment (which represented 21.6% of the Group’s total

assets as of December 31, 2022). In the case of goodwill,

the potential loss of value is determined by the analysis of

the recoverable value of the cash-generating unit (or

group of cash-generating units) to which the goodwill is

allocated at the time it is originated, and such calculation

requires significant assumptions and judgment. In 2022

impairment losses in other assets of Telefónica Argentina

were recognized for a total of 77 million euros. In 2021

impairment losses in the goodwill of Telefónica del Perú

were recognized for a total of 393 million euros and in

2020 impairment losses in the goodwill and other assets

of Telefónica Argentina were recognized for a total of 894

million euros. 

In addition, Telefónica may not be able to realize deferred

tax assets on its statement of financial position to offset

future taxable income. The recoverability of deferred tax

assets depends on the Group’s ability to generate taxable

income over the period for which the deferred tax assets

remain deductible. If Telefónica believes it is unable to

utilize its deferred tax assets during the applicable period,

it may be required to record an impairment against them

resulting in a non-cash charge on the income statement.

By way of example, in 2021 deferred tax assets

corresponding to the tax Group in Spain amounting to

294 million euros were derecognized (101 million euros in

2020). 

Further impairments of goodwill, deferred tax assets or

other assets may occur in the future which may materially

adversely affect the Group’s business, financial condition,

results of operations and/or cash flows.

The Group faces risks relating to its levels of

financial indebtedness, the Group's ability to

finance itself, and its ability to carry out its

business plan.

The operation, expansion and improvement of the

Telefónica Group's networks, the development and

distribution of the Telefónica Group's services and

products, the implementation of Telefónica's strategic

plan and the development of new technologies, the

renewal of licenses and the expansion of the Telefónica

Group's business in countries where it operates, may

require a substantial amount of financing.

The Telefónica Group is a relevant and frequent issuer of

debt in the capital markets. As of December 31, 2022, the

Group’s gross financial debt amounted to 39,079 million

euros (42,295 million euros as of December 31, 2021), and

the Group’s net financial debt amounted to 26,687 million

euros (26,086 million euros as of December 31, 2021). As

of December 31, 2022, the average maturity of the debt

was 13.1 years (13.6 years as of December 31, 2021),

including undrawn committed credit facilities. 

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A decrease in the liquidity of Telefónica, or a difficulty in

refinancing maturing debt or raising new funds as debt or

equity could force Telefónica to use resources allocated

to investments or other commitments to pay its financial

debt, which could have a negative effect on the Group's

business, financial condition, results of operations and/or

cash flows.

Funding could be more difficult and costly to obtain in the

event of a deterioration of conditions in the international

or local financial markets due, for example, to monetary

policies set by central banks, including increases in

interest rates and/or decreases in the supply of credit,

increasing global political and commercial uncertainty

and oil price instability, or if there is an eventual

deterioration in the solvency or operating performance of

Telefónica.

As of December 31, 2022, the Group’s gross financial debt

scheduled to mature in 2023 amounted to 4,020 million

euros, and gross financial debt scheduled to mature in

2024 amounted to 2,010 million euros. 

In accordance with its liquidity policy, Telefónica has

covered its gross debt maturities for the next 12 months

with cash and credit lines available as of December 31,

2022. As of December 31, 2022, the Telefónica Group had

undrawn committed credit facilities arranged with banks

for an amount of 11,737 million euros (11,434 million euros

of which were due to expire in more than 12 months).

Liquidity could be affected if market conditions make it

difficult to renew undrawn credit lines. As of December

31, 2022, 2.6% of the aggregate undrawn amount under

credit lines was scheduled to expire prior to December 31,

2023.     

In addition, given the interrelation between economic

growth and financial stability, the materialization of any of

the economic, political and exchange rate risks referred

to above could adversely impact the availability and cost

of Telefónica's financing and its liquidity strategy. This in

turn could have a negative effect on the Group's

business, financial condition, results of operations and/or

cash flows.

Finally, any downgrade in the Group’s credit ratings may

lead to an increase in the Group's borrowing costs and

could also limit its ability to access credit markets.

The Group's financial condition and results of

operations may be adversely affected if it does

not effectively manage its exposure to interest

rates or foreign currency exchange rates.

Interest rate risk arises primarily in connection with

changes in interest rates affecting: (i) financial expenses

on floating-rate debt (or short-term debt likely to be

renewed); (ii) the value of long-term liabilities at fixed

interest rates; and (iii) financial expenses and principal

payments of inflation-linked financial instruments,

considering interest rate risk as the impact of changes in

inflation rates.

In nominal terms, as of December 31, 2022, 88% of the

Group’s net financial debt had its interest rate set at fixed

interest rates for periods of more than one year. The

effective cost of interest payments for the last 12 months

was 3.86% as of December 31, 2022 compared to 3.77%

as of December, 2021. To illustrate the sensitivity of

financial expenses to variations in short-term interest

rates as of December 31, 2022: (i) a 100 basis point

increase in interest rates in all currencies in which

Telefónica had a financial position at that date would

have led to an increase in financial expenses of 34 million

euros, whereas (ii) a 100 basis point decrease in interest

rates in all currencies (even if negative rates are reached),

would have led to a reduction in financial expenses of 34

million euros. For the preparation of these calculations, a

constant position equivalent to the position at that date is

assumed of net financial debt.

Exchange rate risk arises primarily from: (i) Telefónica’s

international presence, through its investments and

businesses in countries that use currencies other than

the euro (primarily in Latin America and the United

Kingdom); (ii) debt denominated in currencies other than

that of the country where the business is conducted or

the home country of the company incurring such debt;

and (iii) trade receivables or payables in a foreign

currency to the currency of the company with which the

transaction was registered. According to the Group’s

calculations, the impact on results, and specifically on net

exchange differences, due to a 10% depreciation of Latin

American currencies against the U.S. dollar and a 10%

depreciation of the rest of the currencies to which the

Group is most exposed, against the euro would result in

exchange gains of 11 million euros as of December 31,

2022 and a 10% appreciation of Latin American

currencies against the U.S. dollar and a 10% appreciation

of the rest of the currencies to which the Group is most

exposed, would result in exchange losses of 11 million

euros as of December 31, 2022. These calculations have

been made assuming a constant currency position with

an impact on profit or loss for 2022 taking into account

derivative instruments in place.

In 2022, the evolution of exchange rates positively

impacted the Group’s results, increasing the year-on-

year growth of the Group’s consolidated revenues and

OIBDA by an estimated 4.5 percentage points and 3.0

percentage points, respectively, mainly due to the

evolution of the Brazilian real (negative impact of 2.3

percentage points and 2.7 percentage points,

respectively, in 2021). Furthermore, translation

differences as of December 31, 2022 had a positive

impact on the Group’s equity of 1,169 million euros (4,088

million euros as of December 31, 2021). 

The Telefónica Group uses a variety of strategies to

manage this risk including, among others, the use of

financial derivatives, which are also exposed to risk,

including counterparty risk. The Group's risk

management strategies may be ineffective, which could

adversely affect the Group's business, financial condition,

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results of operations and/or cash flows. If the Group does

not effectively manage its exposure to foreign currency

exchange rates or interest rates, it may adversely affect

its business, financial condition, results of operations and/

or cash flows.

Legal and Compliance Risks

Telefónica and Telefónica Group companies are

party to lawsuits, antitrust, tax claims and other

legal proceedings.

Telefónica and Telefónica Group companies operate in

highly regulated sectors and are and may in the future be

party to lawsuits, tax claims, antitrust and other legal

proceedings in the ordinary course of their businesses,

the outcome of which is unpredictable.

The Telefónica Group is subject to regular reviews, tests

and audits by tax authorities regarding taxes in the

jurisdictions in which it operates and is a party and may

be a party to certain judicial tax proceedings. In particular,

the Telefónica Group is currently party to certain tax and

regulatory proceedings in Brazil, primarily relating to the

ICMS (a Brazilian tax on telecommunication services) and

the corporate tax.

Telefónica Brazil maintained provisions for tax

contingencies amounting to 446 million euros and

provisions for regulatory contingencies amounting to 336

million euros as of December 31, 2022. In addition,

Telefónica Brazil faces possible tax contingencies for

which no provisions are made (see Note 25-Tax Litigation

in Telefónica Brazil, to the Consolidated Financial

Statements). Further, the Group makes estimates for its

tax liabilities that the Group considers reasonable, but if a

tax authority disagrees, the Group could face additional

tax liability, including interest and penalties. There can be

no guarantee that any payments related to such

contingencies or in excess of our estimates will not have

a significant adverse effect on the Group’s business,

results of operations, financial condition and/or cash

flows. In addition to the most significant litigation

indicated above, further details on these matters are

provided in Notes 25 and 29 to the Consolidated

Financial Statements. The details of the provisions for

litigation, tax sanctions and claims can be found in Note

24 of the Consolidated Financial Statements.

Telefónica Group is also party to certain litigation in Peru

concerning certain previous years' income taxes in

respect of which Telefónica has been notified that the

judicial resolutions which resolve the contentious

administrative processes are unfavorable to the Group

and will require it to pay taxes related to prior years. At

the end of the relevant proceedings, the Tax

Administration, through an administrative act, will

determine the amount of the payment obligation. The

estimated impact of the aforementioned judicial

resolutions is already provisioned in Telefónica's financial

statements, with the total provision as of December 31,

2022 amounting to 3,849 million Peruvian soles

(approximately 945 million euros at the exchange rate at

such date). 

An adverse outcome or settlement in these or other

proceedings, present or future, could result in significant

costs and may have a material adverse effect on the

Group's business, financial condition, results of

operations and/or cash flows.

Increased scrutiny and changing expectations from

stakeholders, evolving reporting and other legal

obligations and compliance with the Company's own

goals regarding ESG matters, may expose the

Company to various risks.

The Telefónica Group may be unable to adapt to or

comply with increasingly demanding expectations from

analysts, investors, customers and other stakeholders and

new regulatory reporting or other legal requirements

related to ESG issues. Further, expectations and

requirements may differ from region to region, may be

based on diverging calculation or other criteria and may

experience material changes as they still are at their

emerging phase.

Further, the Group's disclosure of information on its ESG

objectives and initiatives in its public reports and other

communications (including its emission-related goals)

subjects it to the risk that it will fail to achieve these

objectives and initiatives.

Although Telefónica is working to comply with new ESG

reporting requirements, to achieve its objectives, and to

meet the expectations of its stakeholders in these

matters, if the Company is unable to meet these

expectations, fails to adequately address ESG matters or

fails to achieve the reported objectives (including its

emission-related goals), the Telefónica Group’s

reputation, its business, financial position, results of

operations and/or cash flows could be materially and

adversely affected.

The Telefónica Group is exposed to risks in

relation to compliance with anti-corruption laws

and regulations and economic sanctions

programs.

The Telefónica Group is required to comply with the anti-

corruption laws and regulations of the jurisdictions where

it conducts operations around the world, including in

certain circumstances with laws and regulations having

extraterritorial effect such as the U.S. Foreign Corrupt

Practices Act of 1977 and the United Kingdom Bribery Act

of 2010. The anti-corruption laws generally prohibit,

among other conduct, providing anything of value to

government officials for the purposes of obtaining or

retaining business or securing any improper business

advantage or failing to keep accurate books and records

and properly account for transactions.

In this sense, due to the nature of its activities, the

Telefónica Group is increasingly exposed to this risk,

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which increases the likelihood of occurrence. In

particular, it is worth noting the continuous interaction

with officials and public administrations in several areas,

including the institutional and regulatory fronts (as the

Telefónica Group carries out a regulated activity in

different jurisdictions), the operational front (in the

deployment of its network, the Telefónica Group is

subject to obtaining multiple activity permits) and the

commercial front (the Telefónica Group provides services

directly and indirectly to public administrations).

Moreover, Telefónica is a multinational group subject to

the authority of different regulators and compliance with

various regulations, which may be domestic or

extraterritorial in scope, civil or criminal, and which may

lead to overlapping authority in certain cases. Therefore,

it is very difficult to quantify the possible impact of any

breach, bearing in mind that such quantification must

consider not only the economic amount of sanctions, but

also the potential negative impact on the business,

reputation and/or brand, or the ability to contract with

public administrations.

Additionally, the Telefónica Group’s operations may be

subject to, or otherwise affected by, economic sanctions

programs and other forms of trade restrictions

(“sanctions”) including those administered by the United

Nations, the European Union, the United States, including

by the U.S. Treasury Department’s Office of Foreign

Assets Control and the United Kingdom. The sanctions

regulations restrict the Group’s business dealings with

certain sanctioned countries, territories, individuals and

entities and may impose certain trade restrictions, among

others, export and/or import trade restrictions to certain

good and services. In this context, the provision of

services by a multinational telecommunications group,

such as the Telefónica Group, directly and indirectly, and

in multiple countries, requires the application of a high

degree of diligence to prevent the contravention of

sanctions (which take various forms, including economic

sanctions programs applicable to countries, territories,

lists of entities and persons sanctioned or certain trade

restrictions). Given the nature of its activity, the

Telefónica Group’s exposure to these sanctions is

particularly noteworthy.   

Although the Group has internal policies and procedures

designed to ensure compliance with the above

mentioned applicable anti-corruption laws and sanctions

regulations, there can be no assurance that such policies

and procedures will be sufficient or that the Group's

employees, directors, officers, partners, agents and

service providers will not take actions in violation of the

Group's policies and procedures (or, otherwise in

violation of the relevant anti-corruption laws and

sanctions regulations) for which the Group, its

subsidiaries or they may be ultimately held responsible. In

this regard, the Group is currently cooperating with

governmental authorities (and, where appropriate,

conducting the relevant internal investigations) regarding

requests for information potentially related, directly or

indirectly to possible violations of applicable anti-

corruption laws. Telefónica believes that, considering the

size of the Group, any potential penalty as a result of

matters relating to those specific information requests

would not materially affect the Group's financial

condition.

Notwithstanding the above, violations of anti-corruption

laws and sanctions regulations could lead not only to

financial penalties, but also to exclusion from government

contracts and the revocation of licenses and

authorizations, and could have a material adverse effect

on the Group's reputation, or otherwise adversely affect

the Group's business, financial condition, results of

operations and/or cash flows.

Events after the

reporting period

The events regarding the Company that took place

between the reporting date and the date of preparation

of the accompanying financial statements have been

disclosed in note 22.

Annual Corporate

Governance Report

See Chapter 4 (Annual Corporate Governance Report) of

the 2022 Consolidated Management Report of

Telefónica, S.A.

This document is also available in the public registers of

the National Securities Market Commission (CNMV).

Annual Report on the

Remuneration of the

Directors

See Chapter 5 (Annual Report on the Remuneration of

the Directors) of the 2022 Consolidated Management

Report of Telefónica, S.A.

This document is also available in the public registers of

the National Securities Market Commission (CNMV).

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