Telefónica S.A.

Individual

Annual

Report

2023

cial statements

Telefónica S.A.

       

Annual financial statements

        and management report

for the year ended

2023

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 ...........................................................................................................	11
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 ..........................................................................................................	60
Note 19. Revenue and expenses ..................................................................................................................................	62
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, 2023 .............................................................	82
Appendix II: Board and Senior Management Compensation ..................................................................................	86
Management report 2023 ............................................................................................................................................	93
Business Model .........................................................................................................................................................	93
Economic results of Telefónica, S.A. ......................................................................................................................	96
Investment activity ....................................................................................................................................................	96
Share price performance .........................................................................................................................................	96
Contribution and innovation ....................................................................................................................................	97
Environment, human resources and managing diversity ....................................................................................	98
Liquidity and capital resources ...............................................................................................................................	110
Risks factors associated with the issuer ................................................................................................................	112
Events after the reporting period ............................................................................................................................	126
Annual Corporate Governance Report for Listed Companies ...........................................................................	126
Annual Report on the Remuneration of Directors ................................................................................................	126

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.2

Telefónica, S.A.

Balance sheet at December 31

Millions of euros
ASSETS	Notes	2023	2022
NON-CURRENT ASSETS		57,729	59,929
Intangible assets	5	15	13
Software		10	7
Other intangible assets		5	6
Property, plant and equipment	6	129	131
Land and buildings		76	77
Plant and other property, plant and equipment items		51	50
Property, plant and equipment under construction and prepayments		2	4
Investment property	7	299	309
Land		100	100
Buildings		199	209
Non-current investments in Group companies and associates	8	53,407	55,705
Equity instruments		52,966	55,445
Loans to Group companies and associates		432	245
Other financial assets		9	15
Financial investments	9	2,621	3,288
Equity instruments	9	466	358
Derivatives	16	1,873	2,555
Other financial assets	9	282	375
Deferred tax assets	17	1,224	423
Non current account receivables and other		34	60
CURRENT ASSETS		7,271	8,813
Trade and other receivables	10	500	474
Current investments in Group companies and associates	8	1,694	1,530
Loans to Group companies and associates		1,625	1,470
Derivatives	16	3	5
Other financial assets		66	55
Investments	9	402	1,814
Loans to companies		7	26
Derivatives	16	340	614
Other financial assets		55	1,174
Current deferred expenses		7	6
Cash and cash equivalents		4,668	4,989
TOTAL ASSETS		65,000	68,742

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.3

Millions of euros
EQUITY AND LIABILITIES	Notes	2023	2022
EQUITY		20,077	20,325
CAPITAL AND RESERVES		19,707	19,793
Share capital	11	5,750	5,775
Share premium	11	3,752	3,825
Reserves	11	8,482	11,414
Legal & Statutory		1,110	1,113
Other reserves		7,372	10,301
Treasury shares and own equity instruments	11	(430)	(341)
Profit (Loss) for the year	3	2,153	(880)
UNREALIZED GAINS (LOSSES) RESERVE	11	370	532
Financial assets at fair value with changes though equity		101	(14)
Hedging instruments		269	546
NON-CURRENT LIABILITIES		36,824	37,659
Non-current provisions	18	609	601
Non-current borrowings	12	2,592	3,438
Bank borrowings	14	513	372
Derivatives	16	1,532	1,908
Other debts		547	1,158
Non-current borrowings from Group companies and associates	15	33,482	33,405
Deferred tax liabilities	17	95	189
Long term deferred revenues		46	26
CURRENT LIABILITIES		8,099	10,758
Current provisions	18	36	28
Current borrowings	12	322	458
Bank borrowings	14	141	181
Derivatives	16	179	276
Other financial liabilities	14	2	1
Current borrowings from Group companies and associates	15	7,353	9,950
Trade and other payables	18	371	301
Current deferred revenues		17	21
TOTAL EQUITY AND LIABILITIES		65,000	68,742

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.4

Telefónica, S.A.

Income statements for the years ended December 31

Millions of euros	Notes	2023	2022
Revenue	19	4,362	1,949
Rendering of services to Group companies and associates		464	463
Rendering of services to non-group companies		11	21
Dividends from Group companies and associates		3,859	1,450
Interest income on loans to Group companies and associates		28	15
Impairment and gains (losses) on disposal of financial instruments	8	(1,207)	(1,590)
Impairment losses and other losses		(1,208)	(1,590)
Gains (losses) on disposal and other gains and losses		1	—
Other operating income	19	41	46
Non-core and other current operating revenue - Group companies and associates		33	36
Non-core and other current operating revenue - non-group companies		8	10
Employees benefits expense	19	(232)	(196)
Wages, salaries and others		(199)	(163)
Social security costs		(33)	(33)
Other operational expense		(382)	(313)
External services - Group companies and associates	19	(114)	(92)
External services - non-group companies	19	(258)	(213)
Taxes other than income tax		(10)	(8)
Depreciation and amortization	5, 6 and 7	(25)	(28)
Gains (losses) on disposal of fixed assets		—	(8)
OPERATING PROFIT (LOSS)		2,557	(140)
Finance revenue	19	516	1,429
Finance costs	19	(1,935)	(2,650)
Change in fair value of financial instruments		2	1
Net result on financial assets at fair value with changes through equity	9 and 11	2	1
Exchange rate gains (losses)	19	(11)	(181)
NET FINANCIAL EXPENSE		(1,428)	(1,401)
PROFIT (LOSS) BEFORE TAX	21	1,129	(1,541)
Income tax	17	1,024	661
PROFIT (LOSS) FOR THE YEAR		2,153	(880)

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

	Index	Financial statements 2023

Individual Annual Report 2023    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 for the years ended December 31
Millions of euros	Notes	2023	2022
Profit (Loss) for the period		2,153	(880)
Total income and expense recognized directly in equity	11	(210)	888
From valuation of financial assets at fair value with impact in equity		115	37
From cash flow hedges		(432)	1,135
Income tax impact		107	(284)
Total amounts transferred to income statement	11	48	(397)
From valuation of financial assets at fair value with changes through equity		2	1
From cash flow hedges		63	(531)
Income tax impact		(17)	133
TOTAL RECOGNIZED INCOME AND EXPENSE		1,991	(389)

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, 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	—	36	(343)	—	—	(307)
Other movements	—	(666)	—	—	—	(666)
Appropriation of prior year profit (loss)	—	206	—	(206)	—	—
Balance at December 31, 2022	5,775	15,239	(341)	(880)	532	20,325
Total recognized income and expense	—	—	—	2,153	(162)	1,991
Transactions with shareholders and owners	(25)	(1,706)	(89)	—	—	(1,820)
Capital decreases (Note 11)	(25)	(73)	98	—	—	—
Dividend distributions (Note 11)	—	(1,698)	—	—	—	(1,698)
Other transactions with shareholders and owners (Nota 11)	—	65	(187)	—	—	(122)
Other movements (Note 11)	—	(419)	—	—	—	(419)
Appropriation of prior year profit (loss)	—	(880)	—	880	—	—
Balance at December 31, 2023	5,750	12,234	(430)	2,153	370	20,077

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.6

Telefónica, S.A.

Cash flow statements for the years ended December 31

Millions of euros	Notes	2023	2022
A) CASH FLOWS FROM OPERATING ACTIVITIES		1,720	4,194
Profit (Loss) before tax		1,129	(1,541)
Adjustments to net results:		(1,190)	1,526
Depreciation and amortization	5, 6 and 7	25	28
Impairment of investments in Group companies and associates	8	1,208	1,590
Change in long term provisions		36	(36)
Losses on disposal of fixed and intangible assets		—	8
Dividends from Group companies and associates	19	(3,859)	(1,450)
Interest income on loans to Group companies and associates	19	(28)	(15)
Net financial expense		1,428	1,401
Change in working capital		(15)	(68)
Trade and other receivables		(54)	43
Other current assets		32	(4)
Trade and other payables		7	(107)
Other cash flows from operating activities	21	1,796	4,277
Net interest paid		(1,495)	(1,062)
Dividends received and other		2,835	3,777
Income tax receipts		456	1,562
B) CASH FLOWS (USED IN) / FROM INVESTING ACTIVITIES	21	1,761	(2,769)
Payments on investments		(3,958)	(6,290)
Proceeds from disposals		5,719	3,521
C) CASH FLOWS USED IN FINANCING ACTIVITIES		(3,834)	(2,245)
Proceeds from equity instruments		23	13
(Payments) / Proceeds from financial liabilities	21	(1,933)	(934)
Debt issues		3,425	4,743
Repayment and redemption of debt		(5,358)	(5,677)
Acquisition of treasury shares	11	(223)	(365)
Dividends paid	21	(1,701)	(959)
D) NET FOREIGN EXCHANGE DIFFERENCE		32	2
E) NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS		(321)	(818)
Cash and cash equivalents at January 1		4,989	5,807
Cash and cash equivalents at December 31		4,668	4,989

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.7

Telefónica, S.A.

Annual financial statements

for the ended December 31, 2023

	Index	Financial statements 2023

Individual Annual Report 2023    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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.9

Note 2. Basis of presentation

a) 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 2023.

The accompanying financial statements for the year

ended December 31, 2023 were prepared by the

Company’s Board of Directors at its meeting on February

21, 2024 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 2023 are consistent with

those applied in 2022. 2022 figures are included in these

financial statements for comparison purposes.

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.

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.10

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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.11

Note 3. Proposed appropriation

of net results

Telefónica, S.A. obtained a profit of 2,153 million euros in 2023.

Accordingly, the Company’s Board of Directors will

submit the following proposed appropriation of 2023 net

results for approval at the General Shareholders’

Meeting:

Millions of euros
Proposed appropriation:
Profit for the year	2,153
Distribution to:
Legal reserve	91
Unrestricted reserves	2,062

	Index	Financial statements 2023

Individual Annual Report 2023    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.

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.13

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.

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

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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.14

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 2023 and 2022 are as follows:

Millions of euros
Item	2023	2022
Total assets	104,324	109,642
Equity:
Attributable to equity holders of the parent	21,852	25,088
Attributable to minority interests	5,244	6,620
Revenue from operations	40,652	39,993
Profit for the year:
Attributable to equity holders of the parent	(892)	2,011
Attributable to minority interests	318	308

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.15

Note 5. Intangible assets

The movements in the items composing intangible assets

and the related accumulated amortization in 2023 and

2022 are as follows: 

2023
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
INTANGIBLE ASSETS, GROSS	276	9	—	—	285
Software	172	6	—	2	180
Other intangible assets	104	3	—	(2)	105
ACCUMULATED AMORTIZATION	(255)	(7)	—	—	(262)
Software	(165)	(5)	—	—	(170)
Other intangible assets	(90)	(2)	—	—	(92)
DEPRECIATION ACCRUAL	(8)	—	—	—	(8)
NET CARRYING AMOUNT	13	2	—	—	15

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

As of December 31, 2023 and 2022 commitments to

acquire intangible assets amount to 0.6 and 2.9 million

euros, respectively.

As of December 31, 2023 and 2022, the Company had

254 and 243 million euros, respectively, of fully amortized

intangible assets.

	Index	Financial statements 2023

Individual Annual Report 2023    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 2023 and 2022 are as follows:

2023
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
PROPERTY, PLANT AND EQUIPMENT, GROSS	559	6	—	8	573
Land and buildings	199	—	—	8	207
Plant and other PP&E items	356	5	—	3	364
PP&E under construction and prepayments	4	1	—	(3)	2
ACCUMULATED DEPRECIATION	(428)	(10)	—	(6)	(444)
Buildings	(122)	(3)	—	(6)	(131)
Plant and other PP&E items	(306)	(7)	—	—	(313)
NET CARRYING AMOUNT	131	(4)	—	2	129

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

Firm commitments to acquire property, plant and

equipment at December 31, 2023 and 2022 amounted to

0.5 and 0,2 million euros, respectively.

At December 31, 2023 and 2022, the Company had 353

and 264 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

61 and 62 million euros at 2023 and 2022 year-ends,

respectively. It also includes the net carrying amount of

the remaining assets in this site (mainly property, plant

and equipment items) of 21 and 22 million euros at

December 31, 2023 and 2022, respectively.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.17

Note 7. Investment properties

The movements in the items composing investment

properties in 2023 and 2022 and the related accumulated

depreciation are as follows:

2023
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
INVESTMENT PROPERTIES, GROSS	439	—	—	(2)	437
Land	100	—	—	—	100
Buildings	339	—	—	(2)	337
ACCUMULATED DEPRECIATION	(130)	(8)	—	—	(138)
Buildings	(130)	(8)	—	—	(138)
NET CARRYING AMOUNT	309	(8)	—	(2)	299

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

“Investment properties” mainly includes in both 2023 and

2022 the value of land and buildings leased by Telefónica,

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

headquarters in Madrid.

In 2023 the Company has buildings with a total area of 

263,325 square meters (290,881 square meters in 2022)

leased to several Telefónica Group companies,

equivalent to an occupancy rate of 75.21% of the

buildings it has earmarked for lease (82.22% in 2022).

Total income from leased buildings in 2023 and 2022 (see

note 19.1.a) amounted to 34 and 37 million euros

respectively.

Future minimum rentals receivable under non-

cancellable leases are as follows:

	2023	2022
Millions of euros	Future minimum recoveries	Future minimum recoveries
Up to one year	29	29
Between two and five years	—	—
Total	29	29

The most significant lease contracts held with

subsidiaries occupying Distrito Telefónica have been

renewed in 2023 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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.18

Note 8. Investments in group

companies and associates

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

2023
Millions of euros	Opening balance	Additions	Disposals	Transfers	Exchange rate impacts	Dividends	Net investment hedges	Closing balance	Fair value
Equity instruments (Net) (1)	55,445	345	(425)	—	—	(2,491)	92	52,966	78,437
Equity instruments (Cost)	92,810	1,553	(515)	—	—	(2,491)	92	91,449
Impairment losses	(37,365)	(1,208)	90	—	—	—	—	(38,483)
Loans to Group companies and associates	245	235	(1)	(50)	3	—	—	432	437
Other financial assets	15	26	(3)	(29)	—	—	—	9	9
Total non-current investment in Group companies and associates	55,705	606	(429)	(79)	3	(2,491)	92	53,407	78,883
Loans to Group companies and associates	1,470	1,885	(1,786)	50	6	—	—	1,625	1,624
Derivatives	5	—	(2)	—	—	—	—	3	3
Other financial assets	55	8	(26)	29	—	—	—	66	66
Total current investments in Group companies and associates	1,530	1,893	(1,814)	79	6	—	—	1,694	1,693

(1) Fair value at December 31, 2023 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.

2022
Millions of euros	Opening balance	Additions	Disposals	Transfers	Exchange losses	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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.19

a) Most significant transactions:

The most significant transactions occurred in 2023 and

2022 as well as their accounting impacts are described

below:

2023

On January 18, 2023 the shareholders of Pontel

Participaciones, S.L., an affiliated company of Telefónica,

S.A. (with a 83.35% ownership as of that date), approved

a capital increase of 223 million euros subscribed and

paid by its shareholders. Telefónica, S.A. contributed with

111 million euros, decreasing its percentage of ownership

in the subsidiary to 70%. The transaction is reflected as

Additions in the 2023 chart of movements. On February 7,

2023 the general shareholders' meeting of Pontel

Participaciones, S.L. agreed to an additional paid-in

capital and reserves distribution of 688 million euros.

Telefónica, S.A. received 551 millions of euros and

according to the accounting principles, 492 million were

registered as investment reimbursement and this

movement shown as Dividends in 2023 chart of

movements. On March 16, 2023 and accounting effects

January 1, 2023 Telxius Telecom, S,A. (absorbing entity)

and Pontel Participaciones, S.L. (absorbed entity) carried

out a merger. The effect of the transaction, amounting to

403 million euros is shown as Disposals in 2023 chart of

movements.

On February 2, 2023 Telefónica, S.A. granted a credit

facility of 175 million euros to Pontel Participaciones, S.L..

The credit was cancelled on March 16, 2023, the

mentioned merger date. These transactions are shown as

Additions and Disposals in 2023 chart of movements and

in note 21 of these financial statements.

On January 18, 2023 in order to rebalance the equity

situation, Telefónica Innovación Digital, S.L. (previously

Telefónica Digital España, S.L.) carried out a capital

increase of 45 million euros subscribed and paid in full by

Telefónica, S.A. On October 31, 2023 the merger between

Telefónica Innovación Digital, S.L. as absorbing entity and

Telefónica Investigación y Desarrollo, S.A. (absorbed

entity) was filed to the Companies' Register. Telefónica,

S.A. was the sole shareholder in both companies. With

accounting effects on January 1, 2023 and according to

the accounting principles, a disposal was registered and

shown as Disposals in 2023 chart of movements (32

million euros of cost and 18 million euros of impairment).

The cost of the investment in the absorbing entity was

increased by 13 million euros and shown as Additions in

2023 chart of movements.

In January 2023, the Company sold its investment in

Telefónica Ingeniería de Seguridad, S.A. to Telefónica

Filiales España, S.A. by 6 million euros. The sale is

reflected in 2023 chart of movements as Disposals (under

the caption cost of the investment by 78 million euros and

72 million euros under the impairment caption).

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 implied 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 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 implied 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 were reflected as Additions and

Disposals, respectively, in the 2022 chart of movements.

On October 31, 2022 the liquidation of Sao Paulo

Telecomunicaçoes, Ltda. was 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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.20

euros and is shown as Addition in 2022 chart of

movements.

All the aforementioned transactions in 2023 and 2022

have been valued in accordance with the accounting

principles described in note 2 b).

b) Acquisitions of investments and capital

increases (Additions):

Millions of euros
Companies	2023	2022
TLH HOLDCO, S.L.	38	1,646
Telefónica Hispanoamérica, S.A.	380	1,192
Telefónica Latinoamérica Holding, S.L	—	1,150
Telefônica Brasil, S.A.	—	903
Telefónica Tech, S.L.	36	839
Telefónica Infra, S.L.	103	555
Telefónica Cybersecurity & Cloud Tech, S.L	—	342
Telefónica Deutschland, A.G.	813	48
Pontel Participaciones, S.L.	111	—
Telefónica Innovación Digital, S.L. (previously Telefónica Digital España, S.L.)	58	—
Other companies	14	31
Total group and associated companies	1,553	6,706

2023

On March 21, 2023 Telefónica Hispanoamérica, S.A.

completed a share capital increase of 380 million euros

totally subscribed and disbursed by Telefónica, S.A.

In 2023 the Company has carried out several

contributions to the reserves of Telefónica Infra, S.L. in

March, June, August, October and December totaling 103

million euros. These contributions to distributable

reserves have had no issuance of new shares.

During 2023 the Company has acquired in the stock

market shares of Telefónica Deutschland Holding, A.G.

(352 million shares for a total amount of 813 million euros)

up to a 13.2% of direct ownership as of December 31, 2023

as detailed in Appendix I of these financial statements.

The amount corresponding to Pontel Participaciones, S.L.

is framed within the transactions detailed at the

beginning of this note.

The figure shown for Telefónica Innovación Digital, S.L.

(previously Telefónica Digital España, S.L.) is disclosed at

the beginning of this note.

2022

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

capital increase of 64 million euros, fully subscribed and

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

chart included 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. referred 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 agreed to fund contributions to

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

517 million euros.

During 2022 the Company acquired 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

December 31, 2022.

c) Disposals of investments and capital

decreases:

Millions of euros
Companies	2023	2022
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
Pontel Participaciones, S.L.	403	—
Telefónica Investigación y Desarrollo, S.A.	32	—
Telefónica Ingeniería de Seguridad, S,A.	78	—
Other companies	2	23
Total group and associated companies	515	8,513

2023

The amount referring to Pontel Participaciones, S.L. is

related to the merger with Telxius Telecom, S.A. detailed

at the beginning of this note.

The disposal of Telefónica Investigación y Desarrollo, S.A.

is related to the cost of the investment in the merger with

Telefónica Innovación Digital, S.L. (previously Telefónica

Digital España, S.L.) detailed at the beginning of the note.

The amount corresponding to Telefónica Ingeniería de

Seguridad, S.A. is disclosed at the beginning of this note.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.21

2022

The figure of Sao Paulo Telecomunicaçoes, Ltda. related

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. referred 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 included the liquidation of Corporación

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

Realidad Virtual, S.L. y Telco TE, which were carried out in

2022. The companies were fully impaired and the same

amount was recorded as disposals in the impairment

losses line.

d) Other movements:

On December 22, 2023 Telefónica Latinoamérica

Holding, S.L. completed a dividend distribution by 1,994

million euros. After completing an accounting assesment,

the transaction has been registered as investment

reimbursement as Dividends in 2023 chart of 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 was registered as an investment reimbursement

and reflected as Dividends in 2022 chart of movements.

“Transfers” of “Loans to Group Companies and

Associates” in 2022 included 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).

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 estimation is calculated

based on the subsidiaries' business plans approved by

the Board of Telefónica, S.A. In the specific case of the

indirect investment in the JV in the United Kingdom, the

future cash flows used in the calculation of the value in

use carried out by the JV are based on the latest three-

year business plan approved by the Board of Directors of

VMED O2 UK Limited (VMO2). To complete the five years

of post-closing cash flows, an additional normalization

period has been estimated in the operating variables until

the perpetuity parameters are reached. A longer time

horizon has been used for capital-intensive projects, such

as the fiber rollout plan.

The business plan of the subsidiaries covers a four-year

period, including the closing year. In order to complete

the five years of cash flows after the closing year, an

additional normalization period is added to the business

plans on the operating ratios until the terminal

parameters are reached. The consensus' forecasts are

used as a reference. For specific cases, extended

business plans are used to cover the five-year period of

cash flows, when the normalization period does not

properly reflect the expected evolution of the business.

The estimated value is based on the business plans of

each subsidiary expressed 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 2023, an impairment provision of

1,208 million euros was recognized (write-off of 1,590

million euros in 2022). This amount derives mainly from

the following companies: 

a. a write down, net of hedges, of 3,169 million euros for

Telefónica O2 Holdings, Ltd. (write down of 1,594

million euros, net of hedges, was registered in 2022)

due to the outcome of the impairment test carried out

by VMO2 at year-end.

b. a write down for 660 million euros for TLH HOLDCO,

S.L. due to the Argentinian peso devaluation in

December 2023. In 2022 no impairment was

registered for the investment.

c. a write down reversal, net of hedges, of 1,215 million

euros for Telefônica Brasil, S.A. (449 million euros in

2022). The causes of the reversion are detailed in the

next chapter. In 2022 an additional reversal of 15

million euros for Sao Paulo Telecomunicaçoes, Ltda,

was registered prior to its liquidation. 

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.22

d. a write down by 348 million euros for Telefónica

Hispanoamérica, S.A. (1,252 million euros in 2022).

e. a write down reversal of 1,770 million euros for

Telefónica Latinoamérica Holding, S.L. (1,001 million

euros in 2022) mainly due to positive performance of

its investment in Brazil.

f. a write down of 8 million euros for Telefónica

Innovación Digital, S.L. (previously Telefónica Digital

España, S.L.). An impairment of 130 million euros was

registered for this investment in 2022. 

Main assumptions used for the calculation of

the discounted cash flows of investments

United Kingdom

Among the G7 economies, the United Kingdom had the

second lowest GDP growth in 2023, and since 2019 the

country's per capita income has performed worst. Its

economy has entered recession in the second half of

2023, an event not foreseen at the beginning of the year.

Growth forecasts for 2024 have also been reduced (0.4%

currently vs. almost 1% expected in the first half of 2023

for 2024). Behind this weak performance there are mainly

two factors, both related to Brexit: the low growth of the

labor force and the lack of dynamic behavior of exports.

These factors have also contributed to the fact that the

decline in inflation has been slower than expected, and

therefore that interest rates have not decreased, which

has had a negative impact on the disposable income of

families and companies.

During 2023, VMO2 has achieved progressive growth in

the number of customers, expanding its mobile, fixed and

convergent customer base in a difficult macroeconomic

context of high inflation and rationalization of consumer

expenditure habits.

The macroeconomic environment is expected to remain

challenging, impacting the consumption pattern of the

company's customer base, which has a premium ARPU in

the market derived from higher speeds and packages

with multiple services that are susceptible to optimization

by customers, such as television services, basic telephony

or maintaining the mobile terminal for a longer period of

time. Likewise, the competitive environment has

intensified with an acceleration in the deployment of fiber

networks threatening VMO2's competitive speed

advantage. The B2B market has also been affected by the

macroeconomic situation. On the other hand, the

company has accelerated the execution of the synergies

anticipated by the integration. For all these reasons, the

company continues to focus on its pillars of future

growth, such as the commitment to convergence, the

digitalization and the development of state-of-the-art

infrastructure through significant investments that are

expected to contribute to future growth.

Long term growth and operational ratios considered in

the assessment of the value in use of VMO2 are aligned

within analyst ranges for peer companies in the region. In

terms of revenues, despite challenges in the competitive

environment, the strategic plan reflects a trend of growth

in the long term projections, in line with the estimated

industry evolution in the UK. Regarding OIBDA margin

over a two-year horizon, analysts' estimates for peer

companies in Europe range between 33% to 41%, while

the analysts long-term capex to revenue ratio range

within 12% to 15%. The WACC (Weighted average cost of

capital) used to discount the cash flows is 7.5% as of

December 2023. Terminal growth rate is set at 1%, below

the real terminal growth forecasted for the UK economy.

Brazil

The macroeconomic scenario in Brazil during 2023 has

been better than expected at the beginning of the year

for the third year in a row. The economic growth has

tripled the estimations. Additionally, there has been a

stability of financial assets thanks to the compromise of

the government with the tax balance and with the

structural reforms improving the medium term prospects

of the country. Finally, families and companies have

benefited from the interest rate decline and the

acceleration of the wages thanks to the continuing

process of inflation drop. In terms of revenues, the four-

year plan reflects a trend of improvement for the business

projections. As for the long-term OIBDA margin three-

year estimates of Telefónica Group's analysts for the

operator in Brazil, it is in a range within 37% to 45%.

Regarding investments, the operator will invest in the

horizon of the projected plan a percentage that is aligned

with the investment needs planned for the development

of its business, which is located in a range between 14%

and 19%. The WACC used for year-end 2023 is 12%,

showing a drop of 60 basic points since 2022 due to the

restraint of the interest rate in the country. The perpetual

growth rate has been reduced by 0.5 p.p. aligned with

the long-term growth of the business and placing it

within the range of analysts' estimates. It is consistent

with inflation rate targeted by the Central Bank of Brazil

(in a range between 1.5% and 4.5%) and it is below the

nominal GDP growth rate, which fluctuates around 5.5%,

according to market expectations. Moreover, the

appreciation of Brazilian real against euro by 4.11% should

also be taken into account as it has an impact, net of

hedges, in the value of the investment (see note 19.8).

Argentina

2023 has been a difficult year in the whole environment

of the Argentinian economy. Instead of being stagnated

as expected, at the beginning of the year, the economic

activity shrank due to the extraordinary drought as well as

the persistent tax and monetary unbalances which gave

birth to a steep acceleration of the inflation rate and a

drop of wages. All these factors framed within a highly

uncertain political (with presidential elections held in

October 2023) and economic (with a more severe control

of external payments and imports) scenario, aggravated

the financial volatility and the worsening of exchange rate

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.23

and country risk. After the official devaluation of the

Argentinian peso in December 2023, the local currency

has depreciated by 78.84% in comparison with December

2022.

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 2023 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.

On March 16, 2023 the Boards of Telxius Telecom, S.A.

and Pontel Participaciones, S.L. approved the merger of

the latter entity with the first, with the subsequent

dissolution of the absorbed company without liquidation

and the full transfer of its equity to the absorbing

company, which acquires by universal succession the

rights and obligations of the absorbed entity. The deed of

the transaction was filed to the Companies' Register on

April 5, 2023.

On June 29, 2023 the Boards of Telefónica Innovación

Digital, S.L. (previously Telefónica Digital España, S.L.)

(absorbing entity) and Telefónica Investigación y

Desarrollo, S.A. (absorbed entity) scheme the merger

project of the latter company with the first with the

subsequent dissolution without liquidation of the

absorbed entity and the full transfer of the equity as well

as the acquisition by universal succession of the rights

and obligations of the absorbed company. Telefónica,

S.A., as sole shareholder of both absorbing and absorbed

companies, agreed to the merger on July 25, 2023. The

deed of the transaction was files to the Companies

Register on November 17, 2023 and legal effects on

October 31, 2023.

8.5. Maturity of loans to Group

companies and associates

The breakdown and maturity of loans to Group

companies and associates in 2023 and 2022 are as

follows:

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.24

2023
Millions of euros
Company	2024	2025	2026	2027	2028	2027 and subsequent years	Final balance, current and non- current
Telefónica Móviles España, S.A.U.	776	—	—	—	—	—	776
Telefónica Cybersecurity & Cloud Tech, S.L.	4	—	—	116	—	—	120
Telefónica de España, S.A.U.	473	—	—	—	—	—	473
Telxius Telecom, S.A.	50	—	50	—	235	—	335
Telefônica Brasil, S.A.	133	—	—	—	—	—	133
Telefónica Finanzas, S.A.U.	138	—	—	—	—	—	138
Other companies	51	—	—	—	—	31	82
Total	1,625	—	50	116	235	31	2,057

2022
Millions of euros
Company	2023	2024	2025	2026	2027	2026 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

The main loans granted to Group and associated

companies are described below:

• The outstanding balance with Telefónica Móviles

España, S.A.U. in 2023 includes dividends distributed in

December 2023, amounting to 677 million euros and

uncollected as of the date of these financial

statements.

In addition, in 2023 there are 99 million euros of tax

balances receivable from this subsidiary for its tax

expense declared in the consolidated tax return (99

million euros in 2022).

• 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 its maturity date until 2027.

The equivalent amount of this credit at year end

amounts to 116 million euros (113 million euros in 2022).

Moreover, there are uncollected interests accounted as

current amounting to 1 million euros both in 2023 and

2022.

In addition, in 2023 there are 3 million euros of tax

balances receivable from this subsidiary for its tax

expense declared in the consolidated tax return (no tax

amounts outstanding in 2022).

• The balance of Telefónica de España, S.A.U. in 2023

includes an amount of 473 million euros of dividends

distributed in December 2023 and uncollected as of

the date of these financial statements.

In 2022 there were 415 million euros corresponding to

tax receivables from the subsidiary for its tax expense

declared in the consolidated tax return. There are no

outstanding amounts to be collected in 2023 for this

concept.

• At year end 2022, the outstanding amount granted to

Telxius Telecom, S.A. by 100 million euros

corresponded to credits granted in 2016 with maturity

date in 2024 and 2026 with the amounts shown in the

chart of movements. In 2023 the installment maturing

in 2024 euros has been transferred to current.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.25

In December 2023 a new loan has been granted with a

total figure of 235 million euros and a variable interest

rate. It has been disbursed in two tranches on

December 4 and 20, by 153 and 82 million euros,

respectively. The maturity date of the loan is December

2028 with an additional one-year extension at grantee

request.

• The balance totaling 133 million euros shown in 2023

with Telefônica Brasil, S.A. entirely corresponds to

dividends agreed by the subsidiary and unpaid at year

end (189 million euros in December 2022).

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

2023 includes dividends distributed and uncollected at

year end amounting to 118 million euros (182 million

euros in 2022).

Moreover, in 2023 there are uncollected balances of 20

million euros of tax balances receivable from this

subsidiary for its tax expense declared in the

consolidated tax return (16 million euros in 2022).

• 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 amounted to 1 million euros and were also

shown as current in the 2022 the chart of movements.

On February 3, 2023 Bluevía Fibra, S.L. cancelled, prior

to maturity, the above mentioned credit facility as well

as the uncollected interests. The collected amount was

528 million euros (see note 21).

In the 2023 chart of movements, additions of current

loans to group companies and associates comprise 161

million euros (548 million euros in 2022) 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 548

million euros (873 million euros in 2022).

Total accrued interest receivable at December 31, 2023

and 2022 included under the caption Current loans to

group companies and associates amount to 2.3 and 2.4

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 2023 and 2022 with a maturity date

longer than 2024 are included as other non-current

financial assets (see note 19.3).

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.26

Note 9. Financial investments

9.1. The breakdown of “Financial investments” at December 31, 2023 and 2022 is as follows:

2023
	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	466	508	1,365	2,339	466	1,873	—		282	—	282	282	2,621	2,621
Equity instruments	466	—	—	466	466	—	—		—	—	—	—	466	466
Derivatives (Note 16)	—	508	1,365	1,873	—	1,873	—		—	—	—	—	1,873	1,873
Loans to third parties and other financial assets	—	—	—	—	—	—	—		282	—	282	282	282	282
Current financial investments	—	96	244	340	—	340	—		62	—	62	62	402	402
Loans to third parties and other financial assets	—	—	—	—	—	—	—		62	—	62	62	62	62
Derivatives (Note 16)	—	96	244	340	—	340	—		—	—	—	—	340	340
Total financial investments	466	604	1,609	2,679	466	2,213	—		344	—	344	344	3,023	3,023

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.27

2022
	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	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

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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.28

9.2 Financial assets at fair value with

changes though income statement

and hedges with changes through

equity

These two asset categories include the fair value of

outstanding derivative financial instruments at December

31, 2023 and 2022 (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, 2023 and 2022 are as follows:

December 31, 2023
Millions of euros	Opening balance	Disposals	Fair value adjustments	Closing balance
Banco Bilbao Vizcaya Argentaria, S.A.	249	—	114	363
China Unicom (Hong Kong), Ltd.	105	—	(2)	103
Promotora de Informaciones, S.A. (PRISA)	4	(5)	1	—
Total	358	(5)	113	466

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

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

At December 31, 2023 and 2022 Telefónica, S.A.'s

investment in BBVA represents 0.756% and 0.732%,

respectively, of that company's share capital at each

year-end.

Promotora de Informaciones, S.A. (Prisa)

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

Prisa. The revenue from the sale amounted to 5 million

euros and it was 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.

At December 31, 2022 Telefónica, S.A.'s investment in

Prisa represented 1.87% of its share capital.

On June 21, 2023 the Company has sold its total

remaining shares in this investment with a profit of 2

million euros accounted under the caption Net result on

financial assets at fair value with changes through equity

in the profit and loss account.

China Unicom (Hong Kong), Ltd.

The investment in China Unicom (Hong Kong), Ltd. (182

million shares) represents 0.593% of that company's

share capital both in 2023 and 2022. 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 2023 and 2022 chart of movements in

note 11 is due to hedges which partially offset the

exchange rate impact in the valuation of China Unicom.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.30

9.4 Financial assets at amortized cost

The breakdown of investments included in this category

at December 31, 2023 and 2022 is as follows:

Millions of euros	2023	2022
Financial assets at amortized cost, non- current:
Deposits related to real state properties	6	7
Collateral guarantees	273	365
Marketable debt securities	3	3
Financial assets at amortized cost, current:
Loans to third parties	5	26
Marketable debt securities	—	939
Collateral guarantees	55	235
Other current financial assets	2	—
Total	344	1,575

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 the current

caption refer to the notes with a total nominal value of

1,000 million US dollars issued by the international issue

platform Single Platform Investment Repackaging Entity,

S.A. ("Spire"). These notes were deposited in a securities

account owned by Telefónica, S.A. The notes have been

fully cancelled according to its maturity in 2023 (see note

21).

In relation with collateral contracts, there is an additional

guarantee of 51,988 bonds issued by Telefónica

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

owned by Telefónica, S.A. with a notional of 47 million

euros as of December 31, 2023 (there were 79,034 bonds

with a notional of 78 million euros as of December 31,

2022).

In 2023 and 2022 the concept of loans to third parties

includes the uncollected amounts from financial entities

as a result of the maturity of derivative instruments.

Other current financial assets include in 2023 the

uncollected revenues from bank accounts.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.31

Note 10. Trade and other

receivables

The breakdown of “Trade and other receivables” at

December 31, 2023 and 2022 is as follows:

Millions of euros	2023	2022
Trade receivables	28	—
Trade receivables from Group companies and associates	233	166
Other receivables	1	2
Employee benefits receivable	1	1
Tax receivables (Note 17)	237	305
Total	500	474

“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 2023 and 2022 include

balances in foreign currency equivalent to 98 and 66

million euros, respectively.

In 2023 and 2022 these amounts relate to receivables in

US dollars and pounds sterling.

These balances give rise to positive exchange rate

differences in the income statement by 3 million euros in

2023 and 2022.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.32

Note 11. Equity

11.1 Capital and reserves

a) Share capital

2023

As of December 31, 2023, the share capital of Telefónica,

S.A. was set at 5,750,458,145 euros and was divided into

5,750,458,145 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 2023 share capital are detailed below:

On March 31, 2023 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 24,779,409 euros after

the amortization of 24,779,409 treasury shares, with a par

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

was set at 5,750,458,145 euros, corresponding to

5,750,458,145 shares with a par value of 1 euro each. As a

consequence of this transaction, the share premium

reserve was reduced by 73 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 (24,779,409 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 17, 2023 the deed of the capital decrease was

registered in the Madrid Companies' Register.

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). 

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.

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.33

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 2023,

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 March 31, 2023, 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, 2023 and 2022, 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 2023	111,099,480	3.87	3.53	393	1.932%

(*) Millions of euros

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.34

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

during the years 2023 and 2022 is as follows:

	Number of shares
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)
Other movements	(411,681)
Treasury shares at 12/31/22	85,217,621
Acquisitions	60,070,274
Share capital decrease	(24,779,409)
Employee share option plan (See Note 19.3)	(8,845,558)
Other movements	(563,448)
Treasury shares at 12/31/23	111,099,480

Acquisitions

In 2023 and 2022 acquisition of treasury shares

amounting to 223 and 365 million euros respectively,

have been registered (see note 21).

Share redemption and disposals

On March 31, 2023 following the agreement of the

General Shareholders' Meeting held on the same date,

the share capital decrease was carried out with the

amortization of 24,779,409 treasury shares with an impact

of 98 million euros.

On April 8, 2022 following the agreement of the General

Shareholders' Meeting held on the same date, 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.

Employee share option plan 

Treasury shares related to share plans redemptions in

2023 and 2022 amount to 35 and 22 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, mainly contracted through

Banco Bilbao Vizcaya, recorded in the balance sheet at

December 31, 2023 in accordance with their maturity

date and fair value (193 million euros at December 31,

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, 2023 and 2022, this

reserve amounted to 1,059 million euros representing

18.42% and 18.34% of the share capital at both year ends,

respectively. The proposed appropriation of profits in

2023 to the General Shareholders' Meeting comprises a

distribution of 91 million euros to the legal reserve in order

to achieve a ratio of 20% of the share capital (1,150 million

euros).

c) Other reserves

The concepts included under this caption are:

• 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 2023 and 2022, an amount of 3 and 4 million

euros, corresponding to revaluation reserves

subsequently considered unrestricted has been

reclassified to Other reserves. The balance of this

reserve at December 31, 2023 and 2022 was 51 and 54

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, 2023 and 2022 totals 978 and 954 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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.35

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

reverse merger between Pontel Participaciones, S.L.

and Telxius Telecom, S.A. with absorption of the first

entity by the latter has generated a negative impact by

418 million euros in the statement of changes in equity

under the "other movements" caption. The merger

between Telefónica Innovación Digital, S.L. (previously

Telefónica Digital España, S.L.) and Telefónica

Investigación y Desarrollo, S.A. has an effect of 1 million

euros registered under the same caption.

Moreover, in 2022 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 negative impact in reserves of 317 million

euros. Finally, the liquidation of Sao Paulo

Telecomunicaçoes, Ltda. has raised a negative effect in

reserves amounting to 441 million euros shown in the

same line item.

d) Dividends

Dividend distribution in 2023

Approval was given at the General Shareholders’ Meeting

of March 31, 2023 to pay a dividend in cash charge to

unrestricted reserves amounting to 0.30 euros per share

payable in two tranches.

On June 15, 2023, cash dividend of 0.15 euros per share

was paid, for a total amount of 851 million euros, and on

December 14, 2023, a second payment of 0.15 euros

amounting to 847 million euros.

Dividend distribution in 2022

Approval was given at the General Shareholders’ Meeting

of April 8, 2022 to pay a dividend  in two tranches, for an

approximately amount of 0.30 euros per share.

On June 22, 2022, took place the payment of a scrip

dividend of approximately 0.15 euros per share consisting

of the assignment of free allotment rights with an

irrevocable purchase commitment by the Company, 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 1 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 amounted 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 after June 24, 2022 in the capital

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

euro each.

On December 15, 2022 took place the payment of a

dividend of 854 million euros.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.36

11.2 Unrealized gains (losses) reserve

The movements in the items composing “Unrealized

gains (losses) reserve” in 2023 and 2022 are as follows:

2023
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)	(14)	113	—	2	—	101
Cash flow hedges	546	(432)	109	63	(17)	269
Total	532	(319)	109	65	(17)	370

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

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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.37

Note 12. Financial liabilities

The breakdown of “Financial liabilities” at December 31, 2023 and 2022 is as follows:

2023
	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	597	935	1,532	—	1,532	—		34,542	35,556	36,074	35,556
Payable to Group companies and associates	—	—	—	—	—	—		33,482	32,933	33,482	32,933
Bank borrowings	—	—	—	—	—	—		513	544	513	544
Derivatives (Note 16)	597	935	1,532	—	1,532	—		—	1,532	1,532	1,532
Other financial liabilities	—	—	—	—	—	—		547	547	547	547
Current financial liabilities	149	30	179	—	179	—		7,496	7,674	7,675	7,674
Payable to Group companies and associates	—	—	—	—	—	—		7,353	7,351	7,353	7,351
Bank borrowings	—	—	—	—	—	—		141	142	141	142
Derivatives (Note 16)	149	30	179	—	179	—		—	179	179	179
Other financial liabilities	—	—	—	—	—	—		2	2	2	2
Total financial liabilities	746	965	1,711	—	1,711	—		42,038	43,230	43,749	43,230

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.38

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
Loans with financial entities	—	—	—	—	—	—		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
Loans with financial entities	—	—	—	—	—	—		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

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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.39

Note 13. Bonds and other

marketable debt securities

This caption, at December 31, 2023 and 2022, only

includes a promissory notes program.

The features of the 2023 and 2022 programs are the

same and the detail is as follows:

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 balances and movements of the financial

instruments included under this caption at December 31,

2023 and 2022 are as follows:

	2023	2022
Millions of euros	Other marketable debt securities (Promissory notes)	Other marketable debt securities (Promissory notes)
Opening balance	—	30
Additions	29	—
Disposals	(29)	(30)
Closing balance	—	—
Details of maturities:
Non-current	—	—
Current	—	—

There were no promissory notes issuance in 2022. The

average interest rate for promissory notes in 2023 has

been 3.256%.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.40

Note 14. Interest-bearing debt and

derivatives

14.1 Detail of debt balances

The balances at December 31, 2023 and 2022 are as

follows:

December 31, 2023
Millions of euros	Current	Non-current	Total
Loans with financial entities (Note 12)	141	513	654
Derivatives (Note 16)	179	1,532	1,711
Total	320	2,045	2,365

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

14.2 Disclosure of nominal amount of debts

The nominal values of the main interest-bearing debts at

December 31, 2023 and 2022 is as follows:

2023
Description	Value Date	Maturity Date	Currency	Limit 12/31/2023 (millions of local currency)	Balance (millions of euros)
Structured Financing (*)	12/11/2015	03/11/2026	USD	150	136
Structured Financing (*)	12/11/2015	03/11/2026	EUR	101	101
Bilateral Loan	09/26/2022	12/15/2032	EUR	150	150
Bilateral Loan	12/23/2022	06/15/2033	EUR	125	125
Bilateral Loan	02/14/2023	09/29/2033	EUR	150	150

(*) Facilities with amortization schedule, showing in the column "Limit 12/31/2023" the outstanding amount.

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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.41

14.3 Maturities of balances

The maturity of balances at December 31, 2023 and 2022

are as follows:

December 31, 2023	Maturity
Millions of euros	2024	2025	2026	2027	2028	Subsequent years	Closing balance
Loans with financial entities	141	46	45	(3)	—	425	654
Derivatives (Note 16)	179	71	58	568	247	588	1,711
Total	320	117	103	565	247	1,013	2,365

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

14.4 Interest-bearing debt arranged or repaid in 2023

The most significant transactions in 2023 mainly includes

the following:

Description	Limit 12/31/2023 (*) (millions)	Currency	Outstanding balance Dec 31 2023 (million euros)	Arrangement date	Maturity date	Drawdown 2023 (million euros)	Repayment 2023 (million euros)
Telefónica, S.A.
Bilateral Loan	—	EUR	150	02/14/2023	09/29/2033	150	—
Syndicated (1)	5,500	EUR	—	03/15/2018	01/13/2028	—	—
Bilateral Loan (2)	—	EUR	125	12/23/2022	6/15/2033	125	—

(1) The first one year extension option of the 5,500 million euros syndicated credit facility of Telefonica, S.A., was executed on January 13, 2023 and the second

one year extension option on January 13, 2024. The facility had two annual extension options at Telefónica, S.A. request, with a maximum maturity up to 2029.

(2) On June 15, 2023 Telefónica, S.A. draw down 125 million euros of the Bilateral loan signed on December 23, 2022.

(*) Undrawn limit.

14.5 Average interest on loans and

borrowings

The average interest rate in 2023 on loans and

borrowings denominated in euros was 3.281% (-0.128% in

2022) and 2.6% (2.289% in 2022) 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, 2023 and 2022, Telefónica had undrawn

credit facilities amounting to 9,688 million euros and

9,994 million euros, respectively.

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

2023 and 2022 is not subject to compliance with financial

ratios (covenants).

	Index	Financial statements 2023

Individual Annual Report 2023    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 2023 and 2022 year ends is as follows:

December 31, 2023
Millions of euros	Non-current	Current	Total
Loans	33,473	7,103	40,576
Trade payables to Group companies and associates	9	107	116
Derivatives (Note 16)	—	15	15
Tax Group payables to subsidiaries	—	128	128
Total	33,482	7,353	40,835

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

The maturity of these loans at the 2023 and 2022 year

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

December 31, 2023
Company	2024	2025	2026	2027	2028	2029 and subsequent years	Final balance, current and non-current
Telefónica Emisiones, S.A.U.	1,298	2,013	1,853	3,367	1,935	15,049	25,515
Telefónica Europe, B.V.	1,225	1,298	998	997	1,491	4,472	10,481
Telfisa Global, B.V.	4,580	—	—	—	—	—	4,580
Total	7,103	3,311	2,851	4,364	3,426	19,521	40,576

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.43

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

Telefónica Europe, B.V. at December 31, 2023 amounting

10,481 million euros (10,019 million euros in 2022). 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, 2023 of 4.75%

(4.11% in 2022). The main source of this financing was the

funds obtained through the issuance of undated deeply

subordinated reset rate guaranteed securities amounting

to 7,656 million euros (7,564 million euros in 2022), bonds

and debentures amounting to 1,656 million euros (1,689

million euros in 2022) and commercial paper amounting

to 1,000 million euros (500 million euros in 2022).

Financing raised by Telefónica, S.A. through Telefónica

Emisiones, S.A.U. at December 31, 2023 was 25,515 million

euros (26,468 million euros in 2022). 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 2023 was

3.08%% (3.23% in 2022). 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

2023 by tapping the European capital markets, issuing

bonds totaling 850 million euros (1,100 in 2022).

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, 2023 and

2022 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 4,580 million euros in 2023 (6,290

million euros in 2022).

15.2 Tax liabilities

The balance of “Payable to subsidiaries due to taxation on

a consolidated basis” was 128 and 428 million euros at

December 31, 2023 and 2022, 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 2023 correspond to

Telefónica Latinoamérica Holding, S.L. amounting to 38

million euros and 73 million euros of Telefónica de

España, S.A.

The most significant balances in 2022 corresponded to

Telefónica Latinoamérica Holding, S.L. amounting to 370

million euros, Telefónica Hispanoamérica, S.A. amounting

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

(previously Telefónica Digital España, S.L.) amounting 8

million euros.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.44

Note 16. Derivative financial

instruments and risk

management policies

a) Derivative financial instruments

During 2023, 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, 2023, the total outstanding balance of

derivatives transactions was 64,139 million euros (64,079

million euros in 2022), of which 44,719 million euros are

related to interest rate risk and 19,420 million euros to

foreign currency risk. In 2022 there were, 42,040 million

euros related to interest rate risk and 22,039 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, 2023, Telefónica,

S.A. had transactions with financial institutions to hedge

exchange rate risk for other Telefónica Group companies

amounting to 636 million euros (631 million euros in 2022).

At year-end 2023 and 2022, 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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.45

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

exchange rate derivatives at December 31, 2023, their

notional amounts at year end and the expected maturity

schedule is as follows:

2023
Millions of euros		Telefónica receives			Telefónica pays
Type of risk	Value in Euros	Carrying	Currency		Carrying	Currency
Euro interest rate swaps	31,386
Fixed to floating	11,208	11,208	EUR		11,208	EUR
Floating to fixed	12,580	12,580	EUR		12,580	EUR
Floating to floating	7,598	7,598	EUR		7,598	EUR
Foreign currency interest rate swaps	13,333
Fixed to floating
GBPGBP	460	400	GBP		400	GBP
USDUSD	12,873	14,226	USD		14,226	USD
Exchange rate swaps	12,910
Fixed to fixed
GBPEUR	582	500	GBP		582	EUR
Fixed to floating
JPYEUR	95	15,000	JPY		95	EUR
Floating to floating
GBPEUR	448	400	GBP		448	EUR
USDEUR	11,785	13,026	USD		11,785	EUR
Forwards	6,510
BRLEUR	39	210	BRL		39	EUR
EURPEN	95	95	EUR		391	PEN
CZKEUR	95	2,339	CZK		95	EUR
EURBRL	3,194	3,194	EUR		17,088	BRL
EURCLP	58	58	EUR		56,635	CLP
EURGBP	324	324	EUR		282	GBP
EURMXN	1	1	EUR		15	MXN
EURUSD	1,415	1,415	EUR		1,563	USD
GBPEUR	12	10	GBP		12	EUR
USDBRL	26	27	USD		138	BRL
USDCLP	4	5	USD		4,315	CLP
USDCOP	3	3	USD		13,885	COP
USDEUR	1,237	1,358	USD		1,237	EUR
USDPEN	3	3	USD		12	PEN
CLPUSD	1	872	CLP		1	USD
BRLUSD	2	9	BRL		2	USD
COPUSD	1	4,027	COP		1	USD
PENUSD	—	2	PEN		—	USD
Total	64,139

	Index	Financial statements 2023

Individual Annual Report 2023    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	6,254	1,138	2,627	1,445	1,044
Loans	765	560	111	—	94
In national currency	400	400	—	—	—
In foreign currencies	365	160	111	—	94
Debentures and bonds MtM	42,609	3,298	4,636	7,859	26,816
In national currency	8,650	2,850	125	275	5,400
In foreign currencies	33,959	448	4,511	7,584	21,416
Other underlying (*)	14,511	10,811	—	—	3,700
Forward	6,511	6,511	—	—	—
IRS	8,000	4,300	—	—	3,700
Total	64,139	15,807	7,374	9,304	31,654

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.47

The breakdown of Telefónica, S.A.'s derivatives in 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
Subtotal	64,079

	Index	Financial statements 2023

Individual Annual Report 2023    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	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.

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.49

optimize the financial cost and to stabilizing cash flows,

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, 2023, net financial debt in pounds

sterling was equivalent to 82 million euros (597 million

euros at December 31, 2022). 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 2023 the euro, Brazilian real, pounds

sterling 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	(25)	(8)	238	64
-100bp	25	8	(238)	(64)

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, 2023

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, 2023 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.

	Index	Financial statements 2023

Individual Annual Report 2023    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, 2023 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 is

Expected Exposure times Probability of Default times

Loss Given Default (LGD). In order to calculate these

variables standard market practices are used.

	Index	Financial statements 2023

Individual Annual Report 2023    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.

Interest rate benchmark reform and associated

risks

In 2022, the transition was made to the new reference

indexes affected as of December 31, 2022 (GBP Libor and

CHF Libor) and in June 2023 the one related to USD

Libor. Due to the need to incorporate substitute indexes

(known as fallbacks) of the reference rates used in the

contracts, in 2021 Telefonica S.A. decided not to adhere

to the ISDA Protocol and has since negotiated bilateral

contracts with each affected counterparty. Thanks to the

decisions agreed in 2021 to manage the changes in Libor,

there have been no impacts from these changes, no

contractual modifications of derivative instruments nor

impact on hedging relationships directly affected by the

reform. Thus, since June 2023, all Libor indexes have

been replaced by Libor Fallbacks for the entire portfolio

outstanding on that date.

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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.52

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.

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 2023 the Company recognized a loss of 2.8 million

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

of 0.3 million euros in 2022).

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

parties amounted to a positive MtM (accounts

receivable) of 502 million euros in 2023 (985 million euros

in 2022).

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

amounted to a negative MtM (accounts payable) of 12

million euros in 2023 (accounts payable of 16 million euros

in 2022).

The breakdown of the Company’s derivatives with third

party counterparties at December 31, 2023 and 2022 by

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

expected maturity schedule of the notional amounts is as

follows:

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.53

2023
Millions of euros		Notional amount maturities (*)
Derivatives	Fair value (**)	2024	2025	2026	Subsequent years	Total
Interest rate hedges	(300)	(1,200)	(302)	—	(3,849)	(5,351)
Cash flow hedges	21	(1,500)	(827)	—	2,627	300
Fair value hedges	(321)	300	525	—	(6,476)	(5,651)
Exchange rate hedges	(381)	(81)	—	582	5,413	5,914
Cash flow hedges	(377)	—	—	582	5,413	5,995
Fair value hedges	(4)	(81)	—	—	—	(81)
Interest and exchange rate hedges	30	80	46	9	751	886
Cash flow hedges	30	80	46	9	751	886
Net investment Hedges	6	(2,965)	—	—	—	(2,965)
Other derivatives	143	(168)	(239)	1,023	(1,032)	(416)
Interest rate	109	(288)	(348)	(738)	(1,657)	(3,031)
Exchange rate	(110)	(687)	—	1,761	625	1,699
Other	144	807	109	—	—	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.

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.

	Index	Financial statements 2023

Individual Annual Report 2023    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

2023 and 2022 comprised 45 and 47 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, 2023 and 2022 are as

follows:

Millions of euros	2023	2022
Tax receivables:	1,461	728
Deferred tax assets:	1,224	423
Deferred income tax (income)	371	118
Long-term tax credits for loss carryforwards	658	38
Unused tax deductions	195	267
Current tax receivables (Note 10):	237	305
Withholdings	11	9
Corporate income tax receivable	216	292
VAT and Canary Islands general indirect tax refundable	10	4
Tax payable:	252	347
Deferred tax liabilities:	95	189
Current payables to public administrations (Note 18):	157	158
Personnel income tax withholdings	5	5
Withholding on investment income, VAT and other	150	151
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 2,881 million

euros at December 31, 2023.

Dec 31 2023	Total carry- forwards	Less than 1 year	More than 1 year	Total recognized
Tax Group tax credits for loss carryforwards	2,633	—	2,633	658
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, 2023 amounts to

658 million euros (38 million euros in 2022).

During 2023, Telefónica, S.A., as head of the Telefónica

tax group, made payments on account of income tax

amounting to 198 million euros ( 289 million euros in 2022).

	Index	Financial statements 2023

Individual Annual Report 2023    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, 2023 and

2022 are as follows:

2023
Millions of euros	Tax credits	Temporary differences, assets	Deductions	Total deferred tax assets	Deferred tax liabilities
Opening balance	38	118	267	423	189
Additions	702	273	23	998	4
Disposals	(80)	(19)	(119)	(218)	(96)
Transfers to the tax Group’s net position	(1)	—	24	23	(2)
Closing balance	658	371	195	1,224	95

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

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, 2023 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

caused by the entry into force of Law 38/2022 setting a

limit to the compensation of loss within subsidiaries

within Consolidated Tax Groups and (iii) the impacts of

RD 3/2016 (see Sentence of the Constitutional Court over

the Royal Decree 3/2016 at the end of this note).

Following this analysis, in 2023 an activation of deferred

tax assets for loss carryforwards and deductions

amounting to 298 million euros has been recorded with a

balancing entry in deferred income tax.

As a consequence of the sentence of the EU General

Court (TGEU) on September 27, 2023 finally cancelling

the Third Decision 2015/314 of the European Commision

(see note 17.3 Tax deductibility of financial goodwill in

Spain), an addition of tax credits for loss carryforwards

has been recorded by 334 million euros with an entry in

deferred income tax.

Moreover, in 2023 a long term tax provisions (see note 18)

and the related deferred tax assets were reversed by 49

million euros after the decision about the state aid

recuperation procedure corresponding to the tax

deductibility of financial goodwill from 2019 and 2020

(see note 17.3 Tax deductibility of financial goodwill in

Spain).

The disposal in the caption of deferred tax liabilities in

2023 is caused by the accounting of the tax effect in the

valuation of financial derivative instruments with changes

through equity amounting to 96 million euros. This

concept in 2022 was a creation of 250 million euros of

deferred tax liability.

In accordance with Law 38/2022, of December 27 which

sets up temporary calculation steps for Income Tax

Groups limiting the amount of negative loss

carryforwards in the tax result to 50% in 2023, an addition

under the caption of temporary differences, assets has

been registered by 256 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, a Disposal by 512 million euros of

deferred tax assets for loss carryforwards and a Disposal

of 269 million euros of deductions was registered in 2022.

Moreover, in 2022 an Addition of 58 million euros of tax

assets for loss carryforwards and a reversal of 16 million

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.56

euros of tax credits from deductions was recorded with a

balancing entry in income tax in the income statement.

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 2023 and 2022 is as follows.

Millions of euros	2023	2022
Accounting profit (loss) before tax	1,129	(1,541)
Permanent differences	(3,102)	(1,853)
Temporary differences:	(7)	(37)
Arising in the year	61	28
Arising in prior years	(68)	(65)
Tax result	(1,980)	(3,431)
Gross tax payable	(495)	(858)
Corporate income tax refundable	(495)	(858)
Activation/Reversal of loss carryforwards and/or deductions	(655)	137
Temporary differences for tax valuation	2	9
Other effects	93	30
Corporate income tax accrued in Spain	(1,055)	(682)
Foreign taxes	31	21
Income tax	(1,024)	(661)
Current income tax	(244)	(761)
Deferred income tax	(780)	100

The permanent differences mainly correspond to the

impairment of the investments in Group companies, to

the non-taxable dividends received and to the financial

goodwill.

The heading Activation/reversion of loss carryforwards

and/or deductions mainly includes the activations of loss

carryforwards by 702 million euros as described at the

beginning of this note (Disposal of loss carryforwards by

410 million euros in 2022) and the reversal of deductions

by 70 million euros in 2023 (207 million euros of

deduction activations in 2022).

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 were

corporate income tax for the years 2014 to 2017. 

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 Central court including the

non-agreed adjustments, mainly corresponding to the

"juros over equity". In December 2022 the Company

received a rejected resolution by the Economic-

Administrative Central court which was appealed by the

Company to the Contencioso-Administrativo court in the

Spanish Audiencia Nacional in February 2023.

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 usage 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 ordered 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.

In July 2023 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 were as

follows: corporate income tax for the years 2018 to 2021

and value added tax for period between May to

December 2019 as well as the years 2020 and 2021. 

At year-end of 2023, even if there are inspection

proceedings ongoing, tax-related lawsuits to be

concluded and additional years to be inspected yet, it

was determined that there was no need to record

additional liabilities in these financial statements.

	Index	Financial statements 2023

Individual Annual Report 2023    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, 2023, was

2,206 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, was reactivated on October 19, 2021

and the final ruling decision implied the cancellation of

the Third Decision (EU) 2015/314 with effects since the

date of its publication. However, considering the appeal

filed by the European Commission to the highest court on

December 14, 2023, the ruling can not be considered as

final yet. After the ruling was filed, the Company activated

334 million euros of tax credits, in accordance with the

opinion of the company and its advisors as to the likely

outcome of the aforementioned appeal.

As a consequence of the sentence as well as the

sentence filed by the Constitutional Court over Royal

Decree 3/2016, Telefónica might increase the available

tax credit loss carryforwards and deductions (additionally

to the 334 million euros already mentioned), totally or

partially used in the liquidation of those tax years. The

amounts are detailed at the end of this note.

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 informed in December 2022 the

recovery for the years ended 2019 and 2020. The result

of the settlement, once offset by outstanding tax credits

(tax losses carryforward and deductions), resulted in a

payment of 13,4 million euros.

Notwithstanding the fact that Telefónica understands

that the principle of legitimate expectations in relation to

this tax incentive applies, in relation to tax-amortized

goodwill through the purchase of some companies for

which the applicability of the legitimate expectations

principle is questioned, mainly Vivo, the Group applied in

2023 the provision for the recovered part, 49 million, and

continue provisioning the amount of the goodwill

amortized for tax purposes, and not recovered by the

Administration which amounted to 419 million euros as of

December 31, 2023 (406 million euros as of December 31,

2022). 

The new international tax regulation (Pillar

Two)

On December 20, 2023, the Draft Law establishing a

complementary tax to guarantee a global minimum level

of taxation for multinational groups and large national

groups was published in Spain. Said document has been

submitted to the public information process for the

presentation of observations during the period between

December 21, 2023 and January 19, 2024, without it

having been approved as of the date of formulation of

these financial statements.

Starting in 2024, once the aforementioned Law is

approved, the Telefónica Group will be subject in Spain to

a complementary tax that will tax the profits obtained in

any jurisdiction in which it operates in which the effective

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.58

tax rate, calculated at the jurisdictional level, is lower than

the minimum rate of 15%.

As the rule that regulates this tax has not yet come into

force in Spain, the Group has not recorded any impact on

the tax expense for the year. On the other hand, the

Group applies the exception to recognize and disclose

information on deferred tax assets and liabilities related to

this tax, as provided in the amendments to IAS 12 issued

in May 2023.

Taking into account the existing regulatory framework at

the date of authorization for issuance of these financial

statements, it is not yet possible to make a precise and

reliable estimate of the impact that the application of the

Pillar Two standard will have. However, and in

accordance with the analysis carried out on the years

prior to the period of application, and except for possible

unforeseen events in subsequent years, it is estimated

that the new tax will not have a material impact on the

Group's income statement.

The Telefónica Group has assumed the commitment to

apply the OECD Pillar Two guidelines, is aligned with the

principles and actions advocated by the OECD and is

working on the analysis of the impact of the new

standard, to establish a system of compliance and control

and management, which allows to adapt to regulations in

a timely manner.

Sentence of the Constitutional Court over the

Royal Decree 3/2016

On January 18, 2024 the members of the Constitutional

Court (TC) have unanimously declared unconstitutional

certain policies set up by RDL 3/2016 of December 2

regarding Income Tax. Precisely, the fixation of more

severe limits for the compensation of tax loss

carryforwards, the introduction of a new limit in the

application of double tax deductions and the obligation of

including automatically in the tax base the impairment of

investments already deduced in previous years. This

sentence, following the TC trend in previous rulings,

points out that, based on the legal security principle, the

unconstitutional declaration effects are limited.

Telefónica has been raising written requirements

requesting for correction of the years 2016 and after, not

only of the tax income liquidations (220 Forms) of the

consolidated tax Group 24/09 but also of the individual

liquidations of tax income (200 Forms) of each and every

company affected by the ruling. Because of this, the

declaration of unconstitutionality would not applied to

the Group.

Although the corporate tax returns of the Tax Group in

Spain for the years 2016 to 2022 will be affected by the

aforementioned ruling, as of the date of these financial

statements, the determination with a sufficient degree of

certainty of the effects in Telefónica's tax situation is not

possible nor the moment when the administrative

sentences in which said effects are recognized will be

issued, given the state of the procedures in which

Telefónica's claims are elucidated. This is to the extent

that various uncertainty factors occur preventing, from

the quantitative point of view, these effects from being

determined as well as predicting when they might be

determined or materialized.

As a result of the implementation of this TC ruling, as well

as that of the General Court of the Court of Justice of the

European Union regarding the amortization of goodwill,

Telefónica could again have available (in addition to the

334 million euros, see Main changes registered in 2023

above in this note), totally or partially, the following tax

credits for tax loss carryforwards and deductions used in

the settlements of those years; for tax loss carryforwards

for the years: 2002, 247 million euros, 2004, 21 million

euros, 2011, 615 million euros and 2015, 1,503 million euros;

and, for deductions: for double taxation from 2010 to

2020, 952 million euros, for reinvestment from 2003 and

from 2011 to 2013, 23 million euros, for investments from

2003 to 2013, 476 million euros, for donations from 2009

to 2018, 260 million euros, for fixed assets in the Canary

Islands from 2010 to 2020, 101 million euros and for

reversal of temporary measures from 2015 to 2020, 29

million euros.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.59

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	2023	2022
Suppliers	156	84
Accounts payable to personnel	46	49
Other payables	12	10
Other payables to public administrations (Note 17)	157	158
Total	371	301

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:

	2023	2022
	Number of days	Number of days
Weighted average maturity period	22	26
Ratio of payments	23	25
Ratio of outstanding invoices	20	34
	Millions of euros	Millions of euros
Total Payments	215	266
Outstanding invoices	33	22

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 2023 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 2023 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:

	2023	2022
Monetary volume of invoices paid in a period less than the maximum established in the regulations (millions of euros)	183	255
Percentage over total payments	85%	96%
Number of invoices paid in a period less than the maximum established in the regulations	4,411	8,537
Percentage over the total number of invoices paid	60%	92%

B) Provisions

In 2023 and 2022 the concepts and amounts under the

provisions caption are the following:

2023
Millions of euros	Non-current	Current	Total
Tax Provisions	419	—	419
Termination plans (Note 19)	81	36	117
Other provisions	109	—	109
Total	609	36	645

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.60

Movements in the provisions during 2023 and 2022 are

disclosed below:

Millions of euros	2023	2022
Opening balance:	629	690
Additions	111	84
Amortization and reversals	(92)	(148)
Fair value adjustments and others	(3)	3
Closing balance:	645	629
Non-current	609	601
Current	36	28

In 2023 and 2022 the caption “Additions” included 62

million euros in both years, of tax provisions for the article

12.5 of the Spanish Corporate Tax Law related to the

acquisition of Vivo (see note 17). In 2023, after the

recovery of the amortization of financial goodwill made by

Spanish Tax Authorities detailed in note 17.3, the

Company has amortized an amount of 49 million euros of

long term tax accrual for this concept. The amortization is

shown as Amortization and reversals in 2023 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 the programs

launched were carried on. Additional expense of 2 million

euros was registered in 2022 to cover the programs.

In addition, in 2023 the Company has launched a new

voluntary termination plan for the employees who meet

certain requirements regarding the age of the employee

and the seniority in the Company. The program has been

implemented during the first months of 2024. An accrual

of 34 million euros corresponding to this plan has been

registered in 2023 income statement.

In 2023 and 2022 amortization of 21 and 28 million euros,

respectively, related to the different programs launched

in previous years have been registered.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.61

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 2023

and 2022, “Rendering of services to Group companies

and associates” included 399 and 400 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. and

Telefónica Germany, GmbH. In September 2022

Telefónica Latinoamérica Holding, S.L. 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

2023 and 2022 amount to 26 and 24 million euros,

respectively, and are recognized under Rendering of

services to Group companies and associates.

Revenues in 2023 and 2022 also include property rental

income amounting to 34 and 37 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 2023 and

2022 is as follows:

Millions of euros	2023	2022
Telfisa Global, B.V.	1,042	14
Telefónica de España, S.A.U.	473	—
Telefónica O2 Holdings Limited	1,153	909
Telefónica Móviles España, S.A.U.	677	—
Telefônica Brasil, S.A.	242	309
Sao Paulo Telecomunicaçoes, Ltda	—	18
Telxius Telecom, S.A	140	—
Telefónica Finanzas, S.A.U	118	182
Other companies	14	18
Total	3,859	1,450

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	2023	2022
Telefónica Cybersecurity & Cloud Tech, S.L.	5	5
Telfisa Global, B.V.	13	6
Telxius Telecom, S.A.	4	2
Telefónica Europe, B.V.	2	2
Other companies	4	—
Total	28	15

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 signed an agreement to partially share the

financial profit or loss raised by its subsidiary within its

operations. In 2023 and 2022 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	2023	2022
Wages, salaries and other personnel expenses	199	163
Pension plans	7	9
Social security costs	26	24
Total	232	196

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.62

In 2023 and 2022, Wages, salaries and other personnel

expenses includes compensation accruals amounting to

34 million euros (2 million euros in 2022) 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, 2023, 2,334 participants have signed up

for the plan (2,289 participants in 2022). 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

4 and 3 million euros in 2023 and 2022, respectively.

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 2023 and 2022. In 2023 and 2022 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 5 and 3

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

2023-2022 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 was in force for five years and was 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 third and last cycle commenced in 2020 and 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% was reached.

Performance assessment was 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

compliance with the objectives established for each of

the cycles into which the plan is divided.

The number of shares to deliver depends (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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.63

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

three cycles of three years. Performance assessment has

been carried out based on the evolution of the stock price

and on the audited results of the Company (audited both

by internal and external audit teams) prior to the approval

by the Appointments, Remunerations and Corporate

Governance Committee. 

The first cycle commenced on January 1, 2021 and ended

on December 31, 2023. The maximum number of shares

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

outstanding shares at December 31, 2023 were

17,728,523, with the following breakdown:

First cycle	Nº of shares assigned	Outstanding shares at 12/31/2023	Unit fair value (euros)
TSR Objective	9,712,749	8,864,262	2.64
FCF Objective	7,770,200	7,091,409	3.15
N.E. CO2 Objective	1,942,550	1,772,852	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, 2023 amounting to 7,615,700).

Once considered the target fulfillment levels, a weighted

achievement ratio of 89.45% has been reached.

The second cycle commenced on January 1, 2022 and it

will end on December 31, 2024. The maximum number of

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

and the outstanding shares at December 31, 2023 were

14,545,706, with the following breakdown:

Second cycle	Nº of shares assigned	Outstanding shares at 12/31/2023	Unit fair value (euros)
TSR Objective	7,534,825	7,272,853	2.43
FCF Objective	6,027,860	5,818,282	2.95
N.E. CO2 Objective	1,506,965	1,454,571	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, 2023 amounting to 7,074,444).

The third cycle commenced on January 1, 2023 and it will

end on December 31, 2025. The maximum number of

shares assigned to this cycle of the plan was 16,618,564

and the outstanding shares at December 31, 2023 were

16,496,424, with the following breakdown:

Third cycle	Nº of shares assigned	Outstanding shares at 12/31/2023	Unit fair value (euros)
TSR Objective	8,309,282	8,248,212	1.77
FCF Objective	6,647,426	6,598,570	2.81
N.E. CO2 Objective	1,661,856	1,649,642	2.81

The maximum number of shares assigned to Telefónica,

S.A.'s employees amounts to 7,874,832 (outstanding

shares as of December 31, 2023 amounting to 7,814,022).

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.

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% was reached. Performance assessment was 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 on January , 2021 and ended

on December 31, 2023. The maximum number of shares

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.64

outstanding shares at December 31, 2023 were

1,557,000, with the following breakdown:

First cycle	Nº of shares assigned	Outstanding shares at 12/31/2023	Unit fair value (euros)
TSR Objective	875,750	778,500	2.64
FCF Objective	700,600	662,800	3.15
N.E. CO2 Objective	175,150	155,700	3.15

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

employees are 232,500. The outstanding shares as of

December 31, 2023 are 203,000.

Once considered the target fulfillment levels, a weighted

achievement ratio of 89.45% has been reached.

The second cycle commenced on January 1, 2022 and it

will end on December 31, 2024. The maximum number of

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

and the outstanding shares at December 31, 2023 was

1,542,000, with the following breakdown:

Second cycle	Nº of shares assigned	Outstanding shares at 12/31/2023	Unit fair value (euros)
TSR Objective	823,250	771,000	2.43
FCF Objective	658,600	616,800	2.95
N.E. CO2 Objective	164,650	154,200	2.95

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

employees are 219,000. The outstanding shares as of

December 31, 2023 are 197,000.

The third cycle commenced on January 1, 2023 and it will

end on December 31, 2025. The maximum number of

shares assigned to this cycle of the plan was 1,771,500

and the outstanding shares at December 31, 2023 was

1,745,500, with the following breakdown:

Third cycle	Nº of shares assigned	Outstanding shares at 12/31/2023	Unit fair value (euros)
TSR Objective	885,750	872,750	1.77
FCF Objective	708,600	698,200	2.81
N.E. CO2 Objective	177,150	174,550	2.81

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

employees are 239,000. The outstanding shares as of

December 31, 2023 are 227,500.

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, 2023

26,590 Group employees were compromised with the

Plan, out of which 672 were Telefónica, S.A.'s employees.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.65

19.4 Average number of employees in

2023 and 2022 and number of

employees at year-end

2023
	Employees at 12/31/23				Average no. of employees in 2023
Professional category	Females	Males	Total		Females	Males	Total
Chairman and General Managers	—	1	1		—	1	1
Directors	50	106	156		50	105	155
Managers	141	141	282		144	140	284
Project Managers	137	167	304		140	164	304
University graduates and experts	161	136	297		159	141	300
Administration, clerks, advisors	90	2	92		91	2	93
Total	579	553	1,132		584	553	1,137

2022
	Employees at 12/31/2022				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

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	2
University graduates and experts	4
Administration, clerks, advisors	2
Total	8

19.5 External services

The items composing External services are as follows:

Millions of euros	2023	2022
Rent	4	4
Independent professional services	127	105
Donations	48	74
Marketing and advertising	158	96
Other expenses	35	26
Total	372	305

In 2023 and 2022 the caption Donations includes funds

contributed and paid to Fundación Telefónica amounting

to 47 and 71 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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.66

Future minimum rentals payable under non-cancellable

operating leases without penalization at December 31,

2023 and 2022 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 2023	23	4	10	8	1
Future compromised payments 2022	26	5	8	8	5

19.6 Finance revenue

The items composing Finance revenue are as follows:

Millions of euros	2023	2022
Dividends from other companies	28	22
Other third parties financial revenues and gains on derivative instruments	488	1,407
Total	516	1429

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 variation in financial revenue is mainly due to the

changes in the fair value of non-hedge derivative

instruments caused by the variation of the interest rates.

Other third parties financial revenues and gains on

derivative instruments includes the effect of the financial

hedges arranged to unwind positions for 2023 and 2022,

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	2023	2022
Interest on borrowings from Group companies and associates	1,487	1,331
Finance costs payable to third parties and losses on interest rates of financial hedges	448	1,319
Total	1,935	2,650

The breakdown by Group company of debt interest

expenses is as follows:

Millions of euros	2023	2022
Telefónica Europe, B.V.	510	417
Telefónica Emisiones, S.A.U.	766	902
Other companies	211	12
Total	1,487	1,331

Other companies includes financial costs with Telfisa

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

needs.

The variation in financial expense is mainly due to the

changes in the fair value of non-hedge derivative

instruments caused by the variation of the interest rates.

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	2023	2022
On current operations	39	124
On loans and borrowings	1	100
On derivatives	383	986
On other items	23	4
Total	447	1,214

The breakdown of exchange losses recognized in the

income statement is as follows:

Millions of euros	2023	2022
On current operations	37	58
On loans and borrowings	8	58
On derivatives	400	1,236
On other items	13	43
Total	458	1,395

The variation in exchange gains and losses is due to the

fluctuations in the main currencies the Company works

with. In 2023 euro exchange rate has appreciated against

US dollar (3.4%). However, euro exchange rate has

depreciated against Brazilian real (4.11%) and pound

sterling (2.1%).

In 2022 euro exchange rate has depreciated against US

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

against pound sterling (5.31%).

These impacts are offset by the hedges contracted to

mitigate exchange rate fluctuations.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.67

Note 20. Other information

a) Financial guarantees

At December 31, 2023, Telefónica, S.A. had provided

financial guarantees for its subsidiaries and affiliates to

secure their transactions with third parties amounting to

35,374 million euros (36,019 million euros at December 31,

2022). These guarantees are measured as indicated in

note 4.g).

Millions of euros
Nominal Amount	2023	2022
Debentures and bonds and equity instruments	34,778	35,412
Loans and other payables	96	107
Other marketable debt securities	500	500
Total	35,374	36,019

The debentures, bonds and equity instruments in

circulation at December 31, 2023 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 34,778 million euros at

December 31, 2023 (35,412 million euros at December 31,

2022). During 2023 Telefónica Emisiones, S.A.U. issued

850 million euros of instruments on capital markets (1,100

million euros in 2022) and 1,705 million euros matured

during 2023 (2,787 million euros during 2022).

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, 2023 and 2022

was 500 million euros in both years.

Telefónica, S.A. provides operating guarantees granted

by external counterparties, which are offered during its

normal commercial activity. At December 31, 2023 and

2022, these guarantees amounted to approximately 31

million euros in both years.

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 Group 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 2023 (see note 17 for details of tax-related cases):

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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.68

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.

After receiving the expert report, Telefónica challenged

its findings on April 30, 2023. Hearings with respect to

this challenge were held in the High Court of Prague in

November and December 2023, and an additional

hearing is expected to be held in the first quarter of 2024.

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 Mr. José Emilio Nunes Pinto as President, Mr.

Horacio A. Grigera Naón appointed by Telefónica, S.A.,

and Mr. 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.

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.

On February 24, 2023, both parties filed a "motion for

summary judgment" once the discovery period had

ended.

On February 13, 2024, the New York Supreme Court

issued a decision granting Telefónica’s motion for partial

summary judgment, concluding that Telefónica is entitled

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.69

to compensatory damages and prejudgment interest

(approximately 140 million U.S. dollars) from Millicom. The

decision remains subject to appeal.

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.

On March 2, 2023, Telefónica filed a memorial on the

merits. On that date, the Republic of Peru filed

observations on the claimant's request for provisional

measures submitted by Telefónica on February 9, 2023.

On March 24, 2023, the Tribunal held a hearing on the

claimant's request for provisional measures.

On May 11, 2023, the Tribunal issued Procedural Order

No. 5 concerning the defendant's request to address the

objections to jurisdiction as a preliminary question. As a

result, the objections to jurisdiction were joined to the

merits of the dispute.

On September 18, 2023, the defendant filed a counter-

memorial on the merits and a memorial on jurisdiction.

On December 22, 2023, the Tribunal issued Procedural

Order No. 6 concerning production of documents.

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.

The trial was held between May and July 2022. On

November 10, 2023 the court issued a judgment,

concluding that none of the Defendants was in breach of

either UK or EU competition law. This judgment is subject

to appeal.

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.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.70

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 an

initial period of P9Y. The agreement has since been

amended.

By virtue of this agreement, Atento became Telefónica’s

preferred Contact Center and Customer Relationship

Management (“CRM”) service provider. The agreement

stipulated annual commitments in terms of turnover that

were 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.

Failure to meet these annual turnover commitments in

principle resulted in the obligation of 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. These minimum annual

turnover commitments have been reduced at various

points over the life of the Master Service Agreement.

The Master Service Agreement sets forth a reciprocal

arrangement, whereby Atento assumes similar

commitments to subscribe for certain

telecommunications services from Telefónica.

On March 30, 2023, the parties agreed to renew the

Master Service Agreement (extending its validity for all

applicable jurisdictions (Spain, Brazil and Latin America)

until December 31, 2025) but eliminate the minimum

annual turnover commitments (and the related penalties)

while maintaining, however, Atento's preferred supplier

status.

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 10,

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 and August 31, 2023 a new

amendments were executed by virtue of which the term

may be extended for those adhered companies in

Latinoamerica that decide to extend some of their

services beyon the initial term.

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.

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.71

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 twodata centers under terms and

conditions equivalent to those established in the

transaction executed in 2019, for an initial period ending

in 2031.

On June 13, 2023, the data centers owned by Nabiax

located in the Americas were sold to the investment fund

Actis. Telefónica Infra, S.L.U. owns a 20% of Nabiax. After

this transaction, Nabiax only owns data centers in Spain.

The data centers sold to Actis continue to provide

housing services to the Telefónica Group under the terms

of the contracts signed in 2019, as Telefónica, S.A. waived

its right to terminate the housing services contracts upon

the sale of the data centers.

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 from time to

time, 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  and was amended on

November 15, 2023 (as amended from time to time, (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.

Finally, VMED O2 UK Limited and its group would also

provide certain 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 initially ranging from 7

to 24 months (later extended in some cases to terms up

to 40 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

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

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.72

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 2023, the total amount of

compensation accrued by the Directors of Telefónica, in

their capacity as such, was 2,871,801 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.

The amounts established in fiscal year 2023 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, are indicated

below:

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. It is also noted that the

Board of Directors, at its meeting held on December 13, 2023, approved,

following a favourable report from the Nominating, Compensation and

Corporate Governance Committee, a new configuration of the Company's

Consultative or Control Committees, specifically: (i) to abolish the Strategy

and Innovation Committee; and (ii) to integrate the Regulation and

Institutional Affairs Committee and the Sustainability and Quality

Committee, which now constitute a single Committee, under the name of

Sustainability and Regulation Committee.   

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 2024 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 eight years (i.e. 2023, 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 2024

financial year is equal to the one received in the years

2023, 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 of the Company have accrued and/or

received from Telefónica, S.A,. and from other companies

of the Telefónica Group during fiscal year 2023. Likewise,

the compensation and benefits accrued and/or received,

during such year, by the members of the Company's

Senior Management are broken down.

f) Related-party transactions

1. Significant shareholders with representation

on the Board of Directors of Telefónica S.A.

General Information

In 2023, the Company's shareholders represented on the

Board of Directors of Telefónica, S.A. were Banco Bilbao

Vizcaya Argentaria, S.A. (BBVA) and CaixaBank, S.A.

Based on the information provided by CaixaBank, S.A. for

the 2023 Annual Report on Corporate Governance, as of

December 31, 2023, the shareholding of CaixaBank, S.A.

in Telefónica’s share capital were 3.51%.

Based on the information provided by Banco Bilbao

Vizcaya Argentaria, S.A. (BBVA) for the 2023 Annual

Report on Corporate Governance, as of December 31,

2023, the shareholding of BBVA in Telefónica’s share

capital were 4.86%. Likewise, and according to the

aforementioned information provided by BBVA, the

percentage of economic rights attributed to Telefónica,

S.A. shares owned by BBVA as of December 31, 2023,

would increase by 0.168%. without voting rights of the

Company's share capital.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.73

Participated companies

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 Note 10). (see

Appendix I).

As of December 31, 2023 and 2022, Telefónica S.A.

neither has outstanding balances nor has carried out any

transactions with the associated companies and joint

ventures owned by BBVA and CaixaBank mentioned

above, except for the proceeds from dividends as a result

of its percentage of ownership.

Derivatives

In addition, the nominal outstanding value of derivatives

held with BBVA and Caixabank in 2023 amounted to

8,970 and 707 million euros, respectively (5,286 million

euros held with BBVA and 264 million euros with

Caixabank in 2022). The fair value of these derivatives in

the balance sheet is 78 and 27 million euros, respectively,

in 2023 (227 and 41 million euros, respectively, in 2022).

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.

The Company maintains various derivative financial

instruments settled by differences contracted with BBVA

(see note 11).

Moreover, in 2023 collateral guarantees on derivatives

from BBVA and Caixabank have been received,

amounting to 46 million euros (net asset position) and 31

million euros (net liability position), respectively (134 and

43 million euros (net liability position) , respectively, in

2022).

Others operations

The impact on the balance sheet and income statement

of Telefónica, S.A. of the rest of the operations with BBVA

and CaixaBank in 2023 and 2022 are as follows:

BBVA	2023	2022
Financial expenses	3	4
Receipt of services	—	1
Total expenses	3	5
Financial revenues	20	2
Dividends received (1)	21	15
Total revenues	41	17
Financing transactions	600	1
Time deposits	27	289
Other Financing transactions	—	—
Dividends distributed	84	77

(1) As of December 31, 2023 Telefónica holds 0.756% (0.732% in 2022)

investment in BBVA (See note 9.3).

2022	BBVA	la Caixa
Financial expenses	3	1
Receipt of services	—	2
Total expenses	3	3
Financial revenues	—	—
Dividends received (1)	—	—
Total revenues	—	—
Financing transactions	—	—
Time deposits	—	—
Dividends distributed	61	69

The heading "Finance arrangements: loans and capital

contributions (lender)" for 2023 mainly includes a deposit

set up by Telefónica, S.A.of 600 million euros maturing in

January 2024.

2. Other significant shareholders

During fiscal year 2023, the significant shareholders of

the Company without representation on the Board of

Directors of Telefónica, S.A. were BlackRock, Inc. and

Public Investment Fund. These shareholders are not

considered a related party as they do not have

representation on the Board of Directors of Telefónica,

S.A. nor exert significant influence on the company.

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, 2023, the

shareholding of BlackRock, Inc in Telefónica’s share

capital were 4.50%. Based on the Schedule 13G/A filed

with the SEC, on October 7, 2022, BlackRock, Inc.

beneficially owned 4.98% of Telefónica, S.A. shares (4.51%

of voting rights), updated per the share capital of

Telefónica, S.A. as of December 31, 2023.

According to the information contained in the

communication sent by Public Investment Fund to the

CNMV on September 8, 2023, it is indicated that Green

Bridge Investment Company SCS (a company controlled

by Saudi Telecom Company which in turn is controlled by

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.74

Public Investment Fund): (i) acquired shares representing

4.90% of the share capital of Telefónica, S.A, and (ii)

entered into a conditional sale and purchase agreement

for 5.00% of the shares of Telefónica, S.A., subject,

among other matters, to the approval of the Spanish

Council of Ministers. In addition, on September 11, 2023,

Morgan Stanley notified the CNMV of a 12.178% interest in

voting rights attributed to shares 0.007% and through

financial instruments 12.171% including a financial

instrument (put/call option) on 9.90% of the share capital

of Telefónica, S.A., related to the risk management of the

position under the financial operation on the same shares

as those referred to in the Public Investment Fund

referred to above. According to the communication sent

to the CNMV, this financial instrument would not imply an

incremental or additional participation in the share capital

of Telefónica, S.A.

3. Balances with Group and Associated

companies

Telefónica, S.A. is a holding company for various

investments in companies in Latin América, 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, 2023 and 2022 are detailed

in the notes to these individual financial statements.

4. 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 2023 of 5,565,728.82 euros (6,598,467.33

euros in 2022). This scheme provides coverage for

Telefónica, S.A. and its subsidiaries in certain cases. Out

of this amount, Telefónica, S.A. has paid 2,854,063.13

euros in 2023 (3,622,176.07 euros in 2022).

g) Auditors' fees

The services commissioned to PricewaterhouseCoopers

Auditores, S.L.,  the Principal Auditor of Telefónica, S.A.

for the years 2023 and 2022, 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 4.18 and 3.94 million euros in

2023 and 2022, respectively.

The detail of these amounts is as follows:

Millions of euros	2023	2022
Audit services	3.39	3.12
Audit-related services	0.79	0.82
Total	4.18	3.94

"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 2023 and 2022, 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 Sustainability and Regulation

Committee as well as by the Global Sustainability (ESG)

Office in coordination with the global areas responsible

for executing this 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.

The Telefónica Group contracted, both locally and

globally, several insurance programs in order to mitigate

the possible occurrence of an incident stemming from

the risks of environmental liability and/or natural

disasters, to guarantee the continuity of its activity.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.75

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 to support the

transformation of the business through investment in

projects with positive environmental and social impact. In

2018, the Company published its first Sustainable

Financing Framework. The most updated version is from

July 2023, and it has a second party favorable opinion

from Sustainalytics. The framework is linked to the United

Nations Sustainable Development Goals and is aligned

with the International Capital Markets Association (ICMA)

Green, Social and Sustainable Bond Principles, as well as

the Green Lending Principles and the the Social Loans of

the LMA (Loan Market Association), the APLMA (Asian

Pacific Loan Market Association) and the LSTA (Loan

Syndications and Trading Association).

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 mainly allocated to projects to

transform the network from copper to fiber, more efficient

and with fewer breakdowns; and the deployment and

improvement of mobile connectivity in rural areas. Even if

the above mentioned bond and hybrid instrument

issuances have not been carried out by the Company but

by other holding Group subsidiaries, they are guaranteed

by Telefónica, S.A.

In addition to senior green bonds and hybrid instruments,

the Group uses other sustainable banking financing tools,

such as loans and credits linked to sustainability

objectives that allow continued progress on objectives

such as emissions reduction or gender equality. Also in

this case, the Group's main syndicated loan is linked to

sustainability criteria in line with the corporate

Sustainability Linked Loan Framework, prepared at the

end of 2021 and with a second opinion from

Sustainalytics.

In 2023, the Company has maintained an active presence

in the capital market with several issues, successfully

raising a total of 2,600 million euros of debt in green

format throughout the year. In January 2023, Telefónica

opened the sustainable debt market with the placement

of a green hybrid instrument for an aggregate principal

amount of 1,000 million euros and in September, another

green hybrid instrument was issued for an amount of 750

million euros. The third operation was carried out in

November, a green bond for an amount of 850 million

euros (see note 15). The funds will be allocated to projects

related to the transformation of telecommunications

networks, both fixed and mobile, as well as to promote

the deployment in rural areas.

In terms of bank financing, the emissions indicator linked

to the Telefónica Group's 5,500 million euros has been

updated. The interests are linked to compliance with a

more demanding emission reduction path.

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).

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.76

Note 21. Cash flow analysis

Cash flows from/(used in) operating

activities

The net result before tax in 2023 amounts to a profit of

1,129 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 1,208 million euros

(in 2022 a write down of 1,590 million euros).

• Declared dividends as income in 2023 for 3,859 million

euros (1,450 million euros in 2022), interest accrued in

2023 on loans granted to subsidiaries of 28 million

euros (15 million euros in 2022) and a net financial

expense of 1,428 million euros (1,401 million euros in

2022), 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

1,796 million euros (4,277 million euros in 2022). The main

items included are:

a) Net interest paid:

Payments of net interest and other financial expenses

amounted to 1,495 million euros (1,062 million euros in

2022), including:

•Net proceeds from external credit entities, net of

hedges, for 21 million euros, (212 million euros in 2022

offset by their hedges), and

• Interest and hedges paid to Group companies of 1,516

million euros (1,274 million euros in 2022).

b) Dividends and other distributions from reserves and

paid-in capital received:

Millions of euros	2023	2022
Telefónica Móviles España, S.A.U.	—	560
Telefónica O2 Holdings, Ltd.	1,153	2,106
Telefónica de España, S.A.U.	—	301
Telfisa Global, B.V.	1,056	357
Telefónica Finanzas, S.A.U. (TELFISA)	182	67
Telxius Telecom, S.A.	125	—
Telefônica Brasil, S.A.	277	332
Other dividend collections	42	54
Total	2,835	3,777

In addition to the dividends declared in 2023 (see note

19.1) and collected in the same period, this caption also

includes dividends from previous periods collected in

2023.

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 Tax

Authorities. It subsequently informs companies

included in the Tax Group of the amounts payable by

them. Payments totaling 198 million euros on account

of income tax were made in 2023 (289 million euros in

2022) as disclosed in note 17. In December 2023, after

the execution of a credit sale signed with a financial

entity, proceeds by 285 million euros have been

received related to 2022 income tax.

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

207 million euros, corresponding to: 78 million euros

for the 2022 income tax settlement and 129 million

euros in payments on account of 2022 and 2023

income tax.

In 2022, there was a 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.

•Telefónica de España, S.A.U.: collection of 499 million

euros, corresponding to: 411 million euros for the

2022 income tax settlement and 88 million euros in

payments on account of 2022 and 2023 income tax.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.77

In 2022 there was a 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.

•Telefónica Latinoamérica Holding, S.L.: collection of

304 million euros, corresponding to: A payment for

the 2022 income tax by 351 million euros partially

offset by proceeds of 47 million euros corresponding

to payments on account of 2022 and 2023 income

tax.

In 2022 there was an income 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.

•Telefónica Hispanoamérica, S.A.: There has been a

total payment of 57 million euros corresponding to:

24 million euros related to 2022 income tax and 33

million euros corresponding to payments on account

of 2022 and 2023 income tax. 

In 2022 there was 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 3,958

million euros (6,290 million euros in 2022). The main

transactions to which these payments refer are as

follows:

•Capital increases: the main disbursements correspond

to Telefónica Hispanoamérica, S.A. amounting to 380

million euros, Telefónica Infra, S.L. amounting to 103

million euros and Pontel Participaciones, S.L.

amounting to 111 million euros. These capital increases,

as well as other minor disbursements of this same

concept are disclosed in note 8.1.a.

• New credits granted: The main payments have been

disbursed to Telxius Telecom, S.A. and Pontel

Participaciones, S.L. totaling 410 million euros (note

8.1.a.) and to Pegaso PCS, S.A. de C.V. totaling 700

million Mexican pesos equivalent to 37 million euros.

• Acquisition of Telefónica Deutschland, A.G.'s  shares for

a total sum of 813 million euros as detailed in note 8.1.a.

•Payments of financial investments related to the

reinvestment of treasury overage amounting to 466

million euros.

•Payments of collaterals related to financial derivative

instruments amounting to 1,402 million euros.

Proceeds from disposals totaling 5,719 million euros in

2023 (3,521 million euros in 2022) includes:

•Proceeds from reserves distributed by Telefónica

Latinoamérica Holding, S.L. amounting to 1,994 million

euros and Pontel Participaciones, S.L. amounting to

492 million euros (see note 8).

•The cancellation of credits granted to Bluevía Fibra, S.L. 

by 528 million euros (including uncollected interest)

and to Pontel Participaciones, S.L. by 175 million euros

as described in note 8.1.a. as well as the credit granted

to Pegaso PCS, S.A. de C.V.amounting to 700 million

Mexican pesos equivalent to 38 million euros as of

cancellation date.

• Proceeds from financial investments related to the

reinvestment of treasury overage amounting 466

million euros.

• In 2023 the financial instruments Spire have been

cancelled according to their maturity schedule

amounting to 921 million euros as indicated in note 9.4.

• Proceeds from collaterals related to financial derivative

instruments amounting to 1,088 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	2023	2022
Telefónica Emisiones, S.A.U. (Note 15)	850	1,100
Bank loans (Note 14)	275	150
Telfisa Global, B.V. (Note 15)	—	2,710
Telefónica Europe B.V. (Note 15)	1,750	750
Telefónica Europe, B.V. promissory notes (Note 15)	488	—
Other collections	62	33
Total	3,425	4,743

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.78

b) Prepayments and redemption of debt: The main

payments comprising this heading are as follows:

Millions of euros	2023	2022
Bilateral loans with several entities (Note 14.4)	178	1,279
Telfisa Global, B.V. (Note 15)	1,710	—
Telefónica Europe, B.V. (Note 15)	1,750	750
Telefónica Europe, B.V. promissory notes (Note 15)	—	504
Promissory notes redemption (Note 13)	—	30
Telefónica Emisiones, S.A.U. (Note 15)	1,705	2,787
Telefónica de Argentina, S.A. (Note 15)	—	173
Credit (Note 14.4)	—	100
Other payments	15	54
Total	5,358	5,677

Debt redemption of loans in 2022 mainly referred to

a bank loan signed in December 2021, amounting to

1,000 million euros. The maturity date of the loan

was March 2022 and it was 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 1,701 million euros

(959 million euros in 2022). 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

2024 and also the withholding taxes referred to the

dividend distribution made in December 2022 which

have been paid to the Tax Authorities in January 2023.

	Index	Financial statements 2023

Individual Annual Report 2023    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, 2024, the second annual extension of

the sustainability-linked syndicated loan facility for

5,500,000,000 million euros of Telefónica, S.A. was

exercised. The new expiration date is January 13, 2029.

• On January 17, 2024, Telefónica, S.A., through its

wholly-owned subsidiary Telefónica Emisiones, S.A.U.

launched under the EMTN Programme a new issuance

of notes guaranteed by Telefónica, S.A. in an aggregate

principal amount of 1,750 million euros. This issue was

split into two tranches. The first tranche, with an

aggregate principal amount of 1,000 million euros, due

on January 24, 2032, pays an annual coupon of 3.698%

and was issued at par. The second tranche, with an

aggregate principal amount of 750 million euros, due

on January 24, 2036, pays an annual coupon of 4.055%

and was also issued at par. The settlement of the

transaction took place on January 24, 2024. An amount

equivalent to the net proceeds will be allocated

towards eligible investments in accordance with

Telefónica's 2023 Sustainable Financing Framework,

including the transformation and modernization of

telecommunications networks based on high-speed

fixed and mobile networks, including supporting

infrastructure and software to improve the energy

efficiency of the networks, as well as the

implementation of Telefónica's Renewable Energy Plan,

and development and implementation of digital

products and services with a focus on saving energy

and/or natural resources.

• On February 5, 2024, Telefónica Emisiones, S.A.U.

redeemed 1,000,000,000 million euros of its notes

issued on February 5, 2019. These notes were

guaranteed by Telefónica, S.A.

Investments

• On January 22, 2024, regarding the voluntary public

acquisition offer in the form of a partial offer (the

“Offer”) launched by Telefónica —through Telefónica

Local Services GmbH— for shares of Telefónica

Deutschland Holding AG (“Telefónica Deutschland”)

announced on November 2023, the Company reported

that following the expiry of the acceptance period that

the Offer has been accepted by shareholders holding

233,732,773 Telefónica Deutschland shares,

representing approximately 7.86%  of its share capital

and voting rights, for an approximate amount of 549

million euros. In addition, Telefónica has made direct

market purchases, from January 1, 2024 to January 26,

2024, for a total of 113,999,566 shares of the

aforementioned subsidiary, for an approximate amount

of 268 million euros. Thus, as of January 26, 2024

Telefónica owns, directly and indirectly, 2,799,576,769

shares which represent 94.12% of the share capital and

voting rights of Telefónica Deutschland. 

• On January 22, 2024 Telefónica Local Services, GmbH

carried out a capital increase 550 million euros

integrally subscribed and paid in full by Telefónica, S.A.

	Index	Financial statements 2023

Individual Annual Report 2023    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 21,

2024. In the event of a discrepancy, the Spanish

language version prevails.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.81

Appendix I: Details of subsidiaries

and associates at December 31, 2023

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	9,441	—	21	343	11,147
Telefónica Móviles España, S.A.U. (SPAIN) Wireless communications services provider Distrito Telefónica, Ronda de la Comunicación s/n 28050 Madrid	100%	—	209	307	677	782	524	5,561
Telefónica O2 Holdings Limited (UNITED KINGDOM) Holding Company Highdown House, Yeoman Way, Worthing, West Sussex,  BN99 3HH	99.99%	0.01%	13	10,491	1,153	(3,413)	(2,247)	8,319
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	(551)	—	—	(1)	49
Telefónica de España, S.A.U. (SPAIN) Telecommunications service provider in Spain Gran Vía, 28 - 28013 Madrid	100%	—	1,024	3,667	473	(367)	(371)	2,455
O2 (Europe) Ltd. (UNITED KINGDOM) Holding Company Highdown House, Yeoman Way, Worthing, West Sussex,  BN99 3HH	100%	—	6,896	1,598	—	520	602	8,421
Telefónica Filiales España, S.A.U. (SPAIN) Organization and operation of multimedia service- related activities and businesses Distrito Telefónica, Ronda de la Comunicación s/n, Madrid 28050	100%	—	226	955	—	(24)	42	1,223
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%	—	—	(322)	1,042	(1)	1,051	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%	—	97	7	—	(95)	(273)	1,517
TIS Hispanoamérica, S.L.  (SPAIN)                                                                    Holding Company                                                                                                  Ronda de la Comunicación, s/n  Distrito Telefónica Edificio Central - 28050 Madrid	100%	—	—	6	—	(2)	(3)	3
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	11	—	1	—	12

	Index	Financial statements 2023

Individual Annual Report 2023    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 Tech , S.L. (SPAIN) Promotion of business initiatives and holding for securities Gran Vía 28-28013 Madrid	100%	—	67	880	—	(2)	2	941
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	209	—	—	10	110
TLH HOLDCO, S.L. (SPAIN)                                                                                   Holding Company                                                                                                                Ronda de la Comunicación, s/n  Distrito Telefónica Edificio Central - 28050 Madrid	100%	—	87	1,583	—	(650)	(645)	1,024
Lotca Servicios Integrales, S.L. (SPAIN) Ownership, operation and aircraft leases Gran Vía, 28 - 28013 Madrid	100%	—	17	36	—	1	(2)	51
Telefónica Local Services GmbH (GERMANY) Holding company Adalbertstrasse 82-86 85737, Ismaning	100%	—	—	—	—	—	—	—
Telefónica Infra, S.L. (SPAIN) Portfolio Company (Holding) Ronda de la Comunicación S/N - 28050 Madrid	100%	—	12	829	—	(26)	(27)	814
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	(95)	118	(4)	119	13
Telefónica Global Solutions, S.L.U. (SPAIN) International services provider Ronda de la Comunicación, s/n – 28050 Madrid	100%	—	1	47	—	(26)	(17)	30
Telefónica Innovación Digital, S.A.U. (previously Telefónica Digital España, S.L.U) (SPAIN) Carrying out activities and research projects in the field of  telecommunications Ronda de la Comunicación S/N  - 28050 Madrid	100%	—	7	7	—	(2)	(2)	330
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	—	(4)	(4)	79
Telefónica Participaciones, S.A.U. (SPAIN) Issues of preferred shares and/or other debt financial instruments Gran Vía, 28 - 28013 Madrid	100%	—	—	1	—	—	—	—
Telefónica Emisiones, S.A.U. (SPAIN) Issues of preferred shares and/or other debt financial instruments Gran Vía, 28 - 28013 Madrid	100%	—	—	15	—	(2)	2	—
Telefónica Europe, B.V. (NETHERLANDS) Fund raising in capital markets Strawinskylaan 1259; tower D; 12th floor 1077 XX – Amsterdam	100%	—	—	4	2	(2)	2	—
Toxa Telco Holding, S.L. (SPAIN) Holding Company Ronda de la Comunicación s/n Madrid 28050	100%	—	—	—	—	—	—	—

	Index	Financial statements 2023

Individual Annual Report 2023    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
Telxius Telecom, S.A. (SPAIN)      Telecommunications Services Ronda de la Comunicación, s/n- 28050 Madrid	70%	—	260	125	140	(7)	105	—
Telefónica Centroamérica Inversiones, S.L (SPAIN) Holding Company Ronda de la Comunicación, s/n. - 28050 Madrid	60%	—	1	2	—	(3)	(2)	—
Telefónica Factoring España, S.A. (SPAIN) Factoring Zurbano, 76, 8 Plta. - 28010 Madrid	50%	—	5	2	5	11	10	3
Telefónica Consumer Finance E.F.C., S.A. (SPAIN) Lending and consumer loans c/Caleruega, 102 -28033 Madrid	50%	—	5	29	2	2	1	15
Aliança Atlântica Holding B.V. (NETHERLANDS) Portfolio Company Strawinskylaan 1725 – 1077 XX – Amsterdam	50%	37.65%	40	4	—	—	1	22
Telefónica Renting, S.A. (SPAIN) Purchase, sales and leasing of all kind of movable and provision of office ancillary. Av. de Manoteras, 20, Hortaleza, 28050 Madrid	50%	—	—	2	—	—	—	1
Telefônica Brasil, S.A. (BRAZIL) (1) (*) Telecommunication operator in Brazil Av. Luis Carlos Berrini, 1.376 – Brooklin São Paulo 04571-000	38.39%	36.90%	23,268	(10,184)	242	1,494	957	9,199
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%	51%	—	—	—	—	—	—
Telefónica Factoring Do Brasil, Ltd. (BRAZIL) Factoring Rua Desembargador Eliseu Guilherme, 69 Pt. 6 Paraíso Sao Paulo	40%	10%	2	(1)	2	(1)	3	1
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
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)	2	1
Telefónica Factoring Colombia, S.A. (COLOMBIA) Factoring Calle 93 No. 15-73 Oficina 502 Bogotá	40.50%	9.50%	1	—	1	2	1	1
Telefónica Correduría de Seguros y Reaseguros Compañía de Mediación, S.A. (SPAIN)            Insurance contracts, operating as a broker                Ronda de la Comunicación S/N  - 28050 Madrid	16.67%	83.33%	—	—	1	10	10	—
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
Telefónica Deutschland Holding, A.G. (*) (GERMANY)                                                                      Telecommunications business holding company    Georg-Brauchle-Ring 23-25 MUENCHEN,            Germany 80992	13.20%	69.23%	2,975	2,630	2	(7)	(8)	907

	Index	Financial statements 2023

Individual Annual Report 2023    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
Wayra Argentina,S.A.  (ARGENTINA) Telecommunications activities                                              Av. Corrientes 707, Planta Baja,                                    Ciudad de Buenos Aires, Argentina	5%	95%	23	(22)	—	1	2	—
Telefónica Global Solutions Argentina, S.A.                (ARGENTINA) Telecommunications services                                              Avenida Ingeniero Huergo 723, 1107 Buenos Aires	5%	95%	3	—	—	2	(5)	—
Total group companies and associates					3,859			52,966

(1) Consolidated data.

(*) Companies listed on international stock exchanges at December 31, 2023.

(**) % of ownership calculated over share capital offset by treasury shares.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.85

Appendix II: Board and Senior

Management Compensation

TELEFÓNICA, S.A.

(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	1,923,100	—	—	3,717,737	—	6,207	5,647,044
Mr. Isidro Fainé Casas	—	200,000	—	—	80,000	—	280,000
Mr. José María Abril Pérez	—	200,000	10,000	—	91,200	—	301,200
Mr. José Javier Echenique Landiríbar	—	200,000	24,000	—	113,600	—	337,600
Mr. Ángel Vilá Boix	1,600,000	—	—	2,577,600	—	27,383	4,204,983
Ms. Carmen García de Andrés	—	120,000	35,000	—	33,600	—	188,600
Ms. María Luisa García Blanco	—	120,000	33,000	—	44,800	—	197,800
Mr. Peter Löscher	—	120,000	24,000	—	113,600	—	257,600
Ms. Verónica Pascual Boé	—	120,000	11,000	—	11,200	—	142,200
Mr. Francisco Javier de Paz Mancho	—	120,000	33,000	—	124,800	—	277,800
Mr. Alejandro Reynal Ample7	—	—	—	—	—	—	—
Mr. Francisco José Riberas Mera	—	120,000	—	—	—	—	120,000
Ms. María Rotondo Urcola	—	120,000	24,000	—	22,400	—	166,400
Ms. Claudia Sender Ramírez	—	120,000	20,000	—	22,400	—	162,400
Ms. Solange Sobral Targa7	—	—	—	—	—	—	—

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 2023 and to be paid in the year 2024. In reference to

the bonus corresponding to 2022, which was paid in 2023, Executive Board Member Mr José María Álvarez-Pallete López received 4,198,897 euros and

Executive Board Member Mr Ángel Vilá Boix received 2,911,200  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. It

is also noted that the Board of Directors, at its meeting held on December 13, 2023, approved, following a favorable report from the Nominating, Compensation

and Corporate Governance Committee, a new configuration of the Company's Consultative or Control Committees, specifically: (i) to abolish the Strategy and

Innovation Committee; and (ii) to integrate the Regulation and Institutional Affairs Committee and the Sustainability and Quality Committee, which now

constitute a single Committee, under the name of Sustainability and Regulation Committee.

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.                                                                                                                                   

7Mr. Alejandro Reynal Ample and Ms. Solange Sobral Targa were appointed Directors of the Company on December 13, 2023.   

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.86

Mr. Peter Erskine and Mr. Juan Ignacio Cirac Sasturain

stood down as Board Members on December 13, 2023,

reflecting below the payment received and/or accrued by

them in 2023:

(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. Juan Ignacio Cirac Sasturain	—	120,000	33,000	—	33,600	—	186,600
Mr. Peter Erskine	—	120,000	20,000	—	113,600	—	253,600

1 to 6: Definitions of these concepts are those included in the previous table.

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:

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.87

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	—	—	—	—	—	—	—
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	—	51,667	—	—	—	65,000	116,667
Mr. Francisco Javier de Paz Mancho	—	177,935	—	—	—	155,000	332,935
Mr. Alejandro Reynal Ample7	—	—	—	—	—	—	—
Mr. Francisco José Riberas Mera	—	—	—	—	—	—	—
Ms. María Rotondo Urcola	—	—	—	—	—	—	—
Ms. Claudia Sender Ramírez	—	—	—	—	—	132,500	132,500
Ms. Solange Sobral Targa7	—	—	—	—	—	—	—

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 2023 and to be paid in the year 2024 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 de Ingeniería de Seguridad.

7. Mr. Alejandro Reynal Ample and Ms. Solange Sobral Targa were appointed Directors of the Company on December 13, 2023.   

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.88

Likewise, Mr. Peter Erskine and Mr. Juan Ignacio Cirac

Sasturain stood down as Board Members on December

13, 2023, reflecting below the payment received and/or

accrued by them in 2023:

(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. Juan Ignacio Cirac Sasturain	—	—	—	—	—	95,000	95,000
Mr. Peter Erskine	—	80,000	—	—	—	—	80,000

1 to 6: Definitions of these concepts are those included in the previous table.

Additionally, as mentioned in the Remuneration Policy

section, the Executive Board Members have a series of

Assistance Services. Below, the contributions made

during 2023 are detailed for the Company to long-term

savings systems (Pension Plans and Social Welfare Plan):

LONG-TERM SAVINGS SYSTEMS

(Amounts in euros)

Directors	Contributions for fiscal year 2023
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 Occident GCO,

S.A.U. de Seguros y Reaseguros (as the legal successor of Plus Ultra,

Seguros Generales y Vida, S.A. de Seguros y Reaseguros), 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

The 2023 amounts for life insurance premiums were as

follows:

(Amounts in euros)

Directors	Life insurance premiums
Mr. José María Álvarez-Pallete López	23,156
Mr. Ángel Vilá Boix	18,574

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 2023:

The so-called Performance Share Plan ("PSP"), made up

of three cycles (2021-2023; 2022-2024; 2023-2025),

approved by the General Shareholders' Meeting held on

April 23, 2021.

During the financial year 2023, the Plan consisted of 3

cycles. The first cycle, whose target measurement period

started on January 1, 2021 and ended on December 31,

2023.

In this cycle, a maximum of 1,913,000 shares were

allocated to the Executive Directors on January 1, 2021,

with a unit fair value of 3.1598 euros per share for FCF

("Free Cash Flow"), 2.6465 euros for TSR ("Total

Shareholder Return") and 3.1598 euros for the CO2

Emission Neutralisation and Reduction target.

At the end of the cycle, Kepler provided the Nominating,

Compensation and Corporate Governance Committee

with the calculation of Telefónica's Total Shareholder

Return, which was 37.9% at the end of the period, ranking

sixth in the comparison group, i.e. between the median

and the 75th percentile according to the established

scale of achievement, and generating a weighted payout

ratio of 39.45% linked to relative TSR.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.89

With regard to the Free Cash Flow, after taking into

account the partial annual payments for 2021, 2022 and

2023, previously audited and approved by the Board at

the proposal of the Nominating, Compensation and

Corporate Governance Committee, the weighted payout

ratio is 40%. The assessment of the level of compliance

was based on the results of the audit by the Company’s

external and internal auditors, which were first analysed

by the Audit and Control Committee before being

validated by the Nominating, Compensation and

Corporate Governance Committee and approved by the

Board of Directors.

Finally, in relation to the CO2 Emission Neutralisation and

Reduction target, the Appointments, Remuneration and

Corporate Governance Committee has regularly

monitored the level of CO2 Emissions Neutralisation and,

after analysing the report from the Corporate Affairs and

Sustainability Department, has determined the level of

achievement. The Nominating, Compensation and

Corporate Governance Committee was supported in this

evaluation function by the Sustainability and Quality

Committee (now the Sustainability and Regulation

Committee) and the Audit and Control Committee. In this

respect, the minimum CO2 emission reduction threshold

that triggers the possibility of assessing the degree of

compliance with the CO2 Neutralisation target has been

met and therefore the weighted payout ratio linked to

CO2 Neutralisation was 10%.  

Taking into account the Relative TSR, Free Cash Flow

and CO2 Neutralisation results, the weighted payout ratio

increased to 89.45%. Thus, at the end of the Plan's First

Cycle, Executive Directors are entitled to receive 978,583

gross shares in the case of the Executive Chairman, Mr.

José María Álvarez-Pallete López, and 732,596 gross

shares in the case of the Chief Operating Officer (COO)

Mr. Ángel Vilá Boix. 

Similarly, during the 2023 financial year, the second cycle

and third cycle of the Plan were in force, starting on 

January 1, 2022 and January 1, 2023 respectively and

ending on December 31, 2024 and December 31, 2025

respectively.

In both cycles, the number of Telefónica, S.A. shares that

could be delivered to the participants, within the

established maximum, is conditioned and determined by

the compliance with the established objectives: 50% of

the compliance with the Total Shareholder Return (TSR)

objective of Telefónica, S.A. shares, 40% of the Telefónica

Group's Free Cash Flow (FCF) and 10% of the

Neutralisation and Reduction 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

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 cycles in force

during the financial year 2023, 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. 

In order to determine compliance with the CO2 Emission

Neutralisation and Reduction target and to calculate the

specific number of shares to be delivered for this item,

the level of CO2 Emissions Neutralisation achieved at the

end of the cycle will be measured, with the incentive

being paid upon reaching a certain level of scope 1 + 2. 

The level of direct and indirect CO2 emissions from our

daily activity shall be calculated according to the

following:

CO2 Emission = Activity Data 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, International Energy

Agency, etc.) is used for electricity and the GHG Protocol

emission factors are used for fuels.

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.90

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.

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

Neutralisation and Reduction targets set for the Second

and Third Cycles of the Plan is shown below.

PSP - Second cycle / 2022-2024

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.

PSP - Third cycle / 2023-2025

Directors	Maximum number of shares (*)
Mr. José María Álvarez-Pallete López	1,100,000
Mr. Ángel Vilá Boix	831,000

(*) 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 third 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. As a result,

each Executive Director is entitled to receive 589 gross

shares upon termination of the Plan.

In addition, it should be noted that the external directors

of the company do not perceive nor have perceived

remuneration during the year 2023 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 2023, 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 2023,

excluding those who form an integral part of the Board of

Directors, have accrued a total amount of 8,749,939

euros during the 2023 fiscal year. 

In addition, and in terms of long-term savings systems,

the contributions made by the Telefónica Group during

the year 2023 to the Social Security Plan described in the

"Income and expenditure" note with regard to these

directors increased to 947,676 euros; the contributions

corresponding to the Pension Plan increased to 212,281

euros; the contributions to the Seguro Unit link-Excess

Pension Fund increased to 113,293 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 122,315 euros.

On the other hand, regarding share-based remuneration

plans, during the year 2023, there were in force the

following long-term variable remuneration plans:  

The so-called Performance Share Plan ("PSP"), made up

of three cycles (2021-2023; 2022-2024; 2023-2025),

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.91

approved by the General Shareholders' Meeting held on

April 23, 2021.

The target measurement period of the first cycle started

on January 1, 2021 and ended on December 31, 2023. The

maximum number of shares allocated to be delivered in

the event of maximum compliance with the TSR ("Total

Shareholder Return"), FCF ("Free Cash Flow") and CO2

Emission Neutralisation and Reduction targets set for the

First Cycle for all the Company's Senior Executives was

1,333,081.

At the end of the First Cycle, Kepler provided the

Nominating, Compensation and Corporate Governance

Committee with the calculation of Telefónica's Total

Shareholder Return, which was 37.9% at the end of the

period, ranking sixth in the comparison group, i.e.

between the median and the 75th percentile according to

the established scale of achievement, and generating a

weighted payout ratio of 39.45% linked to relative TSR.

In terms of Free Cash Flow, after taking into account the

partial annual payments for 2021, 2022 and 2023, the

weighted payout ratio is 40%. The assessment of the

level of compliance was based on the results of the audit

by the Company’s external and internal auditors, which

were first analysed by the Audit and Control Committee

before being validated by the Nominating, Compensation

and Corporate Governance Committee and approved by

the Board of Directors.

Finally, in relation to the CO2 Emission Neutralisation and

Reduction target, the Appointments, Remuneration and

Corporate Governance Committee has regularly

monitored the level of CO2 Emission Neutralisation and,

after analysing the report from the Corporate Affairs and

Sustainability Department, has determined the level of

achievement. The Nominating, Compensation and

Corporate Governance Committee was supported in this

evaluation function by the Sustainability and Quality

Committee (now the Sustainability and Regulation

Committee) and the Audit and Control Committee. In this

respect, the minimum CO2 emission reduction threshold

that triggers the possibility of assessing the degree of

compliance with the CO2 Neutralisation target has been

met and therefore the weighted payout ratio linked to

CO2 Neutralisation was 10%.

Taking into account the Relative TSR, Free Cash Flow

and CO2 Neutralisation results, the weighted payout ratio

increased to 89.45%. Thus, at the end of the first cycle of

the Plan, the Company's Senior Executives are entitled to

receive 1,192,442 gross shares.

The target measurement period for the second and third

cycles started on 1 January 2022 and 1 January 2023

respectively, and will end on December 31, 2024 and

December 31, 2025 respectively. The maximum number

of shares allocated to be delivered in the event of

maximum compliance with the TSR (Total Shareholder

Return), FCF (Free Cash Flow) and CO2 Emission

Neutralisation and Reduction targets set for the second

and third cycles for all the Company's Senior Executives

is 1,241,015 in the second cycle of the Plan and 1,378,418 in

the third cycle of the Plan.

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. Thus, at the

end of the first cycle of the Plan, the Company's Senior

Executives are entitled to receive 2936 gross shares.

(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. 

	Index	Financial statements 2023

Individual Annual Report 2023    Telefónica, S. A.92

Management report 2023

.

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

Towards a new paradigm for the

telecommunications industry

The traditional telecommunications operator value chain

includes assets, which are tangible and intangible

resources developed through investment; services, which

are developed based on the assets deployed (or

operators may offer third-party services); and customers,

the portfolio of which is usually very diverse depending

(residential, corporate, public administrations, etc.).

Today’s networks are moving towards models more akin

to software platforms. This allows telecommunications

operators to create new business models aimed at

making the main capabilities of our networks available to

different stakeholders (not only end customers) through

connectors or Application Programming Interfaces (APIs).

Changing the traditional business model entails several

layers of transformation:  

• Moving from copper, 2G, 3G and 4G networks to all-IP,

fibre and 5G networks will give us a more streamlined

business model.

• Evolving from reactive, hardware-based networks to

software-based ones will enable more agile and

adaptive management and execution of functions.

• From customised, tailor-made integrations to

interconnected global platforms with open APIs, the

new business model will facilitate smooth and efficient

communication between different systems and

services.

• The traditional telco experience is evolving towards an

AI-driven customer relationship, allowing companies to

anticipate and meet customer needs faster and more

accurately.

• Gone are the days of one-size-fits-all offerings; we are

now effectively a digital supermarket, offering products

from sectors as diverse as entertainment, security and

fintech.

As a result, telcos have become more important in the

eyes of customers and can now operate much more

efficiently. Operations are more agile, efficient and future-

proof.

Transformation of

telecommunications networks

towards earth computing

In recent years, profound and disruptive innovation has

been unfolding across multiple intersecting technologies

in a similar way to when mobile internet converged with

computing. That convergence transformed a device

intended to support voice functionalities into a

smartphone, ushering in digital native companies and

radically changing market dynamics.

We are now in the midst of an era change, driven by the

convergence of telcos, computing, artificial intelligence

(AI) and Web3. This change has led to radical disruption

on all four fronts, giving rise to a new wave of digital

services requiring mass communication solutions, full

interoperability and real-time computing.

Against this backdrop, Telefónica has the unique

opportunity to improve people's lives by offering products

and services through our networks. However, with that

opportunity comes the responsibility of managing the

increase in data traffic and delivering high-performance

connectivity, overcoming technological challenges such

as latency, capacity and personalisation to do so.

Personalisation must be prioritised in order to address

customers’ diverse needs. The increase in traffic will

require high-performance connectivity and distributed

computing capacities, while solutions beyond cloud

technology will need to be explored in order to ensure

optimal efficiency and performance for our products and

services.

Connectivity is the foundation of all things digital, both

today and tomorrow. The telco of the future will rely on

networks that are:

	Index	Management report 2023

Individual Annual Report 2023    Telefónica, S. A.93

• UBB and low latency

• Programmable and AI-based

• Cloud-connected

To adopt technology that promotes efficiency and a good

customer experience, it is crucial to move towards a

simpler approach, continuing to shut down legacy

networks, simplifying the next wave of operations and

scaling down our infrastructure. It will also be crucial to

step up efforts in the area of hyper-automation, with a

focus on operations and content management,

contactless network management and next generation

customer acquisition.

The transition towards increasingly automated networks

requires the implementation of new AI-based

technologies. For Telefónica, AI is a key element of the

digital customer experience and is a prime contributor to

efficiency. There are many practical examples of how AI

and machine learning techniques have been applied in

our networks. Telefónica has created a specific program

for the move towards autonomous networks (the

Autonomous Network Journey Program) that seeks to

deliver greater speed (improved deployment and

response times), intelligence (predictive networks),

improved quality (for our customers), efficiency (in costs)

and sustainability (mainly in the area of energy

consumption).

New connectivity-based services

(NaaS)

Today’s networks are not only generating efficiencies;

they are also providing new business opportunities.

Network and IT components are being broken down into

individual microservices, which can be sold through a

developer-centric marketplace within the cloud

ecosystem.

Software developers and integrators can access code

through these marketplaces, allowing them to integrate

microservices into their applications, such as device

location. They will also be able to create configurable and

scalable products based on information and network

quality.

This change is a collective industry effort, collaborating to

define a new standard within GSMA and CAMARA.

Standardisation and simplicity are essential to unlocking

the enormous value that lies hidden in connectivity.

The industry is ready to serve a platform that reaches

5,400 million people daily. This readiness demonstrates

the sector's ability to meet the challenges and seize the

opportunities presented by this new era of digital

connectivity.

The implementation of next generation infrastructure is

underway, with UBB connectivity already deployed and

our networks undergoing a transformation towards

softwarisation and hyper-automation.

The data- and API-based abstraction layer helps

orchestrate this infrastructure and seamlessly connect it

to the digital world. In building an earth computing stack

coordinated by telecommunications, all the necessary

intelligence is being deployed.

Automation and data management will streamline

innovative service offerings, providing high-quality digital

connectivity and services to B2C customers, driving

digital transformation in B2B and facilitating wholesale

connectivity to a variety of partners, from other telcos to

developers.

This large scale transformation we have undertaken,

which has improved networks and customer interactions,

streamlined operations and ensured the sustainability of

the business, puts the Company in a significantly better

position than the rest of the industry.

Telefónica's organization

As part of its strategy based on five decisions and

implemented in 2019, Telefónica focused on its core

markets (Spain, Brazil, Germany and UK) and launched its

global businesses (T-Tech and T-Infra). Following the

new strategic approach announced on Capital Markets

Day, the Group continues to strengthen its organisation

with the aim of improving customer service in the

following segments: Residential, Corporate (including

companies and the public sector) and Wholesale

(operators and other partners in new businesses).

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 almost 41 million accesses and a fibre

network reaching over 29 million homes.

• 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 113 million customer accesses.

Regional leader in fibre-to-the-home (FTTH)

deployment, with over 25 million homes reached.

• Telefónica Deutschland (93.1% owned by Telefónica).

it is one of the leading mobile operators in Germany,

where it operates under the O2 brand and other

specialised brands and has almost 50 million accesses.

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Individual Annual Report 2023    Telefónica, S. A.94

• VMED O2 UK (VMO2) (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 57.6 million

total accesses (fixed, mobile and TV) and operates a

cable network of 17 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 nearly 112.6 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: a leading provider of advanced

NextGen solutions designed to power companies’

digital transformations, Telefónica Tech (T-Tech) offers

cutting-edge solutions in areas such as cybersecurity,

the cloud, Internet of Things (IoT), big data, artificial

intelligence (AI) and blockchain, all with the aim of

improving the efficiency, sustainability and resilience of

companies’, organisations’ and public administrations’

processes and businesses.

With a global presence and a team of over 6,300 highly

qualified professionals representing more than 60

nationalities and holding over 4,000 digital skills

certifications between them, Telefónica Tech has the

capacity to serve more than 5.5 million B2B customers

worldwide. Since its creation, Telefónica Tech has been

achieving double-digit growth and consistently

outperforming market indices year after year.

Telefónica Tech has developed an extensive portfolio of

over 100 products and services, 58% of which has been

verified with the Eco Smart seal, for their potential

environmental benefits. These products and services

cover key areas such as cybersecurity, the cloud, IoT, big

data, AI and blockchain.

In terms of IoT solutions, Telefónica Tech leads the field

with its advanced platform and AI offerings. We work

closely with our customers to optimise the efficiency of

production resources in various sectors.

With regard to cybersecurity and cloud solutions,

Telefónica Tech combines the potential of both

technologies to guarantee that all our cloud solutions

have a cybersecurity component embedded therein. This

integration has enabled us to excel globally in cloud

communications and managed security solutions. We

offer end-to-end consulting and managed services and

have established ourselves as a leader in this area.

In the field of cloud services, Telefónica Tech has

designed a hybrid multi-cloud model that encompasses

solutions in both the private and public cloud. Telefónica

Tech builds partnerships with major providers and

industry leaders in order to integrate and migrate the

main business applications (Platform as a Service, or

PaaS) to the cloud.

Cybersecurity is central to Telefónica Tech's philosophy

and is of paramount importance to us. That is why we

have incorporated security as a fundamental part of all

our solutions and enhanced our ability to safeguard the

continuity of our business and that of our customers.

We have over 4,000 certifications, two Digital

Operational Centres (DOCs) in Spain and Colombia and a

network of Security Operational Centres (SOCs)

distributed strategically throughout Europe and the

Americas. From these centres we closely monitor

potential threats and apply preventive and corrective

measures in order to proactively guarantee security.

• Telefónica Infra is a subsidiary of the Telefónica

Group and operates as a portfolio manager, owning

and rotating stakes in infrastructure vehicles alongside

financial investors. Telefónica Infra focuses on creating

value through specialized infrastructure management,

selectively monetizing assets, and partnering with key

financial investors to co-invest in growth opportunities

(through partnership structures and flexible business

models).

Telefónica Infra contributes to enhancing the competitive

position of Telefónica's business units, crystallizes the

value of the company's assets and capabilities, and

captures future value increases through stakes in

infrastructure vehicles. Currently, Telefónica Infra's

investment portfolio encompasses three types of assets:

Submarine cable (Telxius), Data Centers (Nabiax), and

Fiber (Bluevía, FiBrasil, Unsere Grüne Glasfaser, and

Nexfibre).

Key Enablers and Global Units

In addition to our operational businesses, the Telefónica

Group, which has a direct relationship with customers in

all the regions in which it operates, centrally carries out

certain activities that provide value for operators and

develop common capabilities in important areas for the

future of the Group, establishing a common framework:

• Develops key technologies for the Group, in a sector

strongly impacted by technological advances.

Telefónica makes decisions regarding the development

of its networks and systems in a centralised manner.

This is a crucial factor for its leading connectivity offer,

constitutes the foundations of the customer experience

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Individual Annual Report 2023    Telefónica, S. A.95

and is underpinned by common criteria of efficiency

and profitability.

• In terms of people , Telefónica actively manages the

attracting, retention and promotion of internal talent in

a group comprising over 100,000 employees spread

across all the regions in which it is present.

• Optimises the allocation of capital among the various

existing investment alternatives. Telefónica establishes

clear criteria to increase growth and profitability,

strengthen cash generation and ensure the Group's

investment quality (rating position) and commitments

to our shareholders.

• In the field of regulations and external relations, we

establish the Telefónica Group's position in the sector's

main forums and participate in the development of the

regulatory agenda for the future.

• Other global units include activities that harness the

scale of the Telefónica Group to obtain significant

competitive advantages (marketing, procurement, etc.)

as well as staff and legal and regulatory compliance

units.

Economic results of

Telefónica, S.A.

Telefónica, S.A. obtained positive net results of 2,153

million euros in 2023. Highlights of the 2023 income

statement include:

• Revenue from operations, amounting to 4,362 million

euros, higher than 2022 figure due to the increase in

dividends registered as revenues (disclosed in note 19).

• The figure of “Impairment losses and other losses”

amounting to a write down of 1,208 million euros in

2023 (a write down of 1,590 million euros in 2022).

• Net financial expense totaled 1,428 million euros in

2023 (1,401 million euros of financial expense in 2022).

This figure is mainly due to finance costs with Group

companies and associates, principally from Telefónica

Europe, B.V. amounting to 510 million euros (417 million

euros in 2022) and Telefónica Emisiones, S.A.U. totaling

766 million euros (902 million euros in 2022).Net

exchange rate losses amount to (11) million euros (181)

million of exchange rate losses in 2022).

• Income tax caption amounts to positive 1,024 million

euros (see note 17). As a consequence of the ruling filed

by the EU General Court cancelling the Third Decision

2015/314, a positive amount of 334 million euros have

been registered, decreasing the figure of income tax.

The impact of the Sentence of the Constitutional Court

over the Royal Decree 3/2016 has reduce the income

tax figure by 298 million euros.

Investment activity

The investment activity of the Company regarding

additions, sales, valuation criteria and impact of this

valuation in 2023 is described in note 8 of these financial

statements.

Share price performance

European and US equity markets ended with strong gains

thanks to a very positive performance in the last quarter

of the year as the market started to discount future

interest rate cuts already announced by some central

banks for 2024, leaving behind the restrictive monetary

policy to address high inflation, avoiding recession in both

the US economy and the main European economies.

Among the main European markets (EStoxx-50 +19.2%),

the best performers were peripheral markets (Ibex-35

+22.7%, MIB +28%) with Ibex-35 recording its best

performance since 2009, followed by the DAX (+20.3%),

and the CAC 40 (+16.5%), while the FTSE-100 closed with

a modest gain (+3.8%). On the other hand, US markets

also closed the year with significant gains, reaching levels

close to all-time highs, driven mainly by the exceptional

performance of technology stocks (Nasdaq +43.4%, S&P

+24.2% and Dow Jones +13.7%). The MSCI World index in

euros rose by +17.9%. In the bond market, prices

continued to fall for most of the year, with the US 10-year

Treasury yield reaching 5%, the highest since 2007, until

the end of October when yields declined, as the

downward trend in inflation and thus the pause in rate

hikes was confirmed.

The telecom sector performed well in the first quarter of

the year (+14.7% vs. Stoxx 600 +7.8%) but lost its lead over

the market at the end of the year (+3.8% vs. Stoxx 600

+12.7%) despite continued positive news from companies,

which led to a 40% improvement in annual guidance in

the third quarter. This provides a positive scenario for

2024, with the prospect of cash flow growth

outperforming the market, underpinned by sustained

revenue growth coupled with a reduction in operating

costs and capex, which has passed its peak, and which

will translate into above-inflation cash generation growth.

In addition, telecoms' refinancing needs are also limited,

with debt largely at fixed rates, reinforcing the sector's

defensive qualities. There is also optimism about

consolidation moves in Europe, and the opportunities for

themes such as artificial intelligence to improve returns.

Telefónica has continued its transformation process in

2023 which has allowed it to present a more ambitious

company plan for the next three years, based on growth,

profitability and sustainability, coupled with a strict capital

allocation, to create significant value for shareholders. In

2023, results were solid, meeting all the announced

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Individual Annual Report 2023    Telefónica, S. A.96

targets, which were improved in the first half results,

growing revenues and OIBDA and reducing capital

intensity compared to the previous year. Telefónica

ended 2023 with a market capitalization of 20,323 million

euros, with a share price of 3.53 euros, +4.4% in the year,

and a total shareholder return of 13.0%, above an 8.9%

average for the sector.

Regarding dividend payments, €0.30 per share was paid

in 2023 (€0.15 per share in June and €0.15 per share in

December, both in cash). The 2023 shareholder

remuneration policy consists of a €0.3 per share cash

dividend (€0.15 per share paid in December 2023 and

€0.15 per share to be paid in June 2024). The 2023

dividend yield stood at 8.5%. In addition, in April 2023,

24.7 million treasury shares were cancelled.

Sustainable offer and

innovation

For Telefónica, putting in place measures to encourage

innovation and product development has been an

integral part of our business throughout our 100-year

history.

We view innovation as the ability to anticipate the future

and to understand the needs and challenges our

customers and society as a whole are dealing with.

Our strategy is built on two pillars:

• Incremental innovation, which is about pursuing the

continuous improvement of existing technologies to

adapt them to new societal demands, thus allowing us

to develop more efficient and sustainable solutions.

• Disruptive innovation, which enables us to identify

new business models capable of transforming the

market and contributing to social development.

This innovation strategy is underpinned by a two-

pronged approach:

• First, seeking to boost internal and cross-cutting

activity throughout the Company, especially from the

units of networks and IT systems and the digital service

development..

• Secondly, and based on open innovation, seeking to

promote the entrepreneurial ecosystem through the

support and financing of startups. In addition, we

encourage collaboration with technology partners with

the aim of attracting the best external innovation

available on the market.

Core innovation

Our priority in this area is to develop new digital services

that improve people's lives, and we leverage the

Company’s main assets, such as its telecommunications

networks, digital platforms and information systems to do

so. Our current business units – which include IoT, big

data and video – have their roots in projects that were

developed years ago by the core innovation teams.

Some of the projects that were developed as part of core

innovation projects in previous years and began to be

marketed in 2023 are:

• Web3, which provides a financial layer on top of the

traditional web and facilitates frictionless economic

transactions online, creating opportunities for

innovative business models.

• NFT marketplace , a platform for the creation and sale

of digital art on which we collaborated with Fundación

Telefónica and other social organisations.

• Digital identity , a project aligned with the proposed

European digital wallet, which seeks to introduce a

single Digital Identity system in the EU. With this

project, we are creating the necessary capacity to

facilitate management of the future digital identity

scheme.

• New Living Apps , apps available through our

television platform that enable innovative marketing

schemes such as live shopping, which offers the

possibility of incorporating commercial streaming

content and providing incentives for shopping as part

of the consumer experience. We also moved ahead

with including payment capabilities in the Living Apps

environment.

• Cognitive digital marketing , applying AI algorithms to

data. The aim is to achieve better marketing results

while ensuring consumer privacy, complying with our

ethical commitments in the development of algorithms

and AI, and covering our customers’ needs. This

initiative has led to the creation of UTIQ, a joint venture

involving a number of telcos, through which we are

fostering an advertising ID solution that enables

customers to retain control over when, how and with

whom they share their data.

Lastly, in addition to our role as pioneers in the

technological world, we devote a certain amount of our

innovation efforts to improving existing technologies. We

also work with private and public organisations and with

the world of academia on projects that we develop in

conjunction with universities at a national and

international level.

Open Gateway

The new technologies incorporated into networks in

recent years have opened the door to innovative services

being developed and new business models being built

around them.

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Individual Annual Report 2023    Telefónica, S. A.97

Combining cloud computing with the softwarisation of

network elements and functions allows for the

development of new business models based on Network

as a Service (NaaS). At the same time,

telecommunications companies have been upgrading the

information systems and software platforms that operate

the networks.

All this allows us to make certain functions securely

available through standardised interfaces (Application

Programmable Interfaces, or APIs) so that other

companies can develop end services that are far more

optimised and better adapted to the demands of the

current market.

The driving force behind this strategic project is the

GSMA. By November 2023, 39 mobile operator groups

had signed up to the project, representing more than 200

mobile networks and over 60% of global mobile

connections.

GSMA Open Gateway was introduced at the Mobile

World Congress in Barcelona in 2023. In November, in

cooperation with two other leading operators in Brazil, we

launched the first three APIs: Number Verify, SIM Swap

and Device Location.

Open Innovation

For the past 15 years, Telefónica Open Innovation has

been supporting the Group as it searches for and invests

in innovative startup solutions that will enable us to meet

our challenges as a company, as a sector and as a key

player in social progress.

Our open innovation strategy pursues three objectives:

• To internally transform Telefónica by incorporating

startup-developed technology and products

(digitalisation, automation and cultural change).

• To identify disruptive trends and opportunities for

growth (game changers).

• To generate new revenue streams and financial returns

from investments.

Today, of the more than 1,100 enterprises we have

invested in, over 370 startups have ended up working

with Telefónica, generating an approximate value of over

€800 million for the Company. Most importantly, we have

taken their innovative solutions to our customers as well,

to help them with their digital transformations and to

enable them to generate efficiencies internally. 

We firmly believe in the transformative potential of

innovation and technology to forge a sustainable future.

We are signatories to the United Nations Principles for

Responsible Investment (UN PRI), which entails

integrating ESG targets and factors into all our

investment decisions. Our vision is to lead the way to

responsible, inclusive and sustainable digitalisation, while

also boosting responsible investment in the venture

capital community.

Environment

Vision

Companies play a key role in protecting the environment.

By integrating sustainability strategically throughout their

operations, they not only contribute to reducing their

impacts, but also mitigate risks and increase their value as

a company.

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 strive at all levels of the organisation to

minimise our impact and decouple 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 challenges: climate

change, circular economy, water management and

biodiversity.                                                                                                                                                                                                                                                                                                                                                                                                                                                             

This commitment forms part of the Company's general

strategy for which the Board of Directors is ultimately

responsible.

The corresponding performance levels are regularly

monitored by the Board's Sustainability and Regulation

Committee, as well as by the Responsible Business

Office, which is also responsible for coordinating it.

We see the environment as a cross-cutting issue that

involves operational and management areas as well as

business and innovation areas. The Climate Action Plan is

a good example of this. Not only does this Plan define

actions for the operational model, but it also defines

actions for the business and financial strategy, the

commitment to customers, the supply chain and society

as a whole.

In this regard, it is worth highlighting that carbon

emissions reduction targets are part of the variable

remuneration of all the Company's employees, including

the Executive Committee. 

Impacts, risks and opportunities

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Individual Annual Report 2023    Telefónica, S. A.98

The Company's environmental and climate change risks

are managed under the Telefónica Group's global risk

management framework.

The major risk focus regarding these issues lies in the

wide geographical spread of our infrastructure. As a

result, we carry out supervision and monitoring based on

standardised procedures, under the scope of ISO 14001-

certified EMSs.

We take the recommendations of the Task Force on

Climate-related Financial Disclosures (TCFD) as a

starting point for the analysis of climate change risks.

In 2023 the Telefónica Group contracted, locally and

globally, several insurance policies 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 have fully comprehensive monetary loss and lost

profits cover in place to protect against material losses,

damage to assets and loss of income and/or customers,

among other things, due to acts of nature. We also have

coverage for environmental liabilities as required by

applicable laws and regulations. This coverage consists of

limits, sublimits and hedges appropriate to the risks and

exposures of Telefónica and its group of companies.

By being proactive, establishing preventive measures and

including environmental criteria in our decision making,

we have been able to:

• Increase the Company's sustainable financing.

• Reduce our dependence on fossil fuels.

• Reduce our CO₂ emissions, in absolute terms, despite

the increase in network traffic.

• Seize the opportunities offered by the circular

economy.

• Help minimise our customers' environmental footprint

thanks to our Eco Smart products and services.

Action plans

Our environmental strategy seeks to minimise our impact

on the planet and maximise the environmental benefits

generated by our digital products and services. It is built

around three levels, which will be discussed throughout

this report:

• The first level is related to the responsibility we assume

as a company that is committed to our environment, by

ensuring compliance with environmental legislation,

managing our risks and opportunities, implementing

management systems,  establishing strict

environmental targets, and engaging in proactive

advocacy for the environment .

• The second level concerns the Company's

decarbonisation and circularity, the protection of

biodiversity and integral management of water. This is

done through the use of renewable energy, energy

efficiency projects, circular economy practices and

biodiversity management.

• Lastly, the third level is linked to our raison d'être, the

digitalisation of our customers, through services that

have a positive impact on the environment thanks to

connectivity technologies such as the Internet of

Things (IoT), the cloud and big data.

In addition, as part of the integration of the environment

into our strategy, we continue to increase the day-to-day

sustainable financing of the Company.

Targets

The Telefónica Group's main environmental targets are

to:

• Achieve net zero emissions by 2040, including our

value chain. To do this, we will reduce all our emissions

by at least 90% and neutralise the remaining emissions

through nature-based solutions.

• Consume 100% renewable electricity in all our markets

by 2030. 

• Be a Zero-waste company in 2030, through the design

of equipment, reuse and recycling. 

• Reduce emissions in our value chain (scope 3) 39% by

2025 and 56% by 2030 compared to 2016 levels.

• Continue to use 100% renewable electricity in Europe,

Brazil, Chile and Peru, and throughout our operations

by 2030.

• Neutralise 100% of our operational emissions (scopes

1+2) in our main markets from 2025.

• Improve energy consumption per unit of traffic (MWh/

PB) by 90% in 2025 compared to 2015.

• Accelerate our customers’ decarbonisation processes

by fostering development of new digital solutions.

Management policies and systems

We have several policies to bring the organisation into

line with our environmental targets:

• Environmental Policy.

• Energy Management Policy.

• Supply Chain Sustainability Policy.

As well as our policies, we have internal standards that

serve as a common reference framework for all Group

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Individual Annual Report 2023    Telefónica, S. A.99

companies. These global standards guide the Company

in improving its environmental performance and

incorporate a life-cycle perspective.

To control the impact of our activities on the

environment, we have chosen to implement an

Environmental Management System (EMS) in

accordance with the ISO 14001 standard. All our

operators have an externally certified EMS. Operating

under a certified EMS ensures adequate control and

compliance with the applicable environmental legislation

in each of our markets. It is therefore directly linked to the

preventive environmental compliance model, which

forms part of the Company's comprehensive compliance

process.

Our EMS(s) enable(s) us to manage our most critical

environmental aspects, such as energy and waste, as well

as others that are less important due to the nature of our

operations (biodiversity, water, noise). It is worth

mentioning that we were not subject to any significant

environmental penalties in 2023.

Responsible network and biodiversity

We have an environmental risk and impact monitoring

system in place to manage the network throughout its life

cycle. Monitoring allows us to offer a top quality service

and to promote care for the environment. Therefore, in

2023, we invested around 17 million euros towards this

goal (similar to the investment in 2022).

We foster the circular economy across all our assets to

make our network as eco-efficient and environmentally

responsible as possible. Thanks to our energy efficiency

and renewable energy plans, we have managed to

stabilise our electricity consumption, despite the rise in

digitalisation. In addition, our circular economy strategy

enabled us to reuse 313,805 pieces of network equipment

and recycle 97% of our waste in 2023.

In order to both optimise land use and reduce visual

impact, energy consumption and waste generation, we

apply the best practices available. Among many other

actions, we introduce soundproofing measures when

necessary and prioritise locating our facilities in co-

located sites with other operators, which allows us to

reduce the impact caused by network deployment.

The trend of our environmental performance is displayed

in the following summary of indicators:

Responsible network life cycle

Planning and construction
Environmental licences and permits	1,492
Visual impact reduction measures	64
Base stations with renewable energy	484
Operation and maintenance
Energy efficiency and managements projects	170
Renewable electricity in own facilities (%)	84
GHG emissions (Scopes 1+2) (tCO2 eq)	337,119
Energy consumption per traffic (MWh/PB)	41
Dismantling
Network equipment reused (pieces)	313,805
Hazardous waste (t)	3,576
Total waste recycled (%)	97

At Telefónica we understand the importance of

biodiversity protection and efficient water management.

Although these environmental aspects are not relevant to

our operations, it is important for us to manage them

responsibly and to continue working to minimise their

impacts.

We seek to take a holistic approach that promotes a

sustainable digitalisation. This being a process which is

compatible with biodiversity preservation, water

efficiency and protection of the environment as a whole.

The relationship between climate and biodiversity is key

for maintaining climate stability and for protecting soil, air

and water. In addition to achieving net zero emissions, we

must also protect the health of the ecosystems.

At Telefónica we have externally certified Environmental

Management Systems (ISO 14001), which allow us to

monitor all the environmental aspects associated with our

activities, such as energy and waste, and others, such as

biodiversity, water, paper consumption and noise.

Our fundamental aim is to manage all natural resources

efficiently, thereby contributing to the protection and

conservation of biodiversity. This means optimising the

consumption of energy, water and other resources used

in our daily operations.

We set ourselves the following targets:

• Identify and assess nature-related impacts,

dependencies, risks and opportunities, both in our

direct operations and in our value chain.

• Apply the mitigation hierarchy (avoid, minimise, restore

and offset) for limiting the potential adverse impacts on

biodiversity from network deployment projects and the

operation of our infrastructure.

• Establish partnerships and share best practices with

other companies in the telecommunications sector to

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maximise the positive impact on biodiversity

conservation.

• Improve employee awareness to encourage

responsible and efficient use of resources.

Human Capital

Vision

Our employees are crucial in bringing to fruition our new

strategic plan: Growth, Profitability and Sustainability

(GPS).This program raises our level of ambition and calls

for a shift in culture at all levels.

The need for renewal is heightened by the fact that we

are on the verge of celebrating our centenary, with our

sights set on building the Telefónica of the next 100

years. Furthermore, from the talent perspective, we are

experiencing disruptions that require the development of

new capabilities and ways of working.

We have redesigned our culture around four aspects

which are going to be our GPS, our navigation system:

• Impact: execution continues to be essential for the

sustainability of our business.

• Collaboration: working together as a team – employees,

customers and partners – maximises our impact.

• Transformation: in a digital and dynamic world, we must

ensure that our processes and the way we work evolve

constantly to become more agile.

• Growth: the new context requires us to update our

skills in a very dynamic way through lifelong learning.

In order to implant this updated culture model, we are

going to boost our talent management model, designed

around managing skills. We empower our people to take

the reins in defining their own learning roadmap by using

the training and development tools available to them.

We are enhancing this talent model with a new

performance appraisal method to be implemented from

2024 with the goal of helping each of our employees

maximise their potential and create the best version of

themselves. It is based on ongoing, honest conversations,

geared towards supporting development and maximising

the impact of each of our employees. It will measure all

aspects of our culture: impact, collaboration,

transformation and growth.

Another element we have incorporated is our strong

commitment to internal mobility, in order to accelerate

professional growth and the acquisition of new skills. We

are keen for mobility to be something that occurs at all

levels of the organisation, starting at the executive level,

encouraging changes in roles on at least a five-yearly

basis (although this period may be shorter in the early

stages of an employee’s career and longer in the latter

stages). We understand internal mobility to mean a

switch from one business area to another, a different

country (while performing the same role), or a significant

change of role. There will be initiatives to recognise

mobility and it will be taken into account regarding

promotions to executive positions.

We are committed to diversity as a source of talent and to

the creation of inclusive and accessible environments to

ensure all our professionals can give their best.

Lastly, in order to sustain our corporate plan, we must

become more dynamic by reducing the complexity of the

organisation. This involves adapting the skills of our

workforce to the Company’s needs and having a simpler

operating model. Digitalisation helps us to improve both

our network operation processes and those of our

customers and internal processes.

Targets

• Achieve 37% of our executive positions filled by women

by 2027. Reaching this target is linked to the variable

remuneration of our employees and is one of our

sustainable financing indicators.

• Achieve an adjusted gender pay gap of +/-1% by 2024.

This was achieved in 2022. This is the basis for

progression towards a zero gross pay gap.

• Achieve gender parity in the Company’s highest

governance bodies by 2030 (parity is defined as no

more than 60% and no less than 40% representation of

each gender).

• Continue to be included in the Bloomberg Gender-

Equality Index.

• Maintain a score of at least 70% in the employee

motivation survey with regard to work-life balance.

• Double the number of employees with disabilities

within the workforce by 2024, in line with the

commitments made to The Valuable 500.

• Attain an Employee Net Promoter Score (eNPS) of at

least 70.

• Obtain an internal mobility rate among our executives

of 15% per year by 2026 (10% in 2024).

Management

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 the heads of the

People department at Telefónica’s main businesses and

operations.

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In addition, the Global Executive Committee analyses and

monitors key aspects of global employee management,

from skills and critical talent for the future to Telefónica’s

remuneration and organisational strategy.

People-related issues are also regularly reported to three

Board committees:

• Sustainability and Regulation Committee: key

performance indicators linked to company targets, as

well as global and local progress on talent management

and diversity, in line with the Group’s ESG strategy, are

presented to the committee once a year.

• Nominating, Compensation and Corporate Governance

Committee: among other roles, this committee provides

reports on appointment proposals for the role of

Chairman of the Board, the executive directors and

senior executives of the Company. This committee also

reviews and supervises the remuneration for these

positions.

• Audit and Control Committee: among other

responsibilities, this committee supervises the financial

and non-financial risk management and control

systems at the Company (including operational,

technological, legal, social, environmental, political and

reputational risks, as well as corruption-related risks).

We also have specific bodies and roles for managing our

diversity strategy. We have set ourselves an annual target

of 10% for internal mobility among our executives in 2024,

which will increase to 15% by 2026.

Policies and principles

Many of our internal rules and policies are related to the

human capital. The following are the most important:

• Regulation of the Nominating, Compensation and

Corporate Governance Committee.

• Regulation covering the Hiring of Former Executives

and Former Employees of the Telefónica Group.

• Remuneration Policy of the Directors of Telefónica S.A.:

in line with the Company’s long-term strategy and the

interests of its stakeholders, and complying with best

practices in good governance.

• Agreement on the right to digitally disconnect: signed

in 2019 with the most representative trade unions in the

various countries where we operate.

• Supply Chain Sustainability Policy: establishing the

supplier's obligation not to discriminate against any

group in its hiring, training and promotion policies.

• Global Occupational Health, Safety and Well-being

Regulation.

• Global Human Rights Policy: this sets out the

Company’s commitment against forced labour, slavery

and child labour.

Our Company also has specific policies and protocols on

issues related to diversity, inclusion and gender equality.

Impacts, risks and opportunities

The impact of managing human capital cuts across all

areas of the Company and is essential to our business,

affecting productivity, employee satisfaction,

performance and Telefónica’s reputation.

The main risks are related to the constantly evolving

needs for new skills within the workforce, which stem

from continual technical innovation and the shortage of

technological talent in the market.

In order to ensure that we have the capabilities necessary

to execute our strategy, we regularly conduct a strategic

skill-related planning process (Skills Workforce Planning).

We also work to ensure a diverse, inclusive and

accessible work environment, which allows us to

empathise better with our customers, innovate and

reflect their diversity in our commercial value proposition.

Our hybrid and agile working models represent an

opportunity for professional development and for

attracting digital talent. Our commitment to health, well-

being and work-life balance helps to increase the

motivation of our employees and thereby improve our

business results.

Telefónica’s people strategy aims to transform and adapt

our teams to the context of permanent change in which

we operate.

In this regard, 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 allow our people to thrive and grow.

To that end, we foster lifelong learning with large-scale

reskilling and upskilling programs, and talent

management that is based on skills, including

leadership skills.

• Diversity, equality and inclusion by fostering an

inclusive work culture and leadership style, including

accessible workplaces, to ensure a working

environment in which all our people can give their best

and develop on an equal footing.

• Flexible ways of working and agile high-performance

ecosystems capable of improving team effectiveness;

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

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mental, emotional and physical factors as the pillars of

well-being while encouraging autonomy and

responsibility.

Atraction, retention and capacities'

development

Attracting, developing and retaining talent is key for the

success of our Company. To achieve this, we foster

dynamic, inclusive and innovative workplaces in which

people feel valued, well-prepared and supported in their

professional growth and personal well-being. We aim to

be a catalyst in developing talent, by providing

opportunities for lifelong learning, upskilling and through

the creation and promotion of a community of motivated

and high-performance individuals to drive the future of

our Company.

The starting point to organise our talent management

strategies is our Skills Workforce Planning. This plan

seeks to ensure alignment between the skills we have

within the organisation and those we need in order to

allow for the growth of our businesses. The process

enables us to make the right decisions to close the skills

gap, by combining internal skill development with the

incorporation of external talent.

• For internal skill development, we promote large-scale

reskilling and upskilling programs that can develop

critical skills for our business while improving the

employability of our professionals. We have updated

the learning model to personalise and adapt the range

of training we offer to the preferences and skills pool of

each professional through the SkillsBank platform and

artificial intelligence (AI) engines (learning on demand).

• Attracting the best talent begins by developing an

employer brand, communicating our values, vision and

commitment, and looking for alignment with these

values and our corporate culture in potential

candidates. We use digital platforms, social media and

networking events, including trade fairs and events at

universities specialising in technology, to boost our

visibility. The competitive remuneration packages

offered, flexible working and an inclusive and diverse

corporate culture contribute to creating an attractive

and appealing environment for potential new talents.

We also strengthen our pool of young talent through

various programs such as Talentum.

Main initiatives for talent retention

→ A purpose-driven company (for example, we connect

people; remuneration tied to ESG).

→ A complete remuneration package (for example, a

salary well above the minimum, with benefits in every

country).

→ Flexible working hours (for example, a hybrid work

model for all eligible employees).

→ Work-life balance (for example, agreement on the right

to disconnect).

→ Lifelong training program, under which 70% of

employees are on skill development programs (for

example, Universitas, free programming courses at

Campus 42).

→ Involvement in innovative and transformative

programs tied to new technologies (for example,

metaverse, Web 3.0, NaaS).

→ Well-being (for example, 81% of employees believe

that Telefónica promotes well-being, according to our

motivation survey).

→ Social implication (for example, the largest corporate

volunteering program of any company worldwide).

→ Diverse and inclusive environment where difference is

valued and empowered (for example, a commitment to

double the number of employees with disabilities).

→ Team building with international festivals, activities

and events (for example, Sondersland).

a) Development of capacities:

We have moved on from a traditional learning model to

one focusing on developing skills and abilities through our

SkillsBank tool.

On one hand, we are evolving the profiles and skills of our

professionals to meet specific business-related

challenges. We offer profile specialisation so our people

can remain at the cutting edge (robotisation, 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.

This approach also helps us to improve the career

prospects of our employees in an environment of

transitioning towards a climate-neutral economy. We are

working to achieve net zero emissions by 2040 and, as

part of this ambition, we are replacing our networks with

more efficient ones. This may mean that some jobs are

affected. However, our reskilling programs help by

retraining and preparing our workforce in line with how

our business is evolving.

In line with the commitment of the company, in 2022, the

Chairman of Telefónica was elected as Chair of the Jobs,

Skills and Impact Working Group of the European

Business Round Table (ERT), an organisation made up by

60 of the largest companies in Europe.Reskilling for

Employment (R4E) is one of the most important projects

being undertaken by this committee. It is aimed at helping

to professionally reskill one million Europeans by 2025.

b) Internal mobility

In our new corporate strategic plan GPS, internal mobility

has become one of the most important tools to

accelerate professional growth, capture new skills and

retain talent. Internal mobility can be understood as a

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switch from one business area to another, a different

country (while performing the same role) or a significant

change of role.

All these initiatives are aimed at fostering the

development and promotion of our employees within the

Company.

c) Universitas Telefónica

This 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. It is aimed at encouraging uptake of the

new working and leadership methods, and at fostering a

unique culture that defines us and makes us stronger by

aligning priorities and empowering employees.

One year after the inauguration of our Universitas

campus based at the Company’s headquarters in Madrid

(Distrito Telefónica), Universitas has become a place

where leadership, growth and connection merge,

through intensive and interactive residential programs.

We have the right environment to enable at least two out

of every three employees to regularly take part in training

and skill development activities.

d) Labour force satisfaction

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 is aligned 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).

As part of GPS (our new strategic plan for 2024-2026),

we have increased our ambition. We now aspire to

ensure an eNPS score of at least 70 each year.

To enable qualitative responses, the survey includes open

text fields for comments. These are analysed using

natural language processing (NLP) techniques and

generative AI, while maintaining the anonymous and

confidential nature of the data.

The survey includes questions about workplace

environment, leadership, work-life balance, diversity and

inclusion, non-discrimination, and environmental and

social commitment.

In addition to the 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 engagement

and satisfaction levels of our employees. Our assessment

of these exercises takes into account socio-demographic

factors such as gender, age, years of service at the

Company, professional category and business unit,

transforming them into important sources of knowledge

in fostering equality and diversity.

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 conflict situations.

e) Recognition Culture: Valuable People:

This program 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.

f) Effort valuation:

Telefónica’s remuneration strategy is characterised by its

competitiveness. Our main focus is to attract, retain and

motivate the Company’s professionals so that we can

meet our strategic objectives within the globalised

framework in which we operate and foster the generation

of long-term value in a sustainable manner for our

shareholders.

In this regard, the variable remuneration of our employees

encourages growth by 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. Factors

such as customer trust, the trust of society at large,

diversity or the contribution of our company to the fight

against climate change have therefore influenced the

calculation of the variable remuneration of our workforce

since 2019.

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 based on

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

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exceed what is considered to be the "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.

By way of example, the social benefits offered by the

Company include universal health insurance for

employees at every operation, which covers the needs of

people with disabilities and the costs associated with

issues relating to mental and reproductive health, among

others. We also offer life insurance, a pension fund, share

purchase program, discount programs, childcare

assistance (including assistance at infant and school level

and encompassing the period from birth to 24 years old,

depending on the Group company), nursery services and

food assistance, among other things. All these benefits

increase job quality.

The Company offers leave options that are in compliance

with the minimum levels established by law, and in many

cases exceed them. For example, Telefónica provides a

number of personal days which, depending on the Group

company, ranges between two and four days, as well as

alternatives for adapting our employees’ working days to

achieve work-life balance in situations that require family

care services. These take into account blood relatives of

the employee up to the second degree of kinship. Also,

the Company offers maternity and paternity leave that

exceeds the minimal legal requirements.

Our social benefits are especially focused on improving

well-being for our employees. They help to maintain

physical and mental health while supporting families and

adapting healthcare coverage to new circumstances and

needs.

Furthermore, in 2022 Telefónica launched an incentivised

global share purchase plan – “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. In

addition, as part of our Company’s centenary

celebrations, each employee who takes part in the plan

will receive 100 additional shares for free.

With regard to our Board of Directors, we have a

Remuneration Policy of the Directors of Telefónica, S.A.,

which ensures compliance with best practices in the area

of good governance.

g) Performance evaluation

Telefónica has a worldwide performance review process

for all employees of the Group. The same timetable,

guidelines and tools are shared everywhere. The review

model measures different factors, ranging from achieving

pre-set targets to developing new skills and teamwork.

The appraisal process is based around agile

conversations involving feedback, which take place at

least twice a year. Although the process is coordinated

globally, it is managed locally so as to better adapt to the

needs of our business. The outcome of the reviews

affects our employees’ compensation and their

opportunities for development and promotion.

In 2023, our score rose by 7 to reach 76, compared to

2022.

There are many reasons that explain the overall

improvement in eNPS at the Company. These include our

focus on measures that foster work-life balance and well-

being, updating our employees’ salaries against a

backdrop of inflation, the working environment and team,

and the growing range of training available for all our

employees.

Thanks to the use of generative AI, we were able to

analyse the responses to free-text questions and the

comments made by our employees. This allowed us to

ascertain that well-being and achieving a good balance

between their working and personal lives continue to be

crucial factors for their commitment to the Company.

In 2023, we achieved an eNPS of 78 points among

responders aged under 35, which represents an increase

of six points compared to 2022. In addition, new

employees (those with less than two years in the

Company) rated us with an eNPS of over 80 points, more

than four points higher than the previous year.According

to the annual motivation survey, 81% of our employees

feel that learning has been incorporated into their day-to-

day work.

In 2023, we performed a proof of concept (PoC) and

analysed additional AI tools to spur us towards our goal of

being a skill-based organisation.

Now that the health emergency situation is over, we have

restarted our residential programmes (which are longer

and go into greater depth) for our leadership teams, with

an Advanced Leadership Programme that covers not only

skills-related aspects but also strategic vision and

networking.

h) Training

In 2023, 70% of our employees invested in learning and

developing new skills needed for the future through

various skill acquisition (reskilling/upskilling) programmes.

The percentage dropped by eight points compared to the

previous year, due to the large-scale implementation in

2022 of the Power of Connections programme for all the

Company’s employees.

In 2023, 63% of our new hires were aged under 35, up 3%

compared to 2022.

The results of our motivation survey are positive and

serve as an indicator to confirm that the Company is

ready to take one step further in its performance review

model:

• Of our employees, 84% stated they feel comfortable

giving feedback to their manager.

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• Of our employees,78% stated that their manager

frequently talks about their contribution level and skill

development.

Diversity and Inclusion

For Telefónica, diversity and inclusion (in addition to

being consistent with principles of social justice)

represent an invaluable opportunity to attract the best

talent, empathise with our customers, grow as a company

and, ultimately, have a positive impact on our

environment. We therefore design initiatives aimed at

promoting diversity in our teams. However, diversity only

delivers positive outcomes if it is accompanied by a

leadership style and organisational culture of equity,

plurality and inclusion.

We have internal bodies and roles in place that track our

progress in these areas. They 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, its purpose is to promote the Company’s

diversity strategy. This body also monitors and keeps

track of the Company’s main indicators and targets in

this regard.

• 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. Since 2017, the

position has been filled by Laura Abasolo, the current

Chief Financial and Control Officer, Head of Telefónica

Hispam and member of the Executive Committee.

• Diversity Champions: team leaders who act as internal

agents of change in all areas of the Company.

• Monitoring Committees for local Equality Plans.

They govern the Company's commitment to diversity and

inclusion:

1. The Global Diversity and Inclusion Policy:

guarantees equal opportunities and non-

discriminatory, fair and impartial treatment of

people in all areas of our Company, without

prejudice related to nationality, ethnic origin, skin

colour, marital status, family responsibility,

religion, age, disability, social status, political

opinion, HIV or health status, gender, sex, sexual

orientation, or gender identity or expression

2. The Diversity Policy in relation to the Board of

Directors and the Selection of Directors: ensures

that proposals to appoint or re-elect Directors

are based on a prior analysis of the

competencies required by the Board of

Directors, favouring diversity in terms of

knowledge, experience, age and gender.

3. Global Equality Policy: establishes the

Company's commitment to the implementation

and dissemination of a set of basic measures in

the area of gender equality in all countries where

the Group operates.

In order to move forward, the Company has marked out

plans of action with specific deadlines linked to public

and quantitative targets in the short, medium and long

term.

• In the short term, in addition to working to increase the

proportion of women in our workforce, we set a target

of achieving a situation in which 37% of our executive

positions are filled by women by 2027 and of an

adjusted gender pay gap of +/-1% by 2024 (we

achieved the latter target in2022). In addition, we want

to double the number of employees with disabilities by

2024.

• In the medium term, we aim to achieve gender parity in

the Company's highest governing bodies by 2030 .

With regard to the Board of Directors, this target was

accomplished in 2023, when women made up 40.0% of

the Board’s members. Meanwhile, in the long term we

aspire to close the gross gender pay gap (which

according to international estimates will not be

achieved globally until 2154 ).

Compliance with the target for women in executive

positions (37% by 2027) tripled its weight in the

calculation of our employees' variable compensation,

from 1% in 2021 to 3% in 2022.

Our Responsible Business Principles course, which is

mandatory for all employees, includes a training module

on workplace and sexual harassment. At a local level,

protocols for action in cases of workplace harassment or

bullying, sexual harassment and discrimination are put in

place in accordance with applicable legislation and,

where appropriate, with worker representatives. In

addition, in Telefónica Hispam, we use a tool leveraging

artificial intelligence that allows us to easily recognize

possible cases of harassment.

Furthermore, the whistleblowing channel allows all

employees and stakeholders to report, anonymously or

personally, any form of harassment or discrimination they

have experienced.

a) Equility of remuneration:

At Telefónica, we apply the principle of equal pay for the

same work or for work of equal value. That means equal

pay for equal work regardless of the employee's gender.

We conduct detailed analyses of gender pay data within

the Group in order to identify possible inequalities and

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establish measures to rectify them. We do this by taking

into consideration all items related to salary, benefits and

other short- and long-term incentives.

Closing the gross pay gap involves structural, social and

cultural changes that require a long-term commitment,

which is why we aspire to do so by 2050.

Telefónica is working on five lines of action to close the

gross gender pay gap:

• 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 the Company

and focusing particularly on executive positions (32.8%

in 2023) and income generation positions (49.4% in

2023, 40% in 2022).

• Promoting gender parity in the Company’s highest

governing bodies. In 2023, women made up 40% of the

members of the Board of Directors.

• Strengthening our commitment to work-life balance

and co-responsibility. Raising awareness and new

flexible working models are key elements in achieving

this.

• Increasing the weight and prominence of women in

digital and STEM environments. At present, 22.63% of

the Company’s STEM positions are held by women.

b) Diversity and inclusion

At Telefónica, we encourage the recruitment of female

talent, young talent and/or talented people with

disabilities through “Talentum” scholarships and other

initiatives.

In view of the limited participation of women in digital

professions, we promote initiatives to attract and increase

the visibility of women in digital and STEM careers

through a number of initiatives, including our internship

programs. In addition, we develop career acceleration

and visibility enhancement programs for female

employees, which aim to train them in leadership skills

and enrich their network of contacts.

Furthermore, we implement measures to facilitate 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 respect to people with disabilities, in line with our

target of doubling the number of employees with

disabilities by 2024, we promote their integration through

agreements with external entities, prioritising the search

for professional profiles that meet the Company's

technological and digital needs. We also provide the tools

and assistance necessary throughout their employee

journey to enable successful integration and

performance of their duties. In addition, we offer courses

and guides to ensure "attitudinal accessibility" on our

teams.

At the same time, we are committed to the accessibility of

our workplace facilities and services for employees, as

well as that of our digital resources by adapting computer

systems, channels and equipment.

In terms of generational diversity, we have programs for

talent development and empowerment of young

professionals. We are positive that attracting the best

young talent is key to driving digital transformation. In

addition, we promote internal mobility and the inclusion

of all age groups in our development programs. Also, we

have initiatives to promote the employability of those

aged over 50 and to promote intergenerational diversity.

Regarding racial diversity, in those locations where

legislation allows for it, we monitor the number of

employees by ethnicity and have initiatives to attract and

promote leadership among professionals from the "global

majority". Ultimately, we are working to close the ethnicity

pay gap and we foster the careers of people with a

migrant background in the technology sector.

We are also committed to ensuring that our LGBT+

employees work in environments where they can give

their best. In this regard, in addition to raising awareness

and visibility and to supporting employee resource

groups, we have specific initiatives to attract and

promote the development and well-being of transgender

people. Besides, through the guide to the gender

transitioning process at work, we aim to guide both the

transitioning employee and their manager through the

whole process.

We have also implemented measures that have an

impact on our employees’ families:

We offer specific benefits for LGBT+ couples and parents

that go beyond the legal requirements.

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 make

an effort to foster the procurement of services from

socially-oriented suppliers, particularly Special

Employment Centres.

The percentage of Telefónica employees who stated they

work in a company where they felt included, and where

equal opportunities were promoted, held at 91% in 2023,

according to the annual climate survey.

In addition, 84% (two p.p. above the 2022 results)

responded they believed that everyone's ideas are

listened to and properly taken into consideration,

regardless of who expresses them, their position, gender,

age, religion, sexual orientation and identity, ethnicity,

origin, disability or personal background.

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The Company is fully committed to inclusion and requires

both Management and the Board of Directors to share

this commitment. Prompted by this, in 2023 we organised

training sessions for the directors in which we addressed

all the pertinent strategic issues for the Company.

In 2023 we achieved gender parity on our Board of

Directors (understood as when each gender makes up

between 40% and 60% of its members), upon increasing

the percentage of women on the Board to 40%. In

addition, the percentage of women executives increased

by 1.8 p.p., reaching 32.8% in 2023. This brings us closer

to meeting our target of 37% by 2027. In relation to the

pay gap, we reduced the adjusted pay gap to 0.7%,

remaining in line with the Group-wide target of 1% by

2024.

New ways to work of working

Technology is the essential enabler to drive the culture of

working from anywhere. It also promotes a shift in the

approach to searching for and retaining human talent.

This is why, at Telefónica, we remain committed to a

hybrid working model (on-site and remote) across the

Group, which combines the best of both worlds. In

general, we set a minimum percentage for on-site

working and a maximum percentage for remote working,

adjusted to the different labour laws in the countries in

which we operate and, whenever possible, depending on

the nature of the position.

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 organisations in the countries where we operate.

There is a growing social demand for work-life balance.

At Telefónica, we strive to make it a reality. These efforts

are clearly reflected in the results from our annual

motivation survey, according to which 81% of our

employees feel they have a good work-life balance.

Thanks to our digital disconnection awareness initiatives,

plus the new ways of working we had put in place prior to

the pandemic, this percentage has risen by 13 points

since 2019.

Telefónica is improving the compatibility of different

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 make them more

digital, flexible and collaborative, in addition to a

commitment to digital disconnection (Telefónica was a

pioneer in this regard following an agreement signed in

2019 with trade union organisations) and the physical and

emotional well-being of our people, a part of this new

work model.

The leadership style and our culture also play a key role in

this transformation.

The key target for this new way of working is to boost

employee commitment and loyalty while evolving

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.

We want to continue to be a driving force behind working

models in which values such as well-being, flexibility,

work-life balance, co-responsibility and equal

opportunities are paramount. Our flexible working models

are a valuable tool for attracting and retaining talent as

well as providing access to new professionals located all

over the world.

Furthermore, through our commitment to flexibility, we

reduce commuting and, consequently, its environmental

impact. The move to adopt this hybrid working model was

also prompted by our goal of reducing our environmental

footprint (in line with the target of achieving net zero

emissions by 2040).

Technological development and globalisation are

redefining the way people work and creating a rapidly

changing environment in which swift responses are

necessary.

At Telefónica we are aware of the negative impact that

these new ways of working can have on the health and

safety of our employees, due to difficulties achieving

digital disconnection or because of a potential lack of

equipment or training. However, we believe that the tools

used to deliver these new ways of working also provide

an opportunity to develop hybrid, flexible and

collaborative working models that promote a healthy

work-life balance through measures that encourage

learning, disconnection and productivity.

• Some 94% of our employees consider that this hybrid-

flexible working system enables them to be more

productive.

• Among our employees, 81% (up seven percentage

points compared to 2021) believe that our Company

promotes a good work-life balance.

• In 2023, agile work methods were used in all Group

units: 52% of employees claim that they use some kind

of agile framework (scrum, kanban, design thinking,

lean thinking, etc.).This is an increase of eight

percentage points since 2022.

We developed the hybrid model by focusing on the

employee and his or her family and by looking out for their

digital health.

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In order to reinforce 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

organise teamwork in the best possible way.

We encourage co-responsibility for care among our male

and female employees through awareness initiatives, It

has been proved that cultures in which the weight of

family and domestic responsibilities falls mainly on

women are detrimental to their development and prevent

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 those at which replies are not

expected (except under exceptional circumstances), as

well as guidelines on planning and organising 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 measures and initiatives in place that help our

employees to achieve work-life balance and ensure their

well-being: flexible working hours, part-time work,

reduced working hours, the subsidised flexible working

week, paid and unpaid leave, extended leave for personal

reasons and hybrid working.

The food subsidy for employees with children, benefits

pertaining to nursery fees, personal days and maternity

and paternity leave, which often exceed the minimum

levels required by law, are factors which help our

employees attain a good work-life balance.

Within this hybrid model, our employees can decide

where they work (remote working, working from home or

working from their second home), provided the employee

is located in the same country where they signed the

employment contract.

Labour relations. Social dialogue

At Telefónica, we are committed to the core standards of

the International Labour Organization (ILO) in every

country where we operate, particularly with regard to

freedom of association and the right to collective

bargaining.

We ensure that worker representatives receive fair and

discrimination-free treatment and that all the tools they

need to be able to perform their duties of representation

are available to them.

100% of Telefónica’s employees are protected by labour

frameworks and, as the case may be, by their

employment contracts, which govern working conditions

under current local legislation. The collective bargaining

agreements include occupational health and safety

clauses adapted to local legislation. Additionally,

Telefónica has an annual prevention plan in place, as well

as mechanisms and procedures to promote employee

involvement in the management of the Company,

particularly in terms of information, consultation and

participation.

In the event of any significant organisational 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 included in collective

bargaining agreements or policies.

Security, health and working wellbeing

We continue to build a positive, person-oriented culture

of health, safety and well-being with a holistic approach

(workplace environment, mental well-being, the

promotion of health, physical activity and healthy eating)

to self-care and care for others.

Our goal is to achieve safe and healthy working

environments designed to make a positive contribution to

people’s health. We do this through:

• Improving psycho-social health through psycho-social

risk response and prevention programs. Psycho-social

risk assessments, which are part of these programs, can

enable us to reach a diagnosis.

• Reducing the accident rate. We want to be a zero-

accident company. In this respect, we have the target

of not exceeding the accident frequency rate set at

each operator.

The Sustainability and Regulation 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 and assessing risks

to prevent occupational incidents and diseases are set

out in the Global Health and Safety Policy, as well as in

the various local health and safety policies. These

processes vary from country to country but are all aimed

at eliminating hazards and minimising risks.

All our operations also have an Emergency Plan in place

under which teams of people who have received first aid

training can take action in the event of an emergency or

natural disaster. In addition, we have early warning

systems and specially trained teams (through drills)

prepared to deal with such events.

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,

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safety and well-being management systems, as well as

numerous health and awareness-raising campaigns.

93% of our employees are currently covered by a health,

safety and well-being management system. Of those,

73% are covered by a certified system (based on ISO

45001 or OHSAS 18001 standards).

In 2023 we focused on digitalising workforce

management and integrating employee occupational

health information into a single tool, setting a standard for

reporting and consolidating employee occupational

health data. This allows the entire company to report

information through a single, centralized and auditable

tool, applying automatic quality rules and consolidating

indicators according to common criteria, enabling overall

monitoring.

We once again organised Well-being Week in several

countries in 2023, during which we shared content on

emotional health, physical activity, healthy eating, self-

knowledge and happiness. We also organised a month

focusing on mental health.

On a global level, the Telefónica Group's annual health

and safety day was held in June 2023. This space allowed

us to share health and well-being experiences and to

make progress together towards a culture of prevention.

Liquidity and capital

resources

Financing

The main financing transactions carried out in the bond

market in 2023 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 (1)	11/21/2023	11/21/2033	850	850	EUR	4.183%

(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 2023 in the bank

market is as follows:

• The first one year extension option of the 5,500 million

euros syndicated credit facility of Telefonica, S.A., was

executed on January 13, 2023 and the second one year

extension option on January 13, 2024. The facility had

two annual extension options at Telefónica, S.A.

request, with a maximum maturity up to 2029.

• On February 14, 2023, Telefónica, S.A. signed a 150

million euros bilateral loan, and drew down in

September 29, 2023 the loan was fully draw down.

• On June 15, 2023, Telefónica, S.A. drew down 125

million euros of its bilateral loan signed in December 23,

2022.

Available funds

At December 31, 2023 Telefónica, S.A.’s available funds

from undrawn lines of credit in different financial

institutions totaled 9,688 million euros (of which 9,678

million euros maturing in more than 12 months).

Additionally, cash and cash equivalents as of December

31, 2023 amount to 4,668 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.

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, 2023, 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 2023, 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

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Individual Annual Report 2023    Telefónica, S. A.110

“Baa2 negative” and on September 5, 2016 Fitch

downgraded the rating to “BBB stable” from “BBB+

stable”.

In 2023, measures taken to protect the credit rating

included an active portfolio management through the

voluntary public acquisition offer for shares of Telefónica

Deutschland that reinforces Telefónica’s strategy to

focus on its core geographies and its strong commitment

to the German market, one of the most attractive and

stable telecom markets in Europe. The offer also supports

Telefónica’s efforts to simplify the Group’s structure and

enhances the euro-denominated cash flows generated in

the Group.

In addition, Telefónica Hispanoamérica entered into an

agreement with an affiliate of KKR and Entel Perú for the

sale of fiber assets and the provision of wholesale

connectivity services. The transaction is subject to the

obtaining of regulatory approvals. Finally, Telefónica at its

Capital Markets Day, announced the launch of the GPS

program (Growth, Profitability and Sustainability) that will

guide the  2023-2026 Strategic Plan.

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 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. 

In February 2023, Telefónica announced the dividend

policy for the year 2023, which consists of an amount of

0.30 euros per share in cash, payable in December 2023

(0.15 euros per share) and in June 2024 (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. 

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

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

2023 and 2022, as well as the explanation about the

evolution of the figure and the transactions involving

treasury shares in 2023, are described in note 11 of these

financial statements.

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Individual Annual Report 2023    Telefónica, S. A.111

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 operations, 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

document. 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.

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.

The reinforcement of competitors, the entry of new

competitors (such as telecommunication companies or

providers of OTT Services), or the merger of operators in

certain markets (for example, market consolidation

following potential mergers of mobile operators Vodafone

UK and Three UK in the United Kingdom and Orange and

Más Móvil in Spain), 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 markets in which

the Telefónica Group operates, such as in Chile,

Colombia, Peru, Mexico and Argentina, where there is

one or more of new operators entering the market,

aggressive customer acquisition offers and competition in

network and 5G deployment, can affect the competitive

position and the efficiency of Telefónica’s operations.

Regarding digital services, the speed of technological

evolution and changes in demand favoring the

appearance of new competitors in the market specializing

in certain segments, and that have agile business models,

can pose a threat for the business model of the

Telefónica Group.

If Telefónica is not able to successfully face these

challenges, by ensuring a supply of cutting-edge

technology products and services and maintaining its

competitiveness against current or future competitors,

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.

Many of the Group’s activities (such as the provision of

telephone services, Pay TV, the installation and operation

of telecommunications networks, use of spectrum, 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 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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Individual Annual Report 2023    Telefónica, S. A.112

license, new enforceable obligations could be imposed or

the renewal of a license could be refused.

In addition, the Telefónica Group requires sufficient

appropriate spectrum to offer its services. 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. While Telefónica considers its

current spectrum capacity to be sufficient in all the

regions in which Telefónica operates, the Group's failure

to retain or obtain sufficient or appropriate spectrum

capacity in these jurisdictions in the future, 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.

Any of the foregoing, as well as the additional matters

addressed below, 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.

In Spain, the Ministry of Economic Affairs and Digital

Transformation approved in June 2023 a modification to

the National Frequency Allocation Table ("CNFA"),

allowing for 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, the Office of Communications ("Ofcom")

continues to make consultations on the opening of

access to the 26 GHz and 40 GHz bands for mobile use.

Ofcom has confirmed that it does not intend to auction

this spectrum until a decision is made on the proposed

merger between Vodafone UK and Three UK. The current

consultation is focused on award design.

In Latin America, the following 5G auction processes are

expected in 2024: (i) in Chile, in October 2023, Subtel

announced a second 5G auction process to assign

50MHz of spectrum in the 3400 – 3600 MHz band. The

assignment of spectrum is expected for the first half of

2024; and (ii) in Peru, with regards to 5G and the auction

for additional 3.5 GHz band spectrum, the government

has announced that it will commission the Peruvian

Private Investment Promotion Agency to conduct the

auction and, in parallel, the refarming of this spectrum

band will be carried out. Nevertheless, on September 20,

2023, after an employee presented a false document

regarding his academic degree, Telefónica del Perú was

disqualified following a decision of the government

procurement supervisor (OSCE), from contracting with

the Peruvian state for a period of 36 months, meaning it

cannot request concessions for spectrum or participate

as a contractor or subcontractor in any government

tender process. However, Telefónica del Perú has

concessions for the provision of public

telecommunications services and 4G and 5G spectrum

(including in the same 3.5 GHz band, but obtained in a

previous auction) with validity that exceeds the

disqualification period. In addition, this disqualification

does not affect the renewals of Telefónica del Perú

licenses. Telefónica del Perú has initiated legal actions

against the sanction resolution, and the aforementioned

employee was fired and criminally prosecuted, before any

participation in the execution of the public contract.

Existing licenses: renewal processes and modification of

conditions for operating services.

In Spain, and in accordance with Law 11/2022, of June 28,

on General Telecommunications, Telefónica requested

the Administration to extend the duration of its spectrum

licenses up to a maximum of 40 years, which means an

extension of up to ten additional years. If this extension

does not take place, the first set of licenses will expire in

2030. In this context, the Ministry of Economic Affairs and

Digital Transformation has launched a public consultation

on the modification of current spectrum licenses of

Telefónica and other operators. The final decision could

be adopted in the second quarter of 2024.

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 (“BNetzA”) published the

consultation paper "Demand update and framework

conditions for a transitional decision" (framework

conditions). The framework conditions are based on the

BNetzA's position paper from September 2022 and the

comments received thereon. The framework conditions

provide for the existing frequency usage rights in the

above-mentioned frequency ranges, which expire at the

end of 2025, to be extended for a transitional period of

five years in an initial action plan. The BNetzA intends to

make a decision about frequency provision in 2024. As

part of a second set of actions, a larger procedural

framework is to be established for utilization from 2031

onwards, including with respect to rights of use and new

frequency ranges that expire in 2033 or become newly

available for mobile communications in the coming years.

A decision on this set of actions is planned for 2028. 

In the UK, mobile spectrum licenses are generally

indefinite in term, subject to an annual fee set after a fixed

period (usually 20 years) from the initial auction. In 2033,

after this mentioned fixed period, Ofcom will set

spectrum fees for 800 MHz and 2.6 Ghz bands. VMO2

currently holds spectrum in both of these bands.

With respect to Latin America:

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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 on March

22, 2023 was validated by the Federal Court of Accounts

(the “TCU”). However, the TCU requires ANATEL to

consider the market value for the valuation of reversible

assets. On July 24, 2023, ANATEL presented a balance of

the estimated economic value based on the

determinations of TCU. The value of the balance must be

evaluated by Telefonica Brazil within 120 days. However,

with the possibility of an agreement between ANATEL

and Telefónica Brazil on the controversies present in

arbitration and migration, ANATEL agreed with the

request to suspend the aforementioned period of 120

days and sent to the TCU the Request for a Consensual

Solution for the resolution of existing conflicts between

ANATEL and Telefónica Brazil. The TCU’s deliberation on

the admissibility of the Request for a Consensual Solution

is still ongoing. If the Request is accepted by the TCU, the

TCU will establish a Commission that will have a

maximum of 120 days to reach a consensus. After that,

final approval by the TCU may take up to 90 days. There

is a risk of not achieving success in the Consensual

Solution and agreement between the parties regarding

the migration calculation resulting in the right of

Telefónica Brazil to hold the STFC concession 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 TCU, 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 TCU. Nevertheless, the TCU minister

ordered the suspension of the process. ANATEL agreed

to extend the currently existing 850MHz band

authorizations until November 2028, and the 900/1800

MHz in Minas Gerais (except sector 3) until December

2032, provided the relevant legal and regulatory

requirements were met. Additionally, pursuant to

Resolution n° 757/2022, ANATEL intends to carry out,

respectively, a refarming action consisting of the

promotion of changes in the channel arrangements of the

850 MHz (2028) and 900/1800 MHz (2032) subbands. 

Certain specific requirements imposed for these

renewals, including those related to the valuation criteria

and obligations, are still under review by the TCU.

In Peru, an arbitration process was started by Telefónica

del Perú, 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 del Perú. 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, has initiated a new evaluation of our

request of renewal of these concessions for the period

2027-2032. In any case, 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, on June 1, 2023, Telefonica Colombia

submitted a renewal request for 30 MHz of spectrum in

the AWS band that expired in December 2023.

Additionally, in September 2023, the company has

initiated the licenses renewal process of 25 MHz in the

850 MHz band and 15 MHz licenses in the 1900 MHz

band that will expire in March 2024. Regulation in

Colombia allows for the usage of spectrum without any

restrictions until the final conditions for renewal are

agreed. 

In Argentina, in connection with the 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 modified the legal

status of those contracts, affecting the compliance with

their obligations and substantially depriving Telefónica

Argentina of essential rights derived from those

contracts. The lawsuit 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 1º, 2º, 3º, 5º and 6º 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 was adopted. On June 10, 2022,

the Federal Contentious Administrative Court extended

the precautionary suspension of the effects of DNU

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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. In August 2023, the

precautionary measure was further extended for six

months. During any such suspension, 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, a concession contract that authorizes the

provision of telecommunication services by Telefónica

and includes the spectrum licenses (25 MHz in the 850

MHz band and 60 MHz in the 1900 MHz band), which

was valid until November 2023, was extended for an

additional 10 months under the same conditions as the

original contract through an addendum. The renewal

negotiation is ongoing to extend the licenses for a longer

period, but at the end of 2023, the renewal negotiation

process was again suspended by the

Telecommunications Regulation and Control Agency

(ARCOTEL) for up to 120 days.

In relation to 5G, in Europe (Spain, Germany and the

United Kingdom) Telefónica (and VMO2 in the case of

United Kingdom) is deploying 5G in the frequency bands

identified as "pioneering" by the European Commission

(3.5 GHz and 700 MHz) acquired in recent years.

Additionally, technological migration to 5G is being

carried out in the traditional 2G/3G/4G bands using

Dynamic Spectrum Sharing (DSS) technology to make

the use of the spectrum more efficient, based on user

demand. In Chile and Brazil, Telefónica is offering 5G

services using spectrum in the 3.5 GHz band. In Uruguay,

Argentina and Colombia there were 5G spectrum

auctions in 2023. In Uruguay, an auction was held in May

2023 and Telefónica Uruguay acquired 100 MHz of

spectrum, with Telefónica having initiated the provision of

5G services. In Colombia the auction of 5G spectrum took

place on December 20, 2023 and Telefonica acquired,

through a Temporary Union with Tigo (Colombia Móvil

S.A. E.S.P.), a block of 80 MHz of spectrum in the 3.5GHz

band. In Argentina, in October 2023 there was an auction

of spectrum in the 3.5 GHz band and Telefónica

Argentina acquired 50MHz of spectrum.

During 2023, the Group’s consolidated investment in

spectrum acquisitions and renewals amounted to 183

million euros, mainly due to the acquisition of spectrum in

Argentina (173 million euros in 2022, mainly due to the

acquisition of spectrum in Colombia). 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 the 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, reduced output due to the

suppliers own stock shortfalls, or inappropriate practices),

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, 2023, 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 86%

and 80%, respectively, of the aggregate value of

contracts awarded in 2023 to handset suppliers and

network infrastructure suppliers, respectively. One of the

handset suppliers (not located in China) represented 48%

of the aggregate value of contracts awarded in 2023 to

handset suppliers. As of December 31, 2023, the

Telefónica Group had 120 information system ("IT")

providers that accounted for 80% of the total amount of

IT purchase awards made in 2023, five of them

representing 25% of purchases in that area.

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, the adoption of lockdown or other restrictive

measures as a result any crisis or pandemic, as well as

those derived from geopolitical tensions such as the

Russia-Ukraine and Israel-Hamas armed conflicts, among

others, 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

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increases, which could affect the Telefónica Group or

others who are relevant to its business, including its

customers, suppliers and partners. During 2021, 2022 and

2023 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

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. While

Telefónica's supply chain has been generally resilient in

recent years, despite various stresses affecting the

semiconductor industry and raw materials, this may

change in the future.

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.

Further, in its sale of digital services, the Telefónica Group

regularly integrates the digital services it offers with third-

party technologies. Similar to more traditional supplier

relationships, these integrations subject the Telefónica

Group to the risks of performance failures by these third

parties and the cost of continuously monitoring these

strategic partners to ensure they maintain appropriate

levels of accreditation and that the technologies they

provide remain secure and up to date. Any such

performance failure by the third parties or the

technologies they provide could negatively impact the

digital services offered by the Telefónica Group, and the

Group's business, financial condition, results of

operations and/or cash flows could be adversely affected

as a result.

Telefónica could be affected by the global

technology talent shortage and the need for

new skills in the workforce due to rapid

technological changes, which may limit the

Group's competitiveness.

The changing need for new skills in the workforce due to

ongoing technological disruptions and the shortage of

technology talent in the marketplace pose significant

risks that may affect the Group's competitiveness.

The successful execution of Telefónica's strategic plan

and our ability to compete effectively now and in the

future depend to a large extent on the company's key

talent, as well as on a highly skilled workforce.

Experienced profiles in the technology sector are in high

demand and competition for talent is fierce worldwide. A

lack of talent and the necessary skills in the Group can

slow down innovation and adaptation to rapid changes in

the sector, impacting business opportunities and the

quality of services provided.

While we take various steps to manage these risks,

including by fostering a culture of continuous learning,

though ambitious employee training and reskilling

programs, motivating and seeking to retain the Group's

key talent and by redefining our corporate culture to

ensure the company's long-term growth and

sustainability, there can be no assurance that such steps

will be sufficient.

If the Group fails to attract and retain technology talent,

this could negatively affect the Group's business,

financial condition, results of operations and/or cash

flows.

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 have been shrinking in recent years,

while revenues from connectivity services (e.g., fixed and

mobile internet) are increasing. To diversify revenue

sources, Telefónica offers new digital services such as

Internet of Things (IoT), cybersecurity, big data, Artificial

Intelligence and cloud services among others. Although

these services still have a lower weight in Telefónica's

total revenues, the related revenues grew in double digits

in 2023. Additionally, the world of telecommunications is

evolving towards a model of programmable networks and

services. This type of network can be used by

programmers in a completely new and different way than

it had been in the past. As a first big step, the GSMA is

leading the Open Gateway initiative for the standardized

exposure of APIs to developers. This is a totally new

market in which telecommunications companies must be

able to develop not only attractive services but new skills

in order to be successful.

One of the technologies currently being developed by

telecommunications operators, including Telefónica (in

Spain and Latin America), is the new FTTx type networks

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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. In Spain, Telefónica

plans to switch off all copper access loops by April 2024.

As of December 31, 2023, in Spain, fiber coverage

reached 29.3 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. Telefónica is constantly looking for co-

investments through Telefónica Infra.

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  2023 was

741 million euros (656 million euros in 2022), representing

1.8% of the Group’s revenues (1.6% in 2022). These figures

have been calculated using the guidelines established in

the Organization for Economic Co-operation and

Development (“OECD”) manual. Telefónica's investment

in CapEx in 2023 was 5,579 million euros (5,819 million

euros in 2022).

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  whose provision involves the

processing of large amounts of information and data. This

entails an enormous responsibility, while at the same time

increasing the challenges related to compliance with

strong and growing privacy and data protection

regulations throughout the Telefónica Group's footprint,

which may stifle the technological innovation that

characterizes it and to which the Group is committed.

Similarly, the Group's efforts to promote innovation may

result in increased compliance 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"), which is considered by the Group as

a common standard of compliance in all its operations,

even beyond the European Union. Additionally, the

European Union has initiated a data legislative strategy

that seeks to make the EU a leading space for the data-

driven society, allowing data to flow freely throughout the

territory and between different sectors. As a result, it is

expected that new regulatory obligations will be imposed

on operators.

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 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 European Economic

Area (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 legal and technical controls and mechanisms

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 most 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.

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With regard to the international transfer of data to the

United States, on July 10, 2023, the European

Commission adopted its adequacy decision for the EU-

U.S. Data Privacy Framework. The adequacy decision

concludes that the United States ensures an adequate

level of protection for personal data transferred from the

EU to U.S. companies participating in the EU-U.S. Data

Privacy Framework. This adequacy decision nevertheless

remains subject to challenge, and is expected to be

challenged, by privacy activists.

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, 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.

In Ecuador, the Organic Law on Data Protection, which is

aligned with the principles of the European GDPR, has

entered into force (including, since 2023, the sanctioning

regime). 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.

In addition, there are projects to reform Law 19.628 on the

Protection of Personal Data in Chile, and the Regulations

of Law 29.733 in Peru. There are regulatory projects

aimed at updating regulations in line with standards

similar to the GDPR, which may increase compliance risks

and costs. To limit the risks derived from international

transfers of personal data among Telefónica Group

companies, Group companies will adopt Telefónica

Group's Binding Corporate Rules (BCRs), which are

currently in the process of being approved by the

European data protection authorities. However there can

be no assurance that such rules will be sufficient to

ensure compliance with requirements in every jurisdiction

in which the Telefónica Group operates.

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, 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, have evolved 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

"Living Apps", “Connected Car”, “Smart Cities”, “Smart

Agriculture”, “Smart Metering” and "Solar 360" 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. In addition, Telefónica

has launched new customer care applications (My

Movistar in Spain, Me Vivo in Brazil, My O2 in the United

Kingdom) and developed a virtual assistant, Aura, with

the aim of increasing the accessibility of the products and

services we offer. However, there can be no assurance

that these and other efforts will be successful.

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Individual Annual Report 2023    Telefónica, S. A.118

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

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, often

with a high number of participants spread across

different countries, by focusing on the security measures

adopted by the Group’s providers and other third parties,

and, in particular, by ensuring the security of cloud

services provided by third parties.

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 provided by third parties. Thus, the risks

associated with their use has increased, forcing

companies to review the security controls beyond the

perimeter of the corporate network. Likewise, the

proliferation of IoT environments makes security

management more complicated, given their volume and

heterogeneous nature. All of the above, together with the

professionalization of cybercriminals and their financing

(which facilitates their adoption of emerging technologies

and techniques, such as machine learning and artificial

intelligence), is leading to an increase in the

sophistication of cybercrime and the use of automated

attack tactics that reduce the time frame that cyber-

defense teams have to protect a company's digital assets.

In addition, the Telefónica Group is aware of the possible

cybersecurity risks arising from the various international

conflicts, and is 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 even

result in regulatory penalties.

In particular, in the past three years, the Group has

suffered various types of cybersecurity incidents that

have included (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 in respect of services

provided by Telefónica. To date, none of these

cybersecurity incidents have 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

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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 or the theft of network elements, can damage

Telefónica's 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

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 Group, and may

have a negative impact on the Group’s operations and

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 these countries, such as economic uncertainty,

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.

In recent years, successive shocks have ushered in a

period characterized by extraordinary uncertainty and the

simultaneous occurrence of multiple negative

disruptions. Inflationary pressures arising from

bottlenecks associated with the rapid post-pandemic

recovery, coupled with increases in commodity prices, led

to a robust response from central banks (raising interest

rates and withdrawing liquidity from the system) and a

significant loss of purchasing power for consumers.

Additionally, the recent higher wage demands observed

internationally, reflecting both the strength of labor

markets, especially those in major developed economies,

and the prevalence (though to a lesser extent than in the

past) of wage indexation mechanisms, have also

contributed to these inflationary pressures.

There are also doubts about the timing of the conclusion

of the inflationary period, as geopolitical events such as

the Russia-Ukraine and the Israel-Hamas armed conflicts,

among others, negatively impact energy prices or

maritime transport. Moreover, there is a risk that the

decrease in global liquidity and elevated interest rates

could generate increased financial volatility, giving rise to

new stress episodes, as observed in the United Kingdom,

especially if inflation proves to be more persistent than

expected. Additionally, premature monetary easing by

central banks could lead to resurgent inflation, potentially

triggering a new stagflationary period akin to the 1970s.

Looking forward, elements that could worsen the effects

of the current situation include the escalation of armed

conflicts and potential disruptions to energy and goods

supply, as well as possible additional increases in

commodity prices. This could result in a potential de-

anchoring of inflation expectations and higher-than-

expected wage hikes, prolonging and amplifying the

inflation-recession scenario. As a consequence of the

above, economic growth is expected to remain weak in

the short term, with the risk of recession still present in

many parts of the world.

So far, the main European countries where the Group

operates have been affected by the ongoing geopolitical

conflicts mainly through the price channel (higher

commodity prices, intermediate inputs and salary costs,

among others), as their direct trade and financial

exposure is limited. However, there continues to be a

concern in Europe  about energy dependence in the face

of potential episodes of gas shortages. 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, 2023, the contribution of each

segment to the Telefónica Group's total assets was as

follows: Telefónica Spain 26.0% (25.5% as of December

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31, 2022), VMO2 7.5% (9.8% as of December 31, 2022),

Telefónica Germany 17.8% (17.5% as of December 31,

2022), Telefónica Brazil 25.0% (22.7% as of December 31,

2022) and Telefónica Hispam 14.4% (14.5% as of

December 31, 2022). 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 2023 and 2022.

During 2023, the contribution of each segment to the

Telefónica Group's revenues was as follows (does not

include VMO2 that is recorded by the equity method and

therefore does not contribute to the consolidated

revenues): Telefónica Spain 31.1% (31.2% in 2022),

Telefónica Germany 21.2% (20.6% in 2022), Telefónica

Brazil 23.7% (22.2% in 2022) and Telefónica Hispam 20.6%

(22.9% in 2022).

The main risks by geography are detailed below:

In Europe, there are several economic and political risks.

Firstly, the evolution of armed conflicts poses a threat to

growth and inflation prospects. Any worsening in the

supply of gas, oil, food, or other goods due to disruptions

in the transportation chain would negatively impact their

prices, with a consequent effect on the disposable

income of both households and businesses. In the

medium term, this could result in wage increases, a

persistent rise in inflation, and tighter monetary policy.

Any of the above could have a negative impact on the

cost of financing for the private sector, including

Telefónica, and could trigger episodes of financial stress.

In addition, there is also a risk of financial fragmentation in

the transmission of monetary policy in the eurozone,

meaning that interest rates may react differently in

different countries within the eurozone, leading to

differences in yields on bonds issued by peripheral

countries (such as Spain) and those issued by core

countries, making it challenging for the former to access

credit. Lastly, Europe faces two significant long-term

risks. First, a risk that Europe may fall behind in the global

technological race in particular because of its

dependence on several critical raw materials,

indispensable for key sectors, that must be imported from

other regions. Second, demographic factors such as

declining birth rates and population aging may have a

negative impact on the region's labor force and long-term

growth prospects.

Regarding political risk, the 2024 European Parliament

election may deepen political fragmentation and result in

a reduced representation of moderate positions in favor

of extreme options, potentially weakening governance

and hindering the implementation of the ongoing agenda

with respect to fiscal and economic matters, climate and

energy policy and other critical aspects of state

governance.

• Spain: there are several local sources of risks. One of

them stems from the risk that high commodity prices

and/or the emergence of wage pressures could

prolong the inflationary episode with a deeper impact

on household income. Secondly, and although the

disbursement of Next Generation 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, Spain

could be negatively impacted by the rise of

protectionism and trade restrictions. 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. In the long

term, the challenge is to increase potential growth

through productivity and ensure the sustainability of

public debt.

• Germany : the risk of energy shortages has diminished

in recent months due to Europe's response in terms  of

diversification of energy sources and the rapid

construction of regasification plants in the country.

However, it is  possible that problems with energy

supply may arise again. Gas flows (from Russia via

Ukraine) could be lower than expected, consumption

could be higher due, for example, to an unusually cold

winter, or competition for gas from other countries

could increase. On the other hand, there is concern

that higher-than-expected wage growth and/or higher

input costs could lead to a stronger and longer

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 ageing of the

population.

• United Kingdom : a slower disinflationary process than

previously expected could weigh on consumption and

further depress economic growth. In particular, there is

a concern that currently dynamic 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. 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

continue to entail an economic adjustment in the

medium term.

In Latin America, the exchange rate risk is currently

considered moderate by the Telefónica Group, except in

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Argentina and Venezuela, 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 fiscal

deterioration) but there is no assurance that this will be

the case.

• Brazil: fiscal sustainability and increased economic

intervention remain the main domestic risk, but it has

recently decreased. The new administration has

demonstrated its commitment to fiscal sustainability by

announcing a new fiscal framework to replace the

previous spending cap rule. Additionally, the Congress

has also voted favorably on the tax reform aimed at

simplifying the indirect tax system and promoting

stronger and sustainable economic growth. So far, the

economic measures announced by the new

administration have helped alleviate uncertainty

around economic policies, resulting in an upward

revision of Brazil's credit rating outlook by S&P. Risks

related to inflation and monetary policy have also

decreased with the approval and maintenance of the

inflation target at low levels. 

• Argentina: macroeconomic and exchange rate risks

remain high. The main internal challenges include

achieving the political and social consensus necessary

to reduce the public deficit and rebuild international

reserves in a context of high inflation, which jeopardizes

the achievement of the new administration's objectives.

On the external front, a global slowdown leading to

reduced demand for exported products and lower

prices would result in decreased foreign currency

inflows, increasing vulnerability to volatility in

international financial markets. Finally, the application

of price control measures and the still-existing

exchange restrictions could adversely affect

Telefónica's profitability.

• Chile, Colombia, Peru and Ecuador: 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. Inflation

is becoming more persistent than expected, which

could limit central banks' ability to respond to an abrupt

drop in activity levels and could also increase the risk of

financial instability. Political uncertainty has decreased

in Chile, following the  rejection of the new proposed

Constitution in December 2023, but the maintenance

of the former status quo could give rise to new social

demands. In Colombia, the structural reforms promoted

by Colombia's government are currently expected to

be more market friendly due to the weakening of the

government coalition. In Peru, the government

succeeded in reducing the social protests against the

installation of the new administration, although it

remains politically weak. In Ecuador, the new

government is dealing with a turbulent political

situation and internal violence, marked by an increase

in criminality. 

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, 2023, represented 17.9% of the

Group’s total assets), deferred tax assets (which as of

December 31, 2023, represented 6.0% of the Group’s

total assets) or other assets, such as intangible assets

(which represented 10.9% of the Group's total assets as of

December 31, 2023), and property, plant and equipment

(which represented 22.0% of the Group's total assets as

of December 31, 2023).  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 2023

impairment losses in the goodwill of Telefónica Ecuador

were recognized for a total of 58 million euros

(impairment losses in other assets of Telefónica Argentina

were recognized for a total of 77 million euros in 2022 and

impairment losses in the goodwill of Telefónica del Perú

were recognized for a total of 393 million euros in 2021). In

addition, VMO2, our 50:50 joint venture with Liberty

Global in the United Kingdom, recorded in 2023 an

impairment of goodwill amounting to 3,572 million euros,

with a negative impact of 1,786 million euros on the share

of (loss) income of investments accounted for by the

equity method in the consolidated income statement of

the Group.

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

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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.

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, 2023, the

Group's gross financial debt amounted to 37,061 million

euros (39,079 million euros as of December 31, 2022), and

the Group's net financial debt amounted to 27,349 million

euros (26,687 million euros as of December 31, 2022). As

of December 31, 2023, the average maturity of the debt

was 11.6 years (13.1 years as of December 31, 2022),

including undrawn committed credit facilities.

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, 2023, the Group's gross financial debt

scheduled to mature in 2024 amounted to 3,701 million

euros, and gross financial debt scheduled to mature in

2025 amounted to 3,900 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,

2023. As of December 31, 2023, the Telefónica Group had

undrawn committed credit facilities arranged with banks

for an amount of 11,315 million euros (11,148 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, 2023, 1.5% of the aggregate undrawn amount under

credit lines was scheduled to expire prior to December 31,

2024.

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, 2023, 89% 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 debt related interest payments for the

last 12 months excluding leases was 3.80% as of

December 31, 2023 compared to 3.96% as of December

31, 2022. To illustrate the sensitivity of financial expenses

to variations in short-term interest rates as of December

31, 2023: (i) a 100 basis points 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 25 million euros, whereas (ii) a 100 basis

points decrease in interest rates in all currencies (even if

negative rates are reached), would have led to a

reduction in financial expenses of 25 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

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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 17 million euros as of December 31,

2023 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 17 million

euros as of December 31, 2023. These calculations have

been made assuming a constant currency position with

an impact on profit or loss as of December 31, 2023 taking

into account derivative instruments in place.

In 2023, the evolution of exchange rates (without

considering the effects of hyperinflationary countries)

had a small positive impact on the Group's results,

increasing the year-on-year growth of the Group's

consolidated revenues by an estimated 0.2 percentage

points, and not impacting OIBDA (positive impact of 4.5

percentage points and 3.0 percentage points,

respectively, in 2022, mainly due to the evolution of the

Brazilian real). Furthermore, translation differences in

2023 had a positive impact on the Group's equity of 37

million euros (1,169 million euros in 2022). If the impacts of

hyperinflationary countries were considered, the adverse

impact of variations in currencies on our consolidated

results, statement of financial position and statement of

cash flows would have been higher.

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,

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 515 million euros and

provisions for regulatory contingencies amounting to 329

million euros as of December 31, 2023. In addition,

Telefónica Brazil faces possible tax and regulatory

contingencies for which no provisions are made. As of

December 31, 2023, the Telefónica Group maintained

contingent liabilities related to income tax, other taxes

and regulatory proceedings in Brazil amounting to 5,678

million euros, 6,909 million euros and 1,264 million euros,

respectively (see note 25-Tax Litigation in Telefónica

Brazil, to the Consolidated Financial Statements). 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,

2023 amounting to 3,117 million Peruvian soles

(approximately  761 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

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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,

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

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Individual Annual Report 2023    Telefónica, S. A.125

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 2023 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 2023 Consolidated Management

Report of Telefónica, S.A.

This document is also available in the public registers of

the National Securities Market Commission (CNMV).

	Index	Management report 2023

Individual Annual Report 2023    Telefónica, S. A.126