Annual Report (ESEF) • Feb 23, 2023
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Download Source File| Notes | 2022 | 2021 |
|---|---|---|
| ASSETS | ||
| A) NON-CURRENT ASSETS | 87,053 | 84,284 |
| Intangible assets (Note 6) | 12,017 | 11,725 |
| Goodwill (Note 7) | 18,471 | 16,519 |
| Property, plant and equipment (Note 8) | 23,714 | 22,725 |
| Rights of use (Note 9) | 8,279 | 7,579 |
| Investments accounted for by the equity method (Note 10) | 11,587 | 12,773 |
| Financial assets and other non-current assets (Note 12) | 8,101 | 7,347 |
| Deferred tax assets (Note 25) | 4,884 | 5,616 |
| B) CURRENT ASSETS | 22,589 | 24,929 |
| Inventories (Note 13) | 1,546 | 1,749 |
| Receivables and other current assets (Note 14) | 9,134 | 8,287 |
| Tax receivables (Note 25) | 2,213 | 2,120 |
| Other current financial assets (Note 15) | 2,444 | 3,835 |
| Cash and cash equivalents (Note 16) | 7,245 | 8,580 |
| Non-current assets and disposal groups held for sale (Note 30) | 7 | 358 |
| TOTAL ASSETS (A+B) | 109,642 | 109,213 |
| Notes | 2022 | 2021 |
|---|---|---|
| EQUITY AND LIABILITIES | ||
| A) EQUITY | 31,708 | 28,684 |
| Equity attributable to equity holders of the parent and other holders of equity instruments (Note 17) | 25,088 | 22,207 |
| Equity attributable to non-controlling interests (Note 17) | 6,620 | 6,477 |
| B) NON-CURRENT LIABILITIES | 54,834 | 55,034 |
| Non-current financial liabilities (Note 18) | 35,059 | 35,290 |
| Non-current lease liabilities (Note 20) | 6,657 | 6,391 |
| Payables and other non-current liabilities (Note 21) | 3,546 | 3,089 |
| Deferred tax liabilities (Note 25) | 3,067 | 2,602 |
| Non-current provisions (Note 24) | 6,505 | 7,662 |
| C) CURRENT LIABILITIES | 23,100 | 25,495 |
| Current financial liabilities (Note 18) | 4,020 | 7,005 |
| Current lease liabilities (Note 20) | 2,020 | 1,679 |
| Payables and other current liabilities (Note 22) | 13,509 | 13,210 |
| Current tax payables (Note 25) | 1,920 | 2,026 |
| Current provisions (Note 24) | 1,631 | 1,441 |
| Liabilities associated with non-current assets and disposal groups held for sale (Note 30) | — | 134 |
| TOTAL EQUITY AND LIABILITIES (A+B+C) | 109,642 | 109,213 |
The accompanying notes and appendices are an integral part of these consolidated statements of financial position.
| Notes | 2022 | 2021 | 2020 |
|---|---|---|---|
| Revenues (Note 26) | 39,993 | 39,277 | 43,076 |
| Other income (Note 26) | 2,065 | 12,673 | 1,587 |
| Supplies | (12,941) | (12,258) | (13,014) |
| Personnel expenses (Note 26) | (5,524) | (6,733) | (5,280) |
| Other expenses (Note 26) | (10,741) | (10,976) | (12,871) |
| OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION (OIBDA) | 12,852 | 21,983 | 13,498 |
| Depreciation and amortization (Note 26) | (8,796) | (8,397) | (9,359) |
| OPERATING INCOME | 4,056 | 13,586 | 4,139 |
| Share of income (loss) of investments accounted for by the equity method (Note 10) | 217 | (127) | 2 |
| Finance income | 1,803 | 614 | 677 |
| Exchange gains | 2,910 | 2,801 | 3,847 |
| Finance costs | (3,030) | (2,028) | (2,417) |
| Exchange losses | (2,996) | (2,751) | (3,665) |
| Net financial expense (Note 19) | (1,313) | (1,364) | (1,558) |
| PROFIT BEFORE TAX | 2,960 | 12,095 | 2,583 |
| Corporate income tax (Note 25) | (641) | (1,378) | (626) |
| PROFIT FOR THE YEAR | 2,319 | 10,717 | 1,957 |
| Attributable to equity holders of the parent | 2,011 | 8,137 | 1,582 |
| Attributable to non-controlling interests (Note 17) | 308 | 2,580 | 375 |
| Basic earnings per share (euros) (Note 26) | 0.31 | 1.34 | 0.22 |
| Diluted earnings per share (euros) (Note 26) | 0.31 | 1.34 | 0.22 |
The accompanying notes and appendices are an integral part of these consolidated income statements.
| 2022 | 2021 | 2020 | |
|---|---|---|---|
| Profit for the year | 2,319 | 10,717 | 1,957 |
| Other comprehensive (loss) income | 1,908 | 4,557 | (7,305) |
| Gains (losses) from financial assets measured at Fair value through other comprehensive income | (29) | 2 | 1 |
| Income tax impact | 9 | (1) | — |
| (20) | 1 | 1 | |
| Gains (losses) on hedges | 1,081 | 1,593 | (765) |
| Income tax impact | (282) | (395) | 183 |
| Reclassification of (gains) losses included in the income statement (Note 19) | (704) | (1,874) | 963 |
| Income tax impact | 181 | 478 | (250) |
| 276 | (198) | 131 | |
| Gains (losses) on hedges costs | (59) | 128 | (98) |
| Income tax impact | 15 | (32) | 24 |
| Reclassification of (gains) losses included in the income statement (Note 19) | (9) | (10) | (8) |
| Income tax impact | 2 | 3 | 2 |
| (51) | 89 | (80) | |
| Share of gains (losses) recognized directly in equity of associates and others (Note 10) | 65 | 32 | — |
| Income tax impact | — | — | — |
| 65 | 32 | — | |
| Translation differences (Note 17) | 1,562 | 4,098 | (7,236) |
| Total other comprehensive income (loss) recognized for the year that may be reclassified subsequently to profit or loss | 1,832 | 4,022 | (7,184) |
| Actuarial gains (losses) and impact of limit on assets for defined benefit pension plans | 102 | 130 | 33 |
| Income tax impact | (32) | (35) | — |
| Reclassification to reserve actuarial losses (gains) and impact of limit on assets for defined benefit pension plans (Note 2) | — | 392 | — |
| 70 | 487 | 33 | |
| Gains (losses) from financial assets measured at fair value through comprehensive income | 42 | 49 | (141) |
| Income tax impact | — | (1) | (13) |
| Reclassification to reserve of gains (losses) from financial assets measured at fair value through comprehensive income (Note 12) | 71 | — | — |
| 113 | 48 | (154) | |
| Share of (losses) gains recognized directly in equity of associates (Note 10) | (107) | — | — |
| (107) | — | — | |
| Total other comprehensive income (loss) recognized for the year that will not be reclassified subsequently to profit or loss | 76 | 535 | (121) |
| Total comprehensive income (loss) recognized for the year | 4,227 | 15,274 | (5,348) |
| Attributable to: | |||
| Equity holders of the parent and other holders of equity instruments | 3,519 | 12,652 | (4,286) |
| Non-controlling interests | 708 | 2,622 | (1,062) |
| 4,227 | 15,274 | (5,348) |
The accompanying notes and appendices are an integral part of these consolidated statements of comprehensive income.# Telefónica Group Consolidated statement of changes in equity for the year ended December 31
| Non-controlling interests (Note 17) | Total equity |
|---|---|
| Millions of euros | Share capital |
| Financial position at December 31, 2021 | 5,779 |
| Profit for the year | — |
| Other comprehensive income (loss) for the year | — |
| Total comprehensive income (loss) for the year | — |
| Dividends and distribution of profit (Note 17) | 135 |
| Net movement in treasury shares | — |
| Acquisitions and disposals of non-controlling interests and business combinations (Note 2) | — |
| Capital reduction | (139) |
| Undated deeply subordinated securities (Note 17) | — |
| Other movements | — |
| Financial position at December 31, 2022 | 5,775 |
The accompanying notes and appendices are an integral part of these consolidated statements of changes in equity.
| Non-controlling interests (Note 17) | Total equity |
|---|---|
| Millions of euros | Share capital |
| Financial position at December 31, 2020 | 5,526 |
| Profit for the year | 8,137 |
| Other comprehensive income (loss) for the year | 465 |
| Total comprehensive income (loss) for the year | 8,602 |
| Dividends and distribution of profit (Note 17) | 336 |
| Net movement in treasury shares | — |
| Acquisitions and disposals of non-controlling interests and business combinations (Note 17) | — |
| Capital reduction | (83) |
| Undated deeply subordinated securities (Note 17) | — |
| Other movements | — |
| Financial position at December 31, 2021 | 5,779 |
| Financial position at December 31, 2019 | 5,192 |
| Profit for the year | 1,582 |
| Other comprehensive income (loss) for the year | 23 |
| Total comprehensive income (loss) for the year | 1,605 |
| Dividends and distribution of profit (Note 17) | 334 |
| Net movement in treasury shares | — |
| Acquisitions and disposals of non-controlling interests and business combinations | — |
| Undated deeply subordinated securities and notes mandatorily convertible (Note 17) | — |
| Other movements | — |
| Financial position at December 31, 2020 | 5,526 |
The accompanying notes and appendices are an integral part of these consolidated statements of changes in equity.
| Millions of euros | Notes | 2022 | 2021 | 2020 |
|---|---|---|---|---|
| Cash received from operations (Note 28) | 46,925 | 46,415 | 51,353 | |
| Cash paid from operations (Note 28) | (34,778) | (34,379) | (36,477) | |
| Net payments of interest and other financial expenses net of dividends received (Note 28) | (292) | (1,309) | (1,171) | |
| Taxes (paid)/proceeds (Note 28) | (92) | (459) | (509) | |
| Net cash flow provided by operating activities (Note 28) | 11,763 | 10,268 | 13,196 | |
| (Payments on investments)/proceeds from the sale in property, plant and equipment and intangible assets (Note 28) | (5,508) | (6,164) | (7,020) | |
| (Payments)/proceeds on disposals of companies, net of cash and cash equivalents disposed (Note 28) | (115) | 13,369 | 81 | |
| Payments on investments in companies, net of cash and cash equivalents acquired (Note 28) | (1,628) | (414) | (79) | |
| Proceeds on financial investments not included under cash equivalents (Note 28) | 2,967 | 2,163 | 2,308 | |
| Payments on financial investments not included under cash equivalents (Note 28) | (2,575) | (1,474) | (3,297) | |
| Net proceeds/(payments) for temporary financial investments | 1,532 | (1,584) | 217 | |
| Net cash flow used in investing activities (Note 28) | (5,327) | 5,896 | (7,790) | |
| Dividends paid (Note 28) | (1,397) | (3,630) | (1,296) | |
| Proceeds from share capital increase with minority interest (Note 28) | 1,022 | — | 323 | |
| (Payments)/proceeds of treasury shares and other operations with shareholders and with minority interests (Note 28) | (555) | (604) | (223) | |
| Operations with other equity holders (Note 28) | (268) | (354) | (1,020) | |
| Proceeds on issue of debentures and bonds and other debts (Note 28) | 1,746 | 561 | 4,011 | |
| Proceeds on loans, borrowings and promissory notes (Note 28) | 839 | 3,085 | 4,516 | |
| Repayments of debentures and bonds and other debts (Note 28) | (3,541) | (5,847) | (6,728) | |
| Repayments of loans, borrowings and promissory notes (Note 28) | (3,077) | (4,146) | (2,852) | |
| Lease principal payments (Note 20) | (1,996) | (1,782) | (1,787) | |
| Financed operating payments and investments in property, plant and equipment and intangible assets payments (Note 28) | (698) | (273) | (382) | |
| Net cash used in financing activities (Note 28) | (7,925) | (12,990) | (5,438) | |
| Effect of changes in exchange rates | 156 | (179) | (402) | |
| Cash reclassified to assets held for sale (Note 30) | — | (7) | (4) | |
| Effect of changes in consolidation methods and others | (2) | (12) | — | |
| Net increase (decrease) in cash and cash equivalents during the year | (1,335) | 2,976 | (438) | |
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD (Note 16) | 8,580 | 5,604 | 6,042 | |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD (Note 16) | 7,245 | 8,580 | 5,604 |
| BALANCE AT THE BEGINNING OF THE PERIOD (Note 16) | 8,580 | 5,604 | 6,042 | |
|---|---|---|---|---|
| Cash on hand and at banks | 7,353 | 4,600 | 5,209 | |
| Other cash equivalents | 1,227 | 1,004 | 833 | |
| BALANCE AT THE END OF THE PERIOD (Note 16) | 7,245 | 8,580 | 5,604 | |
| Cash on hand and at banks | 6,653 | 7,353 | 4,600 | |
| Other cash equivalents | 592 | 1,227 | 1,004 |
The accompanying notes and appendices are an integral part of these consolidated statements of cash flows.
Telefónica, S.A. and its subsidiaries and investees (hereinafter also referred to as Telefónica, the Company, the Telefónica Group or the Group) make up an integrated and diversified telecommunications group operating mainly in Europe and Latin America. The Group’s activity is centered around services of fixed and wireless telephony, broadband, Internet, data traffic, Pay TV and other digital services. The parent company of the Group is Telefónica, S.A., a public limited company incorporated on April 19, 1924 for an indefinite period. Its registered office is at calle Gran Vía 28, Madrid (Spain). Appendix I lists the main companies composing the Telefónica Group, their corporate purpose, country, functional currency, share capital, the Group’s effective shareholding and their method of consolidation.
As a multinational telecommunications company which operates in regulated markets, the Group is subject to different laws and regulations in each of the jurisdictions in which it operates, pursuant to which permits, concessions or licenses must be obtained in certain circumstances to provide the various services. In addition, certain fixed and wireless telephony services are provided under regulated rate and price systems. Key regulatory issues, and concessions and licenses held by the Telefónica Group are detailed in Appendix VI.
The accompanying consolidated financial statements for the year ended December 31, 2022 were approved by the Company’s Board of Directors at its meeting on February 22, 2023 for submission for approval at the General Shareholders’ Meeting, which is expected to occur without modification.
The accompanying consolidated financial statements were prepared from the accounting records of Telefónica, S.A. and each of the companies comprising the Telefónica Group, whose separate financial statements were prepared in accordance with the generally accepted accounting principles applicable in the various countries in which they are located, and for the purposes of these consolidated financial statements are presented in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).# Consolidated Financial Statements 2022
These consolidated financial statements present fairly, in all material respects, the consolidated equity and financial position at December 31, 2022, and of the consolidated results of operations, changes in consolidated equity and the consolidated cash flows obtained and used in the year then ended. The euro is the Group’s reporting currency. The figures in these consolidated financial statements are expressed in million euros, unless indicated otherwise, and may therefore be rounded. Note 3 contains a detailed description of the most significant accounting policies used to prepare these consolidated financial statements.
These consolidated financial statements do not include certain information or disclosures that, not having to be presented due to their qualitative significance, were deemed to be immaterial or of no relevance pursuant to the concepts of materiality or relevance defined in the IFRS conceptual framework, insofar as the Telefónica Group’s consolidated financial statements, taken as a whole, are concerned.
For comparative purposes, the accompanying consolidated financial statements for 2022 include the figures for 2021, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows, and the notes thereto for the year then ended, on a voluntary basis, they also include those of 2020. The main events and changes in the consolidation scope affecting comparability of the consolidated information for 2022 and 2021 (see Appendix I for a detailed description of the consolidation scope and the changes during the year) are as listed below.
| Variation of average exchange rate vs euro | 2022 vs 2021 | 2021 vs 2020 |
|---|---|---|
| Brazilian real | 17.6% | (8.8%) |
| Pound sterling | 0.8% | 3.4% |
| New Peruvian sol | 13.7% | (13.2%) |
| Chilean peso | (2.2%) | 0.6% |
| Colombian peso | (0.6%) | (5.1%) |
| Mexican peso | 13.5% | 1.6% |
| Variation of closing exchange rate vs euro | 2022 vs 2021 | 2021 vs 2020 |
|---|---|---|
| Brazilian real | 13.5% | 0.9% |
| Pound sterling | (5.3%) | 6.9% |
| New Peruvian sol | 10.9% | (1.6%) |
| Chilean peso | 4.7% | (8.8%) |
| Colombian peso | (12.2%) | (6.6%) |
| Mexican peso | 11.5% | 5.4% |
In 2022, there was a positive impact on Equity attributable to equity holders of the Parent Company for translation differences amounting to 1,169 million euros (see Note 17.f), mainly due to the appreciation of the Brazilian real.
On May 7, 2020, Telefónica reached an agreement with Liberty Global plc to combine into a 50-50 joint venture their operating businesses in the United Kingdom (O2 Holdings Ltd. and Virgin Media UK, respectively). On June 1, 2021 after obtaining the relevant regulatory approvals, consummation of the necessary recapitalization and satisfaction of other closing conditions, the closing of the transaction was carried out, resulting in the combination of both businesses into the joint venture called VMED O2 UK Limited ("VMO2"). Telefonica United Kingdom, which was fully consolidated within the Group, is excluded from the scope of consolidation from June 1, 2021 (Note 4). From that date, VMO2 is registered under the equity method (see notes 4 and 10).
The constitution of the joint venture resulted in a contribution of 5,376 million pounds sterling (equivalent to 6,234 million euros at the transaction day) for Telefonica, of which 2,622 million pounds correspond to the cash payment to Telefónica to equalise ownership in the joint venture (including the post-completion adjustment, see Note 29.c) and 2,754 million pounds correspond to proceeds from recapitalization. As a consequence of this transaction, the Group recognized a gain amounting to 4,460 million euros in “Other income” in 2021 (see Note 26), as follows:
| Millions of euros | |
|---|---|
| Cash received | 6,234 |
| Fair value of 50% of VMO2 (Note 10) | 12,012 |
| Less: carrying amount of Telefonica United Kingdom at June 1, 2021 | (10,937) |
| Liabilities assumed and other costs (see Note 29.c) | (441) |
| Result before reclassification of translation differences and gains on hedges | 6,868 |
| Reclassification of translation differences included in equity | (3,135) |
| Reclassification of gains on hedges included in equity | 727 |
| Result of the transaction: gain | 4,460 |
In addition, the accumulated actuarial losses of Telefonica United Kingdom amounting to 392 million euros were reclassified to retained earnings, with no effect in net equity.
On January 13, 2021 Telxius Telecom, S.A. (a company of the Telefónica Group minority-owned, directly or indirectly, by KKR and Pontegadea), signed an agreement with American Tower Corporation ("ATC") for the sale of its telecommunications towers divisions in Europe (Spain and Germany) and in Latin America (Brazil, Peru, Chile and Argentina). The agreement established the sale of a number of approximately 30,722 telecommunication tower sites and comprises two separate and independent transactions (on one hand, the Europe business and, on the other hand, the Latin American business), fixing the respective closures after the corresponding regulatory authorizations. The agreement included the transfer to ATC of the towers that Telxius agreed to acquire from Telefónica Germany GmbH & Co. under the agreement signed on June 8, 2020, both the towers acquired in the first phase on September 1, 2020 as well as the towers that were acquired in the second phase in August 2021.
On June 1, 2021, once the relevant regulatory approvals had been obtained in Spain and Germany, the closing of the sale of the telecommunication towers division located in Europe was carried out, for a total selling price of 6,346 million euros. On June 3, 2021, the closing of the sale of the telecommunication towers division located in Latin America was carried out, for a selling price of 887 million euros. On August 2, 2021, the closing of the sale to ATC of 4,080 sites that Telxius undertook to acquire from Telefónica Germany GmbH & Co. OHG, under the second phase of the agreement reached between both parties on June 8, 2020 was carried out, which stated a total purchase price of 632 million euros. With the closing of this transaction, together with the sales of the telecommunications towers divisions in Europe and Latin America carried out in June, the sale process agreed between Telxius and ATC was finalized.
These transactions generated in 2021 a gain of 6,099 million euros registered in "Other income" (see Note 26), with the following breakdown:
| Millions of euros | |
|---|---|
| Selling price | 7,865 |
| Less: carrying amount of net assets and transaction costs | 1,729 |
| Result before reclassification of translation differences | 6,136 |
| Translation differences | (37) |
| Result of the transaction: gain | 6,099 |
| Income tax | (162) |
| Result attributable to non-controlling shareholders | (2,246) |
| Result attributable to equity holders of the parent | 3,691 |
After the closing of these transactions, the companies of the Europe and Latin América towers divisions were excluded from the consolidation perimeter. The Telefónica Group operators maintained the leases agreements of the towers signed with the sold subsidiaries of Telxius. Consequently, as of the closing date of the transactions, rights of use and lease liabilities were recorded in the consolidated statement of financial position, amounting to 2,633 million euros (see Note 9) and 2,775 million euros (see Note 20), respectively.
On April 20, 2022, the closing of the transaction related to the Purchase Agreement for Acquisition of Unidade Produtiva Isolada (UPI) Mobile Assets of Oi Group took place, and Telefónica Brasil acquired, on such date, all the shares of the company Garliava RJ Infraestrutura e Redes de Telecomunicações S.A. (Garliava), to which the mobile assets of Oi Group assigned to Telefónica Brazil had been contributed, under the segregation plan stated in the Oi Agreement (see Note 29.c).
Telefónica Brasil thus acquired its share of mobile assets of the Oi Group for an amount, still subject to adjustments, of 5,373 million Brazilian reais (approximately 1,063 million euros at the exchange rate at such date). A payment of 4,885 million Brazilian reais (approximately 972 million euros) was made at closing of the transaction. The remaining amount, equivalent to 10% of the payment made on that date, is withheld subject to certain price adjustments and potential indemnification obligations contained in the Oi Agreement. The total consideration also includes 110 million Brazilian reais subject to the fulfilment of certain targets, and other costs amounting to 8 million Brazilian reais. Thus, the total consideration transferred amounted to 5,492 million Brazilian reais (1,093 million euros at the date of the closing of the transaction).
On the date of approval of these consolidated financial statements, the Company had already concluded the report for the allocation of the purchase price. The fair value assigned to Oi's licenses amounts to 520 million euros. The goodwill amounts to 676 million euros (see Note 5).# Agreement between Telefónica de España and Telefónica Infra with Vauban Infrastructure Partners and Credit Agricole Assurance for the establishment of Bluevia
In July 2022, an agreement was reached between Telefonica de España and Telefonica Infra with the consortium formed by Vauban Infrastructure Partners (Vauban) and Crédit Agricole Assurances (CAA) for the establishment of a company, Bluevia Fibra, S.L. for the deployment and commercialization of a fiber to the home network mainly in rural areas in Spain. On December 20, 2022 once the regulatory authorizations were obtained and after the fulfillment of the remaining agreed conditions, the transaction was completed. The consortium formed by CAA and Vauban has acquired 45% of the Company for a total amount of 1,021 million euros in cash, paid on the closing of the agreement (see Note 28). The transaction had no impact on the consolidated income statements of the Telefónica Group as it consisted on the sale of minority interest, with Telefónica retaining control over Bluevia. The impact of this transaction in equity attributable to equity holders of the parent was an increase of 986 million euros in "Retained earnings". In addition, there was in increase in equity attributable to non-controlling interest amounting to 23 million euros (see Note 17). The difference between the tax value of the assets transferred to Bluevia and their carrying amount in the Group's consolidated annual accounts generated a deferred tax asset for deductible temporary differences amounting to 548 million euros (see Note 25).
On December 28, 2021, Telefónica Spain signed a Social Pact for Employment supported by the largest trade unions. Said Pact includes the Company’s differential commitments and is based on the following six lines of work: equality and diversity; new ways of working, flexibility and productivity; incorporation and retention of talent; reskilling and professional development; functional and geographical mobility; and a plan for the voluntary individual suspension of the employment relationship (the Individual Suspension Plan). The target audience of the Individual Suspension Plan are the employees turning 55 years or older in 2022 and with a seniority of more than 20 years. Maximum percentages of adhesion differ according to the areas. The present value of the estimated payment flows resulting from the Plan resulted in expenses amounting to 1,382 million euros before taxes in 2021 (see Note 24), reflected in "Personnel expenses" to the Consolidated Financial Statements).
In 2021 an impairment loss was recognized on the goodwill allocated to Telefónica del Perú, amounting to 393 million euros (see Note 7).
In addition to the measures expressly defined in the IFRS, the Group also uses a series of other measures for decision-making because they provide additional information useful to assess the Group’s performance, solvency and liquidity. These measures should not be viewed in isolation or as a substitute for the measures presented according to the IFRS.
Operating income before depreciation and amortization (OIBDA) is calculated by excluding solely depreciation and amortization from operating income. OIBDA is used to track the performance of the business and to establish operating and strategic targets of Telefónica Group companies. OIBDA is a commonly reported measure and is widely used among analysts, investors and other stakeholders in the telecommunications industry. However, it is not a measure expressly defined in the IFRS and therefore it may not be comparable to similar Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 13 indicators used by other companies. OIBDA should not be considered as a substitute for operating income. Furthermore, the Group management uses the measure OIBDA margin, which is the result of dividing the OIBDA by the revenues.
The following table presents the reconciliation of OIBDA to operating income for the Telefónica Group for the years ended December 31, 2022, 2021 and 2020:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| OIBDA | 12,852 | 21,983 | 13,498 |
| Depreciation and amortization | (8,796) | (8,397) | (9,359) |
| Operating income | 4,056 | 13,586 | 4,139 |
The OIBDA of 2021 includes the gains on the sale of the towers divisions of Telxius, amounting to 6,099 million euros and from the establishment of VMO2 amounting to 4,460 million euros (see Note 4).
The following table presents the reconciliation of OIBDA to operating income for each business segment for the years ended December 31, 2022, 2021 and 2020 (see Note 4):
| Millions of euros | Telefónica Spain | Telefónica United Kingdom | Telefónica Germany | Telefónica Brazil | Telefónica Hispam | Other companies | Eliminations | Total Group |
|---|---|---|---|---|---|---|---|---|
| OIBDA | 4,588 | — | 2,558 | 3,732 | 1,958 | 94 | (78) | 12,852 |
| Depreciation and amortization | (2,157) | — | (2,295) | (2,369) | (1,799) | (218) | 42 | (8,796) |
| Operating income | 2,431 | — | 263 | 1,363 | 159 | (124) | (36) | 4,056 |
| Millions of euros | Telefónica Spain | Telefónica United Kingdom | Telefónica Germany | Telefónica Brazil | Telefónica Hispam | Other companies | Eliminations | Total Group |
|---|---|---|---|---|---|---|---|---|
| OIBDA | 3,377 | 919 | 2,424 | 3,138 | 1,718 | 10,648 | (241) | 21,983 |
| Depreciation and amortization | (2,153) | — | (2,394) | (1,918) | (1,873) | (356) | 297 | (8,397) |
| Operating income | 1,224 | 919 | 30 | 1,220 | (155) | 10,292 | 56 | 13,586 |
| Millions of euros | Telefónica Spain | Telefónica United Kingdom | Telefónica Germany | Telefónica Brazil | Telefónica Hispam | Other companies | Eliminations | Total Group |
|---|---|---|---|---|---|---|---|---|
| OIBDA | 5,046 | 2,064 | 2,309 | 3,188 | 990 | 359 | (458) | 13,498 |
| Depreciation and amortization | (2,184) | (389) | (2,394) | (1,965) | (2,274) | (468) | 315 | (9,359) |
| Operating income | 2,862 | 1,675 | (85) | 1,223 | (1,284) | (109) | (143) | 4,139 |
OIBDA-CapEx is defined as operating income before depreciation and amortization, reduced by accrued capital expenditures, and OIBDA-CapEx excluding spectrum acquisitions is defined as operating income before depreciation and amortization, reduced by accrued capital expenditures excluding those related to spectrum acquisitions. Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 14
We believe that it is important to consider capital expenditures, and capital expenditures excluding spectrum acquisitions, together with OIBDA in order to have a more complete measure of the performance of our telecommunications businesses. We use these measures internally to track the performance of our business, to establish operating and strategic targets of the businesses of the Group and in our internal budgeting process. Neither OIBDA-CapEx nor OIBDA-CapEx excluding spectrum acquisitions are measures expressly defined in IFRS, and therefore they may not be comparable to similar indicators used by other companies. In addition, neither OIBDA-CapEx nor OIBDA-CapEx excluding spectrum acquisitions should be considered substitutes for operating income, the most comparable financial measure calculated in accordance with IFRS, or any measure of liquidity calculated in accordance with IFRS. The Group management also uses the measures OIBDA- CapEx margin and OIBDA-CapEx excluding spectrum acquisitions margin, which is the result of dividing these measures by revenues.
In the table below we provide a reconciliation of our OIBDA-CapEx and OIBDA-CapEx excluding spectrum acquisitions to operating income for the periods indicated.
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Operating income | 4,056 | 13,586 | 4,139 |
| Depreciation and amortization | (8,796) | (8,397) | (9,359) |
| OIBDA | 12,852 | 21,983 | 13,498 |
| Capital expenditures in intangible assets (Note 6) | (1,530) | (2,981) | (1,266) |
| Capital expenditures in property, plant and equipment (Note 8) | (4,289) | (4,286) | (4,595) |
| CapEx | (5,819) | (7,267) | (5,861) |
| OIBDA-CapEx | 7,033 | 14,716 | 7,637 |
| Spectrum acquisitions (Note 6) | 173 | 1,704 | 126 |
| OIBDA-CapEx excluding spectrum acquisitions | 7,206 | 16,420 | 7,763 |
As calculated by us, net financial debt includes:
(A) adding the following liabilities:
i. Current and non-current financial liabilities in our consolidated statement of financial position (which includes the negative mark-to-market value of derivatives),
ii. Other liabilities included in "Payables and other non- current liabilities" and "Payables and other current liabilities" (mainly corresponding to payables for deferred payment of radio spectrum that have an explicit financial component and supplier financing for customer financing of terminal sales), and
iii. Financial liabilities included in "Liabilities associated with non-current assets and disposal groups held for sale".
(B) subtracting the following amounts from the resulting amount of the preceding step:
i. "Cash and cash equivalents",
ii. "Other current financial assets" (which include short-term derivatives),
iii. Cash and other current financial assets included in "Non-current assets and disposal groups held for sale",
iv. The positive mark-to-market value of derivatives with a maturity beyond one year,
v. Other interest-bearing assets (included in "Financial assets and other non-current assets", "Receivables and other current assets" and "Tax receivables" in our consolidated statement of financial position),
vi. Mark-to-market adjustment by cash flow hedging activities related to debt, and
vii. Fair value of derivatives adjustment used for the economic hedging of gross commitments related to employee benefits.
In 2022, the classification of these derivatives within the Group's debt indicators has been revised, and these are now presented together with the "Net commitments related to employee benefits". This change in the presentation allows us to include in the same section the economic underlying and the derivative associated with the hedged risk.As a result, the effects on the underlying and the economic hedge are offset, avoiding distortions resulting from being registered under different headings, particularly at times of strong volatility, as has occurred in recent months compared to previous years. The totals of "Net financial debt plus commitments" and "Net financial debt plus leases plus commitments" are not affected by this presentation change. The new criteria has been applied retroactively, so the figures at December 31, 2021 have been restarted accordingly. With respect to step (B)(v), "Financial assets and other non-current assets" includes derivatives, installments for the long-term sales of terminals to customers and other long-term financial assets, and "Receivables and other current assets" includes the customer financing of terminal sales classified as short-term. In 2022, other liabilities included in "Payables and other current liabilities" and other assets included in "Receivables and other current assets" of points (A)(ii) and (B)(v), respectively, have been reviewed, including non-material changes in the customer financing of terminal sales and the resulting changes have been applied retroactively to the net financial debt figures as of December 31, 2021.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 15
We calculate net financial debt plus leases by adding lease liabilities calculated under IFRS 16 (including those corresponding to the companies held for sale) to net financial debt and deducting assets from subleases. We calculate net financial debt plus commitments by adding gross commitments related to employee benefits and the fair value of the derivatives used for the economic hedging of such commitments to net financial debt, and deducting the value of long-term assets associated with those commitments related to employee benefits and the tax benefits arising from the future payments of those commitments related to employee benefits. Gross commitments related to employee benefits are current and non-current provisions recorded for certain employee benefits such as termination plans, post-employment defined benefit plans and other benefits. We believe that net financial debt, net financial debt plus leases, net financial debt plus commitments and net financial debt plus leases plus commitments are meaningful for investors and analysts because they provide an analysis of our solvency using the same measures used by our management. We use them to calculate internally certain solvency and leverage ratios. Nevertheless, none of them as calculated by us should be considered as a substitute for gross financial debt as presented in the consolidated statement of financial position.
The following table presents a reconciliation of net financial debt, net financial debt plus leases, net financial debt plus commitments and net financial debt plus leases plus commitments as of December 31, 2022 and 2021 to the Telefónica Group’s gross financial debt as indicated in the consolidated statement of financial position.
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Non-current financial liabilities | 35,059 | 35,290 |
| Current financial liabilities | 4,020 | 7,005 |
| Gross financial debt | 39,079 | 42,295 |
| Cash and cash equivalents | (7,245) | (8,580) |
| Other current financial assets | (2,431) | (3,823) |
| Cash and other current financial assets included in "Non-current assets and disposal groups held for sale" (Note 30) | — | (7) |
| Positive mark-to-market value of long-term derivative instruments (Note 12) | (2,668) | (2,772) |
| Other liabilities included in "Payables and other non- current liabilities" | 1,431 | 933 |
| Other liabilities included in "Payables and other current liabilities" | 402 | 635 |
| Other assets included in "Financial assets and other non-current assets" | (1,892) | (1,808) |
| Other assets included in "Receivables and other current assets" | (646) | (659) |
| Other current assets included in "Tax receivables" (Note 25) | (123) | (250) |
| Financial liabilities included in "Liabilities associated with non-current assets and disposal groups held for sale" (Note 30) | — | 35 |
| Mark-to-market adjustment by cash flow hedging activities related to debt | 1,102 | 22 |
| Fair value of derivatives adjustment used for the economic hedging of gross commitments related to employee benefits | (322) | 65 |
| Net financial debt | 26,687 | 26,086 |
| Lease liabilities | 8,645 | 8,080 |
| Net financial debt plus leases | 35,332 | 34,166 |
| Gross commitments related to employee benefits and associated economic hedging | 5,291 | 6,272 |
| Value of associated long-term assets | (104) | (94) |
| Tax benefits | (1,281) | (1,626) |
| Net commitments related to employee benefits | 3,906 | 4,552 |
| Net financial debt plus commitments | 30,593 | 30,638 |
| Net financial debt plus leases plus commitments (*) | 39,238 | 38,718 |
(*) Includes assets and liabilities considered to be Net financial debt plus leases plus commitments related to employee benefits for companies classified as held for sale (see Note 30).
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 16
Free Cash Flow
The Group’s free cash flow is calculated starting from "Net cash flow provided by operating activities" as indicated in the consolidated statement of cash flows; deducting (Payments on investments)/Proceeds from the sale of investments in property, plant and equipment and intangible assets, net, adding the cash received from government grants, deducting dividends paid to non-controlling interests and payments of financed spectrum without explicit interest. The cash used to pay for commitments related to employee benefits (included in the Net cash flow provided by operating activities) is added back since it represents the payments of principal of the debt incurred with those employees. We believe that free cash flow is a meaningful measure for investors and analysts because it provides an analysis of the cash flow available to protect solvency levels and to remunerate the parent company’s shareholders and other equity holders. The same measure is used internally by our management. Nevertheless, free cash flow as calculated by us should not be considered as a substitute for the various cash flows presented in the consolidated statements of cash flows.
The following table presents the reconciliation between the Telefónica Group’s Net cash flow provided by operating activities as indicated in the consolidated statement of cash flows and the free cash flow for 2022, 2021 and 2020:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Net cash flow provided by operating activities | 11,763 | 10,268 | 13,196 |
| (Payments on investments)/Proceeds from the sale of property, plant and equipment and intangible assets, net (Note 28) | (5,508) | (6,164) | (7,020) |
| Dividends paid to non-controlling interests (Note 28) | (438) | (410) | (471) |
| Payments for commitments related to employee benefits (Note 28) | 853 | 844 | 963 |
| Payments of financed spectrum without explicit interest (Notes 21 and 28) | (108) | (108) | (87) |
| Free Cash Flow excluding lease principal payments | 6,562 | 4,430 | 6,581 |
| Lease principal payments (Notes 20 and 28) | (1,996) | (1,782) | (1,787) |
| Free Cash Flow | 4,566 | 2,648 | 4,794 |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 17
Note 3. Accounting policies
As stated in Note 2, the Group’s consolidated financial statements have been prepared in accordance with IFRSs and interpretations issued by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee (IFRIC) as endorsed by the European Commission for use in the European Union (IFRSs - EU). Accordingly, only the most significant accounting policies used in preparing the accompanying consolidated financial statements, in light of the nature of the Group’s activities, are set out below, as well as the accounting policies applied where IFRSs permit a policy choice, and those that are specific to the sector in which the Group operates.
a) Hyperinflationary economies
Venezuela has been considered a hyperinflationary economy since 2009. In light of the worsening of the economic and political crisis in Venezuela and in the absence of official rates that are representative of the situation in the country, the Group maintains as a policy for the purposes of the consolidated financial statements the estimation of an exchange rate, known as synthetic exchange rate, that matches the progression of inflation and reflects the economic and financial position of the Group’s Venezuelan operations in a more accurate way. The synthetic exchange rate is calculated considering the inflation rates that are published. On an annual basis, these rates are 174.3%, 686.4% and 2,959.8% for 2022, 2021 and 2020, respectively. The exchange rate used to translate inflation-adjusted bolivar-denominated items in the consolidated financial statements is the synthetic exchange rate as of the closing date of each reporting period, amounting to 45.18 digital bolivars per U.S. dollar, 16.47 digital bolivars per U.S. dollar and 2,094,405 bolivars per U.S. dollar as of December 31, 2022, 2021 and 2020, respectively. In turn, the official reference exchange rate at December 31, 2022 was 17.489 VED/USD (4.597 VED/USD and 1,107,199VES/ USD at December 31, 2021 and 2020, respectively). The use of a synthetic exchange rate versus the official reference exchange rate does not have a significant impact given the contribution of Telefónica Venezolana to the consolidated financial position and to the Group's results and cash flows for the year. In 2018 Argentina became a hyperinflationary economy. In order to restate its financial statements, the Company uses the series of indices defined by resolution JG No.# Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
539/18 issued by the Federación Argentina de Consejos Profesionales de Ciencias Económicas (FACPCE), based on the National Consumer Price Index (IPC) published by the Instituto Nacional de Estadística y Censos (INDEC) of the Argentine Republic and the Wholesale Internal Price Index (IPIM) published by FACPCE. The cumulative index at December 31, 2022, 2021 and 2020 is 1,134.6%, 582.5% and 385.9%, respectively, while on an annual basis the index for 2022 is 95% (51% and 36% in 2021 and 2020, respectively). The exchange rate used to translate inflation-adjusted items denominated in Argentine pesos in the 2022 financial statements is the closing exchange rate as of December 31, 2022 which was 189.08 Argentine pesos per euro (116.37 and 103.23 Argentine pesos per euro at December 31, 2021 and 2020, respectively). The Group includes in a single line item ("Translation Differences") all the equity effects derived from hyperinflation. This is as follows: (a) the restatement for inflation of the financial statements of the Group companies operating in hyperinflationary economies, and (b) the effects of translating their respective financial statements into euros using the exchange rate at the end of the period.
The income statements and statements of cash flows of the Telefónica Group’s foreign subsidiaries (except Venezuela and Argentina) were translated into euros at the average exchange rates for the year, as a rate that approximates the exchange rates at the dates of the transactions.
After initial recognition, goodwill is carried at cost, less any accumulated impairment losses. Goodwill is recognized as an asset denominated in the currency of the company acquired and is tested for impairment annually at the least, or more frequently, if there are certain events or changes indicating the possibility that the carrying amount may not be fully recoverable. The potential impairment loss is determined by assessing the recoverable amount of the cash generating unit (or group of cash generating units) to which the goodwill is allocated from the acquisition date.
Intangible assets are carried at acquisition or production cost, less any accumulated amortization or any accumulated impairment losses. Intangible assets are amortized on a straight-line basis according to the following:
Property, plant and equipment is carried at cost less any accumulated depreciation and any accumulated impairment in value. Cost includes, among others, direct labor used in installation and the allocable portion of the indirect costs required for the related asset. The latter two items are recorded as revenue under the concept Own work capitalized of the line item Other income. Interest and other financial expenses incurred and directly attributable to the acquisition or construction of qualifying assets are capitalized. Qualifying assets for the Telefónica Group are those assets that require a period of at least 18 months to bring the assets to the condition necessary for their intended use or sale. The Group’s subsidiaries depreciate their property, plant and equipment, from the time they can be placed in service, amortizing the cost of the assets, net of their residual values on a straight-line basis over the assets’ estimated useful lives, which are calculated in accordance with technical studies that are revised periodically in light of technological advances and the rate of dismantling, as follows:
| Years of estimated useful life |
|---|
| Buildings |
| 25 – 40 |
| Plant and machinery |
| 5 – 25 |
| Furniture, tools and other items |
| 2 – 10 |
Non-current assets, including goodwill, intangible assets and investments in associates and joint ventures, are assessed at each reporting date for indicators of impairment. Whenever such indicators exist, or in the case of assets which are subject to an annual impairment test, the recoverable amount is estimated. An asset’s recoverable amount is the higher of fair value less costs to sell and 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 that reflects current market assessments of the time value of money and the risks specific to the asset, provided that the result obtained is the same that would be obtained by discounting pre-tax cash flows at a pre-tax discount rate. The Group bases the calculation of impairment on the approved business plans of the various cash generating units to which the assets are allocated. The projected cash flows, based on the approved strategic business plans, cover a period of five years. Starting with the sixth year, an expected constant growth rate is applied.
The determination of whether an arrangement is, or contains a lease is based on the substance of the agreement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset and the agreement conveys a right to the use of the asset. At the inception date of the lease (i.e. the date when the underlying asset is available for use), a lessee recognizes a right of use asset that represents the right to use the underlying asset over the term of the lease, and a lease liability for the present value of the lease payments payable over the lease term – discounted using the incremental borrowing rate at the start date of the lease. Rights of use assets are measured at cost, less accumulated depreciation and impairment losses, and are adjusted for any remeasurement of lease liabilities. The cost of rights of use assets includes the amount of initial direct costs incurred and lease payments made before the commencement date less incentives received. Right- of-use assets are depreciated on a straight-line basis over the shorter of the estimated useful life of the underlying asset and the lease term.
Lease payments include fixed payments (including in- substance fixed payments) less any lease incentive receivable, variable lease payments that depend on an index or rate, and amounts expected to be paid as residual value guarantees. Similarly, the measurement of the lease liability includes the exercise price of a purchase option, if the lessee is reasonably certain to exercise that option, and payments of penalties for early termination, if the lease term reflects the lessee exercising such cancellation option. After the commencement date, the amount of the lease liabilities is increased to reflect the accrual of interest and reduced for the payments made. In addition to this, the carrying amount of the lease liability is remeasured in certain cases, such as changes in the lease term, changes in future lease payments resulting from a change in an index or rate used to determine those payments. The amount of such remeasurement is generally recognized against an adjustment to the right- of-use asset. The Group uses the "low value" asset lease recognition exemption for office equipment and the short-term lease recognition exemption for all leases with a term of 12 months or less. Therefore, lease payments in such cases are recognized as an expense on a straight-line basis over the lease term. The Group recognizes non-lease components separately from lease components for those classes of assets in which non-lease components are significant with respect to the total value of the arrangement. The Group determines the lease term as the non- cancellable term of the contract, together with any period covered by an extension (or termination) option whose exercise is discretionary for the Group, if there is reasonable certainty that it will be exercised (or it will not be exercised). In its assessment, the Group considers all available information by asset class in the industry and evaluates all relevant factors (technology, regulation, competition, business model) that create an economic incentive to exercise or not a renewal/cancellation option. Notably, the Group takes into consideration the time horizon of the strategic planning of its operations. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control that may affect its ability to exercise (or not to exercise) an option to extend or terminate (for example, a change in business strategy). Where the Group acts as a lessor, leases are classified between operating and finance leases.# Leases
Leases in which the lessor retains a significant portion of the risks and rewards of ownership of the leased asset are treated as operating leases. Otherwise, the lease is a finance lease.
The Group assesses whether it has significant influence not only on the basis of its ownership percentage but also on the existence of qualitative factors such as representation on the board of directors of the investee, its participation in decision-making processes, interchange of managerial personnel and access to technical information. The Group assesses rights and obligations agreed to by the parties to a joint arrangement and, when relevant, other facts and circumstances in order to determine whether the joint arrangement in which it is involved is a joint venture or a joint operation. Upon the sale or contribution of a controlled business to an associate or joint venture, the Group measures and recognizes any retained interest at its fair value. Any difference between the carrying amount of the business contributed and the fair value of the retained investment and the consideration received from disposal is recognized in full in profit or loss.
All regular way purchases and sales of financial assets are recognized in the statement of financial position on the trade date, i.e. the date that the Company commits to purchase or sell the asset. The Group applies an impairment model for financial assets based on expected credit losses, using a simplified method for certain short- and long-term assets (commercial receivables, lease receivables and contractual assets). Under this simplified approach, credit impairment is recognized by reference to expected credit losses over the life of the asset. For this purpose the Group uses matrices based on historical bad debt experience by geographical area on a portfolio segmented by customer category according to credit pattern. The matrix for each category has a defined time horizon divided into intervals in accordance with the collection management policy and is fed with historical data that covers at least 24 collection cycles. This data is updated on a regular basis. Based on the information observable at each close, the Group assesses the need to adjust the rates resulting from these matrices, considering current conditions and future economic forecasts.
The accounting treatment of any gain or loss resulting from changes in the fair value of a derivative depends on whether the derivative in question meets all the criteria for hedge accounting and, if appropriate, on the nature of the hedge.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 20
Changes in fair value of derivatives that qualify as fair value hedging instruments are recognized in the income statement, together with changes in the fair value of the hedged asset or liability attributable to the risk being hedged. Changes in the fair value of derivatives that qualify and have been designated as cash flow hedges, which are highly effective, are recognized in equity. The ineffective portion is recognized immediately in the income statement. Fair value changes recognized in equity arising from hedges that relate to firm commitments or forecast transactions that result in the recognition of non-financial assets or liabilities are included in the initial carrying amount of those assets or liabilities. Otherwise, changes in fair value previously recognized in equity are recognized in the income statement in the period in which the hedged transaction affects profit or loss. An instrument designated to hedge foreign currency exposure from a net investment in a foreign operation is accounted for in a similar manner to cash flow hedges. When the Group chooses not to apply hedge accounting criteria, gains or losses resulting from changes in the fair value of derivatives are taken directly to the income statement. In this respect, transactions used to reduce the exchange rate risk of income contributed by foreign subsidiaries are not treated as hedging transactions.
Materials stored for use in investment projects and inventories for consumption and replacement are valued at the lower of weighted average cost and net realizable value. Inventories include audio-visual rights which will generally be consumed in a period of less than twelve months, and advanced payments to suppliers for future rights, as well as own content whose production cycle will in no case exceed thirty-six months. The cost of film, documentary, short film and series rights acquired from third parties is charged to the income statement on a straight-line basis from the time of first broadcasting or release until the completion of the rights. Broadcasting rights to football and motor sports events, including their inherent production costs, are charged to the income statement on a straight-line basis over twelve months from the start of the season, while rights to other premium sports are charged over the period of the competition. All other sports rights are recognized in the income statement upon first broadcast. In-house produced programs and series and program titles are charged at the time of their broadcast or up to thirty-six months from the date of release, depending on their nature and broadcasting strategy. The cost of in- house productions that the Group expects to recover through sale to third parties is recognized as an intangible asset. The cost of broadcasting rights that have expired or whose recovery value is estimated to be lower than the acquisition cost is recognized directly as an expense.
Provisions required to cover the accrued liability for defined benefit pension plans are determined using the projected unit credit actuarial valuation method. The calculation is based on demographic and financial assumptions determined at a country level, and in consideration of the macroeconomic environment. The discount rates are determined based on high quality market yield curves. Plan assets are measured at fair value. Provisions for post-employment benefits (e.g. early retirement or other) are calculated individually based on the terms agreed with the employees. In some cases, these may require actuarial valuations based on both demographic and financial assumptions.
The Telefónica Group revenues are derived principally from providing the following telecommunications services: traffic, connection fees, regular (normally monthly) network usage fees, interconnection, network and equipment leasing, handset sales and other digital services such as Pay TV and value-added services or maintenance. Products and services may be sold separately or bundled in promotional packages. Revenues from calls carried on Telefónica’s networks (traffic) entail an initial call establishment fee plus a variable call rate, based on call length, distance and type of service. Both fixed and wireless traffic is recognized as revenue as service is provided. For prepaid calls, the amount of unused traffic generates deferred revenues presented in Contractual liabilities on the statement of financial position. Revenues from traffic sales and services at a fixed rate over a specified period of time (flat rate) are recognized on a straight-line basis over the term covered by the rate paid by the customer. Installation fees are taken to the income statement on a straight-line basis over the related period. Equipment leases and other services are taken to the income statement as they are consumed. Interconnection revenues from fixed-wireless and wireless-fixed calls and other customer services are recognized in the period in which the calls are made.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 21
Revenues from handset and equipment sales are recognized once the sale is considered complete, i.e., generally when delivered to the end customer. When the Group is in an intermediary position between a supplier/vendor and an end customer, it must determine if it is supplying the product or service as the principal in the transaction or if it is acting as an agent on behalf of the supplier (manufacturer, wholesaler). The distinction determines who controls the goods or services being provided and who has the primary obligation to satisfy the performance obligation. This assessment affects the timing and amount of revenue recognized in the financial statements, either on a gross basis as the principal or on a net basis as the agent, representing the margin earned by the Group for arranging the transaction between the principal and the customer. This is particularly relevant for the Group in connection with digital services such as streaming TV content and cloud-based software. For bundled packages that include multiple elements sold in the fixed, wireless, Internet and television businesses it is determined whether it is necessary to identify the separate performance obligations and apply the corresponding revenue recognition policy to each one. Total package revenues are allocated among the identified performance obligations based on their respective standalone selling prices. As connection or initial activation fees, or upfront non- refundable fees, are not separately identifiable performance obligations in these types of packages, any consideration received from the customer for these items is allocated to the remaining elements. When the customer has a right of return, the agreed consideration is considered variable.# Consolidated Financial Statements 2022
The Group estimates the amount of variable consideration to which it is entitled using the expected value method (probability-weighted possible amounts), considering all historical, current and forecast information that is reasonably available, and only to the extent that it determines that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Expenses relating to customer contracts (mainly, commissions payable to dealers for customer acquisitions) are recognized as an asset to the extent that they are incremental and are expected to be recovered. Subsequently, these costs are amortized over the same term as the revenues associated with such contract are recognized, unless the expected amortization period is one year or less, in which case they are expensed as incurred.
As part of our strategy, the Group has increased its use of renewable energy through power purchase agreements (PPAs) to purchase energy from sustainable sources, such as wind and solar. These contracts often have a long term and provide the Group with a mechanism to ensure the supply of green energy at fixed prices. When these arrangements involve physical delivery of electricity and are entered into for the purpose of receiving the energy for the entity’s expected purchase, sale or usage requirements (i.e. volume agreed does not exceed actual and expected power needs), the contract is for “own use” and is generally accounted for as power purchases or sales when the underlying transactions take place.
m) Non-current assets held for sale
The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell and are presented separately in the statement of financial position as “Non-current assets and disposal groups held for sale” and “Liabilities associated with non-current assets and disposal groups held for sale”. Once classified as held for sale property, plant and equipment and intangible assets (including right-of-use assets) are no longer depreciated or amortized.
The criteria for held for sale classification is regarded as met only when the Group determines the sale to be highly probable: management is committed to a decision to sell and all actions required to complete the sale indicate that it is unlikely that significant changes to the sale will be made or that the decision will be withdrawn. In addition, the asset or disposal group is available for immediate sale in its present condition (subject only to terms that are usual and customary for such transactions) and the sale is expected to be completed within one year from the date of the classification.
n) Use of estimates
The key assumptions concerning the future and other relevant sources of uncertainty in estimates at the reporting date that could have a significant impact on the consolidated financial statements within the next financial year are discussed below. A significant change in the facts and circumstances on which these estimates and related judgments are based could have a material impact on the Group’s results and financial position. Accordingly, sensitivity analysis are disclosed for the most relevant situations (see Notes 7 and 24).
The accounting treatment of investments in non-current assets such as property, plant and equipment, intangible assets and interests in associates and joint ventures, entails the use of estimates to determine the useful life for depreciation and amortization purposes and to assess fair value at their acquisition dates for assets acquired in business combinations.
Determining useful life requires making estimates in connection with future technological developments and alternative uses for assets. There is a significant element of judgment involved in making technological development assumptions, since the timing and scope of future technological advances are difficult to predict. Also, upon the sale or contribution of a controlled business to an associate or joint venture, the Group measures and recognizes any retained interest at its fair value. The fair value assigned to the retained investment is determined on the basis of its business plan, including significant judgments when considering significant assumptions such as long-term OIBDA margin, long-term capital expenditure ratio, discount rate and perpetuity growth rate which would be significantly affected by the future trends in the economic, competitive, regulatory and technological environment.
The decision to recognize an impairment loss involves developing estimates that include, among others, an analysis of the causes of the potential impairment, as well as its timing and expected amount. Furthermore, additional factors, such as technological obsolescence, the suspension of certain services and other circumstantial changes, which highlight the need to evaluate a possible impairment, are taken into account. The Telefónica Group evaluates its cash-generating units’ performance on a regular basis to identify potential impairments of goodwill and other non-current assets. Determining the recoverable amount of the cash-generating units also entails the use of assumptions and estimates and requires a significant element of judgment.
The Group 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 tax terms within the legal framework the Group is subject to. Such recoverability ultimately depends on the Group’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, as well as estimates of taxable earnings, which are sourced from internal projections that are continuously updated to reflect the latest trends. The recognition 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 Group company income tax receipts and payments could differ from the estimates made by the Group as a result of changes in tax legislation, the outcome of underway tax proceedings or unforeseen future transactions that could affect tax balances.
Provisions are recorded when, at the end of the period, we have a present obligation as a result of past events, whose settlement requires an outflow of resources that is considered probable and can be measured reliably. This obligation may be legal or constructive, arising from, but not limited to, regulation, contracts, common practice or public commitments, which have created a valid expectation for third parties that we will assume certain responsibilities. The amount recorded is the best estimation performed by the management in respect of the expenditure that will be required to settle the obligations, considering all the information available at the closing date, including the advice of external experts, such as legal advisors or consultants. Should we be unable to reliably measure the obligation, no provision would be recorded and information would then be presented in the notes to the Consolidated Financial Statements. Because of the inherent uncertainties in this estimation, actual expenditures may be different from the originally estimated amount recognized.
Bundled offers that combine different elements are assessed to determine whether it is necessary to separate the different identifiable components and apply the corresponding revenue recognition policy to each element. Total package revenues are allocated among the identified elements based on their respective standalone selling prices. Determining standalone selling prices for each identified element requires estimates that are complex due to the nature of the business. A change in estimates of standalone selling prices could affect the apportionment of revenue among the elements and, as a result, the timing of recognition of revenues.
Accounting for rights and obligations as a lessee under a lease contract requires the use of estimations to determine the lease term in contracts that include extension options or early termination options. Determining the lease term involves making estimates over the time horizon of the Group's strategic planning process with respect to relevant factors such as expected technological progress, possible regulatory developments, market and competition trends or changes in the business model. The assumptions regarding these variables involve a significant degree of judgment to the extent that the timing and nature of future changes are difficult to anticipate. Due to the uncertainties inherent to these estimates, changes in the assumptions made in respect of uncertain matters when determining the lease term of a lease contract may have an impact on the amounts of the right of use assets and lease liabilities recognized on the basis of the estimates made by the Group.
The accounting policies applied in the preparation of the consolidated financial statements for the year ended December 31, 2022 are consistent with those used in the preparation of the Group’s consolidated annual financial statements for the year ended December 31, 2021, with the exception of the following new standards and amendments to existing standards issued by the IASB and adopted by the European Union for application in Europe, which are mandatory for annual periods beginning on or after January 1, 2022. The application of these amendments for the current reporting period did not have a significant impact on the consolidated financial statements of the Group. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these amendments.
The amendments to IAS 37 clarify that when assessing whether a contract is onerous, an entity needs to include all unavoidable costs that relate directly to a contract, including both incremental costs and an allocation of costs directly related to fulfilling contract activities. The Group applied the amendments to the contracts for which it had not fulfilled all of its obligations at the beginning of the reporting period.
Minor amendments were made to update the references to the Conceptual Framework for Financial Reporting and to add an exception to the recognition principle in IFRS 3 Business Combinations regarding liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and Interpretation 21 Levies. The exception requires entities to apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the Conceptual Framework, to determine whether a present obligation exists at the acquisition date. The amendments to IFRS 3 also clarify that contingent assets do not qualify for recognition at the acquisition date.
The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment, any proceeds of the sale of items produced while the entity is preparing the asset for its intended use (including while assessing technical and physical performance of the asset). Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those items, in profit or loss.
As part of the annual improvements finalized in May 2020, IFRS 9 Financial Instruments was amended to clarify which fees should an entity include when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf.
At the date of preparation of the consolidated financial statements, the following IFRS and amendments to existing standards had been published, but their application is not mandatory:
| Standards and amendments | Mandatory application: annual periods beginning on or after |
|---|---|
| IFRS 17 (and subsequent amendments) Insurance Contracts | January 1, 2023 |
| Amendments to IAS 1 Disclosure of Accounting Policies | January 1, 2023 |
| Amendments to IAS 8 Definition of Accounting Estimates | January 1, 2023 |
| Amendments to IAS 12 Deferred Tax related to Assets and Liabilities Arising from a Single Transaction | January 1, 2023 |
| Amendments to IAS 1 Classification of Liabilities as Current or Non-current | January 1, 2024 |
| Amendments to IAS 1 Non-current Liabilities with Covenants | January 1, 2024 |
| Amendments to IFRS 16 Lease Liability in a Sale and Leaseback | January 1, 2024 |
Based on the assessment performed to date, the Group estimates that the adoption of these new pronouncements will not have a significant impact on the consolidated financial statements in the initial period of application. In particular, the Group has made further progress in its assessment to identify contracts that meet the definition of insurance contracts and are therefore within the scope of IFRS 17 Insurance Contracts, but the Group estimates that the future application of the new requirements will not have a significant impact on consolidated equity upon first-time adoption.
In 2022 the Telefónica Group is reporting financial information, both internally and externally, according to the following segments: Telefónica Spain, VMO2 (recorded by the equity method), Telefónica Germany, Telefónica Brazil and Telefónica Hispam (formed by the Group's operators in Colombia, Mexico, Venezuela, Ecuador, Argentina, Chile, Peru and Uruguay).
During 2021, compared to 2020, the Telefónica Group changed its reporting segments as follows:
(i) On June 1, 2021, upon the establishment of the VMO2 joint venture (whose results are accounted for under the equity method), the former Telefónica United Kingdom segment was replaced by the new VMO2 segment (see notes 2 and 10). The 2021 results include the consolidation of Telefónica United Kingdom from January 1 to June 1, and the equity accounting of 50% of the net result of VMO2 from June 1 to December 31 (see Note 10). The gain registered on the establishment of VMO2, amounting to 4,460 million euros (see notes 2 and 26), are recorded in "Other companies".
(ii) The Telxius Group ceased to be a reporting segment as a result of the sale of the telecommunications towers divisions in Europe and Latin America (see Note 2). The Telxius Group’s results as well as the gain obtained for the sale of the telecommunications towers divisions, amounting to 6,099 million euros (see notes 2 and 26), were recorded in "Other companies".
The impairment losses on goodwill and other assets of Telefónica Argentina recorded in 2020, the impairment loss on goodwill of Telefónica del Perú in 2021 (see Note 7) and the impairment losses on other assets of Telefonica Argentina in 2022 (see notes 6 and 8), are included in the Telefónica Hispam segment.
The segments referred to above include the information relating to the fixed, mobile, cable, data, internet, television and other digital services businesses provided in each country. Intersegment transactions are carried out as if on an arm's length basis.
Information relating to other Group companies not specifically included in these segments is reported under "Other companies" (see Appendix I), which includes Telefónica, S.A. and other holding companies, as well as companies whose main purpose is to provide cross- sectional services to Group companies and other operations not included in the segments.The Incremental Group and BE-terna Group, acquired in 2022, and Cancom Group, acquired in 2021 (see Note 5), are reported within "Other companies". "Other companies" also includes the share of results of investments accounted for by the equity method corresponding to the fiber optic companies incorporated in 2021 and 2022 (see Note 10).
The Group centrally manages borrowing activities, mainly through Telefónica, S.A. and other companies (see Note 19, Appendix III and Appendix V), so most of the Group's financial assets and liabilities are reported under Other companies. In addition, Telefónica, S.A. is the head of the Telefónica tax group in Spain (see Note 25). Therefore, a significant part of the deferred tax assets and liabilities is included under Other companies.
For these reasons, the results of the segments are disclosed through operating income. The "Eliminations" of the Group at OIBDA level mainly reflected the leases of Telxius Group (in 2020 and 2021, up to the date of sale of these companies) to other Telefónica Group companies, due to the asymmetry in accounting between lessor and lessee under IFRS 16. This impact is mostly offset at operating income level. Revenues and expenses arising from intra-group invoicing for the use of the trademark and management services were eliminated from the operating results of each Group segment. The results of the holding companies also exclude dividends from Group companies and impairments of investments in Group companies. These adjustments have no impact on the Group’s consolidated results.
In addition, segment reporting considers the impact of the purchase price allocation to the assets acquired and the liabilities assumed by the companies included in each segment. The assets and liabilities presented in each segment are those managed by the heads of each segment, regardless of their legal structure.
26 The following table presents income, CapEx information (capital expenditures in intangible assets and property, plant and equipment, see Notes 6 and 8) and acquisitions of rights of use (see Note 9) regarding the Group’s operating segments:
| Millions of euros | Telefónica Spain | VMO2 | Telefónica Germany | Telefónica Brazil | Telefónica Hispam | Other companies | Eliminations | Total Group |
|---|---|---|---|---|---|---|---|---|
| Revenues | 12,497 | — | 8,224 | 8,870 | 9,141 | 3,243 | (1,982) | 39,993 |
| External revenues | 12,224 | — | 8,195 | 8,854 | 9,026 | 1,685 | 9 | 39,993 |
| Intersegment revenues | 273 | — | 29 | 16 | 115 | 1,558 | (1,991) | — |
| Other operating income and expenses(1) | (7,909) | — | (5,666) | (5,138) | (7,183) | (3,149) | 1,904 | (27,141) |
| OIBDA | 4,588 | — | 2,558 | 3,732 | 1,958 | 94 | (78) | 12,852 |
| Depreciation and amortization | (2,157) | — | (2,295) | (2,369) | (1,799) | (218) | 42 | (8,796) |
| Operating income | 2,431 | — | 263 | 1,363 | 159 | (124) | (36) | 4,056 |
| Share of income (loss) of investments accounted for by the equity method | (15) | 292 | — | — | (19) | (41) | — | 217 |
| CapEx | 1,550 | — | 1,209 | 1,795 | 1,058 | 212 | (5) | 5,819 |
| Acquisitions of rights of use | 724 | — | 594 | 596 | 514 | 17 | 3 | 2,448 |
(1) Other operating income and expenses includes “Other income”, “Supplies”, “Personnel expenses” and “Other expenses”.
27
| Millions of euros | Telefónica Spain | Telefónica United Kingdom | VMO2 | Telefónica Germany | Telefónica Brazil | Telefónica Hispam | Other companies | Eliminations | Total Group |
|---|---|---|---|---|---|---|---|---|---|
| Revenues | 12,417 | 2,628 | — | 7,765 | 6,910 | 8,362 | 3,059 | (1,864) | 39,277 |
| External revenues | 12,156 | 2,609 | — | 7,738 | 6,897 | 8,258 | 1,628 | (9) | 39,277 |
| Intersegment revenues | 261 | 19 | — | 27 | 13 | 104 | 1,431 | (1,855) | — |
| Other operating income and expenses(1) | (9,040) | (1,709) | — | (5,341) | (3,772) | (6,644) | 7,589 | 1,623 | (17,294) |
| OIBDA | 3,377 | 919 | — | 2,424 | 3,138 | 1,718 | 10,648 | (241) | 21,983 |
| Depreciation and amortization | (2,153) | — | — | (2,394) | (1,918) | (1,873) | (356) | 297 | (8,397) |
| Operating income | 1,224 | 919 | — | 30 | 1,220 | (155) | 10,292 | 56 | 13,586 |
| Share of (loss) income of investments accounted for by the equity method | (2) | — | (103) | — | — | (6) | (16) | — | (127) |
| CapEx | 1,815 | 933 | — | 1,284 | 2,069 | 978 | 206 | (18) | 7,267 |
| Acquisitions of rights of use(2) | 482 | 389 | — | 833 | 489 | 387 | 113 | (254) | 2,439 |
(1) Other operating income and expenses includes “Other income”, “Supplies”, “Personnel expenses” and “Other expenses”.
(2) Additionally, rights of use in the amount of 2,633 million euros have been recorded in 2021 following the sale of the tower division of Telxius (see Note 9).
28
| Millions of euros | Telefónica Spain | Telefónica United Kingdom | Telefónica Germany | Telefónica Brazil | Telefónica Hispam | Other companies | Eliminations | Total Group |
|---|---|---|---|---|---|---|---|---|
| Revenues | 12,401 | 6,708 | 7,532 | 7,422 | 7,922 | 2,647 | (1,556) | 43,076 |
| External revenues | 12,118 | 6,666 | 7,500 | 7,406 | 7,786 | 1,610 | (10) | 43,076 |
| Intersegment revenues | 283 | 42 | 32 | 16 | 136 | 1,037 | (1,546) | — |
| Other operating income and expenses(1) | (7,355) | (4,644) | (5,223) | (4,234) | (6,932) | (2,288) | 1,098 | (29,578) |
| OIBDA | 5,046 | 2,064 | 2,309 | 3,188 | 990 | 359 | (458) | 13,498 |
| Depreciation and amortization | (2,184) | (389) | (2,394) | (1,965) | (2,274) | (468) | 315 | (9,359) |
| Operating income | 2,862 | 1,675 | (85) | 1,223 | (1,284) | (109) | (143) | 4,139 |
| Share of income (loss) of investments accounted for by the equity method | (4) | — | — | — | 6 | — | 2 | 2 |
| CapEx | 1,408 | 913 | 1,094 | 1,372 | 833 | 454 | (213) | 5,861 |
| Acquisitions of rights of use | 138 | 116 | 1,159 | 768 | 364 | 378 | (909) | 2,014 |
(1) Other operating income and expenses includes “Other income”, “Supplies”, “Personnel expenses” and “Other expenses”.
29
The table below shows the income, CapEx and acquisitions of rights of use of VMED O2 UK (VMO2) in 2022 and 2021 (see Note 2). VMO2 is a joint venture 50% owned by Telefónica and Liberty Global and is recorded under the equity method (see Note 10). The tables below show the information of the joint venture at 100% and the reconciliation with the Telefónica Group's share of income (loss) accounted for by the equity method.
| Millions of euros | January-December 2022 | June 1 to December 31, 2021 |
|---|---|---|
| Revenues | 12,155 | 7,223 |
| Other operating income and expenses | (7,754) | (4,773) |
| OIBDA | 4,401 | 2,450 |
| Depreciation and amortization | (4,170) | (2,395) |
| Operating income | 231 | 55 |
| Share of income (loss) of investments accounted for by the equity method | 1 | — |
| Financial income | 24 | 27 |
| Financial expenses | (1,020) | (504) |
| Realised and unrealised gains on derivative instruments, net | 2,567 | 489 |
| Foreign currency transaction losses, net | (1,296) | (367) |
| Net financial expense | 275 | (355) |
| Result before taxation | 507 | (300) |
| Income tax | (15) | 65 |
| Result for the period (100% VMO2) | 492 | (235) |
| 50% attributable to Telefónica Group | 246 | (117) |
| Share-based compensation | 14 | 14 |
| Other adjustments | 32 | — |
| Share of income (loss) of investments accounted for by the equity method | 292 | (103) |
| Capital expenditures (CapEx) | 2,707 | 1,508 |
| Acquisitions of rights of use | 118 | 75 |
30
The following table presents main assets and liabilities by segment:
| Millions of euros | Telefónica Spain | VMO2 | Telefónica Germany | Telefónica Brazil | Telefónica Hispam | Other companies | Eliminations | Total Group |
|---|---|---|---|---|---|---|---|---|
| Fixed assets | 14,285 | — | 11,602 | 18,217 | 7,870 | 2,237 | (9) | 54,202 |
| Rights of use | 1,722 | — | 3,277 | 2,048 | 1,169 | 100 | (37) | 8,279 |
| Investments accounted for by the equity method | 252 | 10,779 | — | — | 146 | 410 | — | 11,587 |
| Financial assets and other non-currents assets | 875 | — | 992 | 984 | 1,578 | 6,082 | (2,410) | 8,101 |
| Deferred tax assets | 2,395 | — | 463 | 485 | 612 | 929 | — | 4,884 |
| Other current financial assets | 32 | — | 34 | 162 | 222 | 7,435 | (5,441) | 2,444 |
| Non-current assets and disposal groups held for sale | — | — | — | — | — | 7 | — | 7 |
| Total allocated assets | 27,917 | 10,779 | 19,142 | 24,875 | 15,951 | 26,288 | (15,310) | 109,642 |
| Non-current financial liabilities | 2,089 | — | 1,510 | 653 | 2,502 | 30,425 | (2,120) | 35,059 |
| Non-current lease liabilities | 1,317 | — | 2,663 | 1,531 | 1,115 | 45 | (14) | 6,657 |
| Deferred tax liabilities | 95 | — | 274 | 1,032 | 744 | 922 | — | 3,067 |
| Current financial liabilities | 1,840 | — | 128 | 350 | 4,120 | 8,449 | (10,867) | 4,020 |
| Current lease liabilities | 392 | — | 597 | 629 | 402 | 19 | (19) | 2,020 |
| Liabilities associated with non-current assets and disposal groups held for sale | — | — | — | — | — | — | — | — |
| Total allocated liabilities | 16,782 | — | 10,246 | 9,437 | 13,861 | 42,869 | (15,261) | 77,934 |
31
| Millions of euros | Telefónica Spain | VMO2 | Telefónica Germany | Telefónica Brazil | Telefónica Hispam | Other companies | Eliminations | Total Group |
|---|---|---|---|---|---|---|---|---|
| Fixed assets | 14,499 | — | 12,124 | 15,056 | 7,637 | 1,667 | (14) | 50,969 |
| Rights of use | 1,433 | — | 3,349 | 1,701 | 1,064 | 99 | (67) | 7,579 |
| Investments accounted for by the equity method | 263 | 12,129 | — | — | 128 | 253 | — | 12,773 |
| Financial assets and other non-currents assets | 549 | — | 883 | 888 | 1,001 | 7,428 | (3,402) | 7,347 |
| Deferred tax assets | 2,345 | — | 433 | 454 | 713 | 1,671 | — | 5,616 |
| Other current financial assets | 40 | — | 70 | 56 | 838 | 8,379 | (5,548) | 3,835 |
| Non-current assets and disposal groups held for sale | — | — | — | — | 102 | 256 | — | 358 |
| Total allocated assets | 24,971 | 12,129 | 19,953 | 21,461 | 15,628 | 29,544 | (14,473) | 109,213 |
| Non-current financial liabilities | 2,140 | — | 1,627 | 11 | 2,778 | 31,288 | (2,554) | 35,290 |
| Non-current lease liabilities | 1,082 | — | 2,781 | 1,317 | 1,192 | 55 | (36) | 6,391 |
| Deferred tax liabilities | 119 | — | 291 | 1,040 | 594 | 558 | — | 2,602 |
| Current financial liabilities | 1,019 | — | 89 | 199 | 4,620 | 9,669 | (8,591) | 7,005 |
| Current lease liabilities | 378 | — | 548 | 460 | 295 | 14 | (16) | 1,679 |
| Liabilities associated with non-current assets and disposal groups held for sale | — | — | — | — | — | 134 | — | 134 |
| Total allocated liabilities | 17,042 | — | 10,819 | 7,600 | 14,306 | 45,129 | (14,367) | 80,529 |
32
The detail of assets and liabilities of VMO2 is as follows (amounts corresponding to 100% of the company, see Note 10):
| Millions of euros | December 2022 | December 2021 |
|---|---|---|
| Fixed assets | 42,576 | 46,258 |
| Rights of use | 862 | 1,058 |
| Financial assets and other non-currents assets | 2,763 | 1,348 |
| Deferred tax assets | 79 | 115 |
| Other current financial assets | 511 | 214 |
| Total assets | 50,062 | 52,333 |
| Non-current financial liabilities | 19,668 | 19,185 |
| Non-current lease liabilities | 725 | 885 |
| Deferred tax liabilities | 1 | 9 |
| Current financial liabilities | 3,248 | 2,841 |
| Current lease liabilities | 221 | 219 |
| Total liabilities | 28,626 | 28,198 |
33
The composition of segment revenues is as follows:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Country by segments | |||
| Fixed | |||
| Mobile | |||
| Others and elims. | |||
| Total | |||
| Spain (*) | 12,497 | 12,417 | 12,401 |
| United Kingdom | — | 2,628 | 6,708 |
| Germany | 8,224 | 7,765 | 7,532 |
| Brazil | 8,870 | 6,910 | 7,422 |
| Hispam | 9,141 | 8,362 | 7,922 |
| Other and inter-segment eliminations | 3,243 | 3,059 | 2,647 |
| Total Group | 39,993 | 39,277 | 43,076 |
Note: In the countries of Telefónica Hispam segment with separate fixed and mobile operating companies, intercompany revenues were not considered.
(*) The detail of revenues for Telefónica Spain is shown in the table below. Given the convergence reached at Telefónica Spain due to the high penetration of convergent offers in Telefónica Spain, the revenue breakdown by fixed and mobile is less relevant in this segment. For this reason, management believes that the revenue breakdown shown below is more meaningful.
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Fixed | |||
| Mobile | |||
| Others and elims. | |||
| Total | |||
| Spain (*) | 12,497 | 12,417 | 12,401 |
| United Kingdom | — | 2,532 | 6,476 |
| Germany | 806 | 814 | 785 |
| Brazil | 2,764 | 2,300 | 2,531 |
| Hispam | 3,138 | 2,907 | 2,836 |
| Other and inter-segment eliminations | 1,261 | 1,195 | 1,091 |
| Total Group | 39,993 | 39,277 | 43,076 |
| ## Notes to the consolidated financial statements | |||
| ### Consolidated Annual Report 2022 | |||
| #### Telefónica, S. A. 34 |
Note 5. Business combinations
On April 20, 2022, the closing of the transaction related to the Purchase Agreement for Acquisition of UPI Mobile Assets of Oi Group took place, and Telefónica Brasil acquired, on such date, all the shares of the company Garliava RJ Infraestrutura e Redes de Telecomunicações S.A. (Garliava), to which the mobile assets of Oi Group assigned to Telefónica Brasil had been contributed, under the segregation plan stated in the Oi Agreement (see Note 29).
The mobile assets of Oi Group finally assigned to Telefónica Brasil were the following:
This transaction brings benefits to the Brazilian telecommunications sector, expanding the capacity to make investments and create technological innovations in a sustainable and rational manner, contributing to the digitalization of the country through the construction and expansion of networks in cutting-edge technologies, such as 5G and fiber, which translates into services with better coverage and quality to users. In addition, the transaction has the potential to generate synergies for the Company, through the optimization of operating costs and efficient allocation of investments due to the integration of the incorporated assets.
On the date of approval of these consolidated financial statements, the Company has already concluded the report for the allocation of the purchase price. The following table presents the consideration, the fair value of the identifiable assets and the liabilities assumed at the acquisition date and the goodwill:
| Millions of euros | |
|---|---|
| Consideration | 1,093 |
| Intangible assets | 539 |
| Licenses | 520 |
| Customer relationships | 19 |
| Property, plant and equipment | 29 |
| Rights of use | 105 |
| Deferred tax assets | 44 |
| Trade receivables | 74 |
| Other assets | 30 |
| Cash and cash equivalents | 13 |
| Lease liabilities | (117) |
| Trade payables | (24) |
| Provisions | (221) |
| Other liabilities | (55) |
| Fair value of net assets | 417 |
| Goodwill (Note 7) | 676 |
The fair value of the licenses has been determined using the discounted cash flow method of the Income Approach, which considers the earning capacity of the asset. The amortization period of the licenses ranges from 5 to 15 years (average period of 10.08 years). The fair value of trade receivables amounts to 74 million euros, which does not differ from the book value consisting of a gross amount of 81 million euros, net of estimated impairment losses of 7 million euros.
At the acquisition date, contingent liabilities have been recognized at fair value in the amount of 90 million euros. The contribution of Garliava since its inclusion in the scope of consolidation and until December 31, 2022 was 206 million euros in revenues and 1 million euros in profit for the period. The information is only available since the mobile assets of Oi assigned to Telefónica Brasil were contributed to Garliava. Consequently, it is not practicable to calculate these impacts as if the transaction had taken place on January 1, 2022.
On September 17, 2022, Telefónica Brasil, together with Claro S.A. and TIM S.A. ("Buyers"), notified Oi, pursuant to the Agreement, about (i) the determination of the post- closing price adjustment in benefit of the Buyers; and (ii) the losses known to date (as defined in the Agreement) in relation to which the Buyers have indemnification rights against the Seller in the total amount of 353 million Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 35 Brazilian reais, of which 64 million Brazilian reais (approximately 12 million euros) are attributable to Telefónica Brasil. The post-closing adjustment notice presents values and calculations determined with the support of a specialized company, based on the best analysis of the information received and understanding of the Agreement, totaling the maximum amount of 3,187 million Brazilian reais for the price adjustment on behalf of the Buyers. From the price adjustment amount calculated, the amount attributable to Telefónica Brasil is equivalent to up to 1,075 million Brazilian reais (approximately 204 million euros), part of which (488 million Brazilian reais, approximately 93 million euros) is guaranteed by the retention of 10% on the amount paid for the acquisition (see Note 2).
On October 3, 2022, Telefónica Brasil, together with Claro S.A. and TIM S.A., started the arbitration procedure against the Seller (see Note 29.c). The Buyers made a judicial deposit of the amount withheld from the updated purchase price (see Note 15), until the dispute arising from the price adjustment is resolved by arbitration, corresponding to Telefónica Brazil an amount of 522 million reais at December 31, 2022 (approximately 94 million euros).
On March 21, 2022, Telefónica Telefónica Tech UK & Ireland, Ltd completed the acquisition of 100% of the shares of the British group Perpetual TopCo, Limited and affiliates (Incremental), one of Microsoft's fastest-growing business partners in the UK, for a 104 million euros consideration (including potential contingent payments linked to its future performance). In addition, at the closing of the transaction a payment was made in the amount of 91 million euros to cancel payment obligations of the acquired companies. With this acquisition, the Group significantly increased its scale and competencies in Microsoft technologies. At the date of preparation of these consolidated financial statements, the purchase price allocation is provisional. The following table presents the consideration, the fair value of assets and liabilities identified at the acquisition date and the preliminary goodwill:
| Millions of euros | |
|---|---|
| Share purchase price | 104 |
| Payment obligations cancelled | 91 |
| Total | 195 |
| Intangible assets | 24 |
| Customer relationships | 23 |
| Other intangible assets | 1 |
| Property, plant and equipment | 1 |
| Rights of use | 1 |
| Accounts receivable | 11 |
| Other assets | 1 |
| Cash and cash equivalents | 9 |
| Lease liabilities | (2) |
| Accounts payable | (3) |
| Deferred tax liabilities | (6) |
| Other liabilities | (11) |
| Fair value of net assets | 25 |
| Preliminary goodwill (Note 7) | 170 |
The contribution of Incremental to the profit for the year, after the impact of the amortization of the assets identified in the purchase price allocation, has been a 1 million euro profit.
On June 9, 2022, Telefónica Cybersecurity & Cloud Tech, S.L.U. completed the acquisition of 100% of the shares of the German group BE-terna Acceleration Holding GmbH and affiliates ("BE-terna Group"), for a 191 million euros consideration (including potential contingent payments linked to its future performance). In addition, at the closing of the transaction a payment was made in the amount of 162 million euros to cancel payment obligations of the acquired companies. BE-terna Group has a highly qualified team of more than 1,000 employees in 28 locations in Germany, Austria, Switzerland, the Adriatic region and the Nordic countries, among other markets. With this acquisition, the Group significantly enriches its geographic scale and its professional and managed services capabilities across Europe. At the date of preparation of these consolidated financial statements, the purchase price allocation is provisional. The following table presents the consideration, the fair value of assets and liabilities identified at the acquisition date and the preliminary goodwill:
| Millions of euros | |
|---|---|
| Share purchase price | 191 |
| Payment obligations cancelled | 162 |
| Total | 353 |
| Intangible assets | 77 |
| Customer relationships | 57 |
| Other intangible assets | 20 |
| Property, plant and equipment | 6 |
| Right of use | 5 |
| Accounts receivable | 19 |
| Other assets | 12 |
| Cash and cash equivalents | 17 |
| Lease liabilities | (5) |
| Trade payables | (9) |
| Deferred tax liabilities | (21) |
| Current tax payables | (6) |
| Other liabilities | (21) |
| Fair value of net assets | 74 |
| Preliminary goodwill (Note 7) | 279 |
The contribution of BE-terna Group to the profit for the year, after the impact of the amortization of the assets identified in the purchase price allocation, has been a 3 million euros loss.
On July 29, 2021, Telefónica Cybersecurity & Cloud Tech, S.L.U. reached an agreement with Cancom Group for the acquisition of 100% of the shares of the British company Cancom Ltd. Cancom Ltd (currently called Telefónica Tech UK & Ireland Ltd.) is a company that provides end-to-end advanced cloud and cybersecurity services in the United Kingdom and Ireland.# Consolidated Financial Statements 2022
Telefónica, S. A. 37
The composition of and movements in net intangible assets in 2022 and 2021 are as follows:
| Millions of euros | Balance at 12/31/2021 | Additions | Amortization | Disposals | Impairments | Transfers and others | Translation differences and hyperinflation adjustments | Business combinations | Balance at 12/31/2022 |
|---|---|---|---|---|---|---|---|---|---|
| Service concession arrangements and licenses | 7,328 | 173 | (844) | — | (19) | — | 392 | 520 | 7,550 |
| Software | 2,494 | 495 | (1,337) | — | (2) | 1,011 | 119 | 20 | 2,800 |
| Customer base | 971 | — | (356) | — | — | 1 | — | 105 | 721 |
| Trademarks | 276 | — | (34) | — | — | 1 | 18 | 2 | 263 |
| Other intangible assets | 42 | 22 | (28) | (4) | (2) | 9 | — | — | 39 |
| Intangible assets in process | 614 | 840 | — | — | (8) | (818) | 16 | — | 644 |
| Total intangible assets | 11,725 | 1,530 | (2,599) | (4) | (31) | 204 | 545 | 647 | 12,017 |
| 2021 Millions of euros | Balance at 12/31/2020 | Additions(1) | Amortization | Disposals | Transfers and others | Translation differences and hyperinflation adjustments | Business combinations | Balance at 12/31/2021 |
|---|---|---|---|---|---|---|---|---|
| Service concession arrangements and licenses | 6,573 | 1,188 | (725) | (3) | 197 | 98 | — | 7,328 |
| Software | 2,380 | 513 | (1,226) | (8) | 828 | 6 | 1 | 2,494 |
| Customer base | 1,238 | — | (376) | — | — | 2 | 107 | 971 |
| Trademarks | 512 | 2 | (39) | (210) | — | 11 | — | 276 |
| Other intangible assets | 51 | 17 | (22) | — | (3) | (1) | — | 42 |
| Intangible assets in process | 734 | 690 | — | (8) | (807) | 5 | — | 614 |
| Total intangible assets | 11,488 | 2,410 | (2,388) | (229) | 215 | 121 | 108 | 11,725 |
(1) Total additions of intangible assets in 2021 amounted to 2,981 million euros, including the additions corresponding to companies held for sale and sold companies during the annual reporting period (see Note 2).
Additions of spectrum in 2022 amounted to 173 million euros (1,704 million euros in 2021, including the additions corresponding to "Non-current assets and disposal groups held for sale"). In 2022 15 MHz of spectrum in the 1900 MHz band was renewed in Colombia for an amount of 125 million euros. The amount pending payment is detailed in Notes 21 and 22. In 2021 the acquisition of spectrum for 5G in Chile for 131 million euros was recorded. In 2022 Telefónica Brazil renewed spectrum in the 850 MHz band for an amount of 35 million euros. The amount pending payment is detailed in Notes 21 and 22. In 2021 Telefónica Spain acquired one block of 10 MHz in the 3.4 GHz band and 20 MHz of spectrum in the 700MHz band for an amount of 352 million euros. On December 3, 2021, ANATEL signed the terms of authorization for the use of the blocks of radio frequencies assigned to Telefónica Brazil. Pursuant to the terms, in addition to the amounts related to radio frequencies to be paid to ANATEL, the Company is making contributions to the Entidade Administradora de Faixa ("EAF" / Band Management Entity) and to the Entidade Administradora da Conectividade de Escolas ("EACE" / School Connectivity Management Entity). The estimated total cost, registered as addition in "service concession arrangements and licenses" in 2021, amounted to 4,459 million Brazilian real (700 million euros at the 2021 average exchange rate), of which 929 million Brazilian real from radio frequency licenses correspond to ANATEL (146 million euros at the 2021 average exchange rate), 2,104 million Brazilian real to "EAF" (330 million euros at the 2021 average exchange rate) and 1,426 million Brazilian real to "EACE" (224 million euros at the 2021 average exchange rate). As a requirement for obtaining these authorizations, the Company, as well as the other successful telecommunication service bidder providers, assumed a series of commitments. For the 2.3 GHz and 3.5 GHz spectrum band obligations for coverage commitments and fiber optic backbone network deployment in locations with little or no connectivity infrastructure. In addition, the successful bidders for the 3.5 GHz band must fund all activities related to the migration of satellite TV services from the C band to the Ku band, for the construction of six high-capacity info-ways by laying sub fluvial cables for the Integrated and Sustainable Amazon Program ("PAIS") and the implementation of private (fixed and mobile) communication networks reserved for the Federal Public Administration. "EAF" will be responsible for the execution of these activities. The successful bidders for the 26 GHz spectrum bands will be required to fund "EACE's" activities for broadband connectivity projects for public schools to be selected across the country. In March 2021 Telefónica United Kingdom acquired 40 MHZ of spectrum in the 3.6 GHz band and 20 MHz in the 700 MHz FDD band, amounting to 515 million euros. The acquisition was accounted under "Non-current assets and disposal groups held for sale" in the statement of financial position (see Note 2). "Impairments" in 2022 includes an impairment loss related to licenses and sofware of Telefónica Argentina, amounting to 21 million euros. "Business combinations” in 2022 corresponds mainly to the acquisition of the intangible assets of Oi, the Incremental Group and the BE-terna Group amounting to 539, 24 and 77 million euros (see Note 5), respectively. “Business combinations” in 2021 corresponded to the inclusion of Cancom Ltd in the consolidation perimeter (see Note 5). "Transfers and others" in 2021 included the reclassification of the intangible assets of Telefónica de El Salvador amounting to 38 million euros to "Non-current assets and disposal groups held for sale" of the statement of financial position (see Note 30). Appendix VI contains the details of the main concessions and licenses which the Group operates. The effect of the translation into euros of the intangible assets of the Group's companies in Argentina and Venezuela, together with the effect of the hyperinflation adjustments (see Note 3.a), is shown in the column "Translation differences and hyperinflation adjustments".
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022
Telefónica, S. A. 39
The gross cost, accumulated amortization and impairment losses of intangible assets at December 31, 2022 and 2021 are as follows:
| Balance at December 31, 2022 Millions of euros | Gross cost | Accumulated amortization | Impairment losses | Intangible assets |
|---|---|---|---|---|
| Service concession arrangements and licenses | 15,837 | (8,123) | (164) | 7,550 |
| Software | 17,158 | (14,344) | (14) | 2,800 |
| Customer base | 5,089 | (4,368) | — | 721 |
| Trademarks | 944 | (681) | — | 263 |
| Other intangible assets | 870 | (829) | (2) | 39 |
| Intangible assets in process | 652 | — | (8) | 644 |
| Total intangible assets | 40,550 | (28,345) | (188) | 12,017 |
| Balance at December 31, 2021 Millions of euros | Gross cost | Accumulated amortization | Impairment losses | Intangible assets |
|---|---|---|---|---|
| Service concession arrangements and licenses | 14,456 | (7,007) | (121) | 7,328 |
| Software | 15,442 | (12,938) | (10) | 2,494 |
| Customer base | 4,888 | (3,917) | — | 971 |
| Trademarks | 901 | (625) | — | 276 |
| Other intangible assets | 910 | (868) | — | 42 |
| Intangible assets in process | 614 | — | — | 614 |
| Total intangible assets | 37,211 | (25,355) | (131) | 11,725 |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022
Telefónica, S. A. 40
Movement in goodwill
The movement in goodwill assigned to each Group segment was as follows:
| 2022 Millions of euros | Balance at 12/31/2021 | Additions | Disposals | Write-offs | Transfers | Exchange rate impact | Balance at 12/31/2022 |
|---|---|---|---|---|---|---|---|
| Telefónica Spain | 4,291 | — | — | — | — | — | 4,291 |
| Telefónica Brazil | 6,278 | 695 | — | — | — | 779 | 7,752 |
| Telefónica Germany | 4,386 | — | — | — | — | — | 4,386 |
| Telefónica Hispam | 1,166 | — | — | — | — | 49 | 1,215 |
| Others | 398 | 457 | — | — | (5) | (23) | 827 |
| Total | 16,519 | 1,152 | — | — | (5) | 805 | 18,471 |
| 2021 Millions of euros | Balance at 12/31/2020 | Additions | Disposals | Write-offs | Transfers | Exchange rate impact | Balance at 12/31/2021 |
|---|---|---|---|---|---|---|---|
| Telefónica Spain | 4,299 | — | (8) | — | — | — | 4,291 |
| Telefónica Brazil | 6,258 | — | (36) | — | — | 56 | 6,278 |
| Telefónica Germany | 4,558 | — | (172) | — | — | — | 4,386 |
| Telefónica Hispam | 1,778 | — | (137) | (393) | (13) | (69) | 1,166 |
| Others | 151 | 297 | — | (23) | (37) | 10 | 398 |
| Total | 17,044 | 297 | (353) | (416) | (50) | (3) | 16,519 |
Additions of Telefónica Brazil in 2022 mainly correspond to the goodwill from the acquisition of the assets of the mobile business of Oi Group (see notes 2 and 5). Additions in 2022 also include the preliminary goodwill from the acquisitions of Incremental and BE-terna, amounting to 170 million euros and 279 million euros, respectively (see Note 5). Additions in 2021 included the goodwill related to the acquisition of Cancom amounting to 284 million euros (see Note 5).# Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
In order to test for impairment, goodwill was allocated to the different cash-generating units (CGUs), which are grouped into the following reportable operating segments:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Telefónica Spain | 4,291 | 4,291 |
| Telefónica Brazil | 7,752 | 6,278 |
| Telefónica Germany | 4,386 | 4,386 |
| Telefónica Hispam | 1,215 | 1,166 |
| Colombia | 135 | 154 |
| Ecuador | 137 | 129 |
| Chile | 652 | 622 |
| Peru | 265 | 239 |
| Uruguay | 23 | 20 |
| Others T. Hispam | 3 | 2 |
| Other companies | 827 | 398 |
| Telefónica Tech UK & Ireland | 429 | 288 |
| BE-terna | 279 | — |
| Others | 119 | 110 |
| TOTAL | 18,471 | 16,519 |
Goodwill is tested for impairment at the end of the year using the business plans of the cash-generating units to which the goodwill is assigned, approved by the Board of Directors of Telefónica. The business plan covers a three-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. Finally, to determine the terminal value of each CGU, a constant free cash flows growth over time is assumed, applying a terminal growth rate. The model used is similar to the dividend discount model developed by Gordon-Shapiro, internationally recognized for business valuations. The process of preparing the CGUs’ business plans considers the current market condition of each CGU, analyzing the macroeconomic, competitive, regulatory and technological environments, as well as the growth opportunities of the CGUs, and the differentiation capabilities compared to the competition based on market projections. A growth target is therefore defined for each CGU, based on the appropriate allocation of operating resources and the capital investments required to achieve the target. In addition, operating efficiency improvements are defined, in line with the strategic transformation initiatives, in order to increase the forecasted operating cash flow. In this process, the Group considers the compliance with business plans in the past.
CGUs’ value in use are calculated based on the approved business plans. Certain variables are then considered, including the long-term OIBDA margin and the long-term Capital Expenditure ratio (expressed as a percentage of revenue), which are considered the key operating variables to measure business performance and to set financial targets. Finally, the discount rates and the perpetuity growth rates are considered. The main variables considered for the most significant CGUs (T. Brazil, T. Spain, and T. Germany), are described below.
In terms of revenues, the plan is in line with the average three-year estimates made by analysts, which include a trend towards stability or improvement.
The values obtained, as described in the previous paragraphs, are compared with the available data of analysts and competitors in the geographic markets where Telefónica Group operates. In Europe, the long-term OIBDA margins two-years estimates of Telefónica Group's analysts are within a range of 34% to 39% for Spain and 30% to 33% for Germany. Regarding the long-term ratio of CapEx over revenues, the valuations performed for the impairment tests for Spain and Germany consider the opinions of Telefónica Group’s analysts with regard to investment needs (around 12% for Spain and around 14% for Germany). As for the long-term OIBDA margin two-years estimates of Telefónica Group's analysts for the operator in Brazil, it is in a range within 41% to 46%. Regarding investments, the operator will invest a percentage over the horizon of the projected plan that is in line with the investment needs foreseen for the development of its business, which on average is around 16%.
The discount rate, applied to discount cash flows, is the weighted average cost of capital (WACC), determined by the weighted average cost of equity and cost of debt according to the finance structure determined for each CGU.
This rate is calculated using the capital asset pricing model (CAPM), which considers the asset’s systemic risk, and the impact of those risks not already considered on cash flows, such as country risk, business-specific credit risk, currency risk and price risk specific to the financial asset, constantly monitoring the fluctuations of the financial markets. The most significant components of WACC are summarized as follows:
The main underlying data used in these calculations are obtained from independent and renowned external information sources. The discount rates applied to the cash flow projections in 2022 and 2021 for the main CGUs are as follows:
| 2022 Discount rate in local currency | 2022 Discount rate in local currency | 2021 Discount rate in local currency | 2021 Discount rate in local currency | |
|---|---|---|---|---|
| Before tax | After-tax | Before tax | After-tax | |
| Spain | 9.0% | 6.9% | 8.5% | 6.5% |
| Brazil | 16.4% | 12.6% | 15.2% | 12.0% |
| Germany | 8.0% | 5.7% | 7.2% | 5.2% |
Cash flow projections from the sixth year are calculated using an expected constant growth rate (g), considering the analyst consensus estimates for each business, based on the maturity of the industry and technology, and the degree of development of each country. Each indicator is compared to the forecasted long-term real and nominal GDP growth of each country and growth data from external sources, adjusting any particular case with specific characteristics related to the business evolution. The perpetuity growth rates applied to the cash flow projections in 2022 and 2021 for the main CGUs are as follows:
| Perpetuity growth rate in local currency | 2022 | 2021 |
|---|---|---|
| Spain | 0.8% | 0.8% |
| Brazil | 4.5% | 4.5% |
| Germany | 1.0% | 1.1% |
The perpetuity growth rates for 2022 remained stable comparing to 2021. In Brazil, the perpetuity growth rate is within the range of the estimations of the analysts, it is consistent with the Brazilian Central Bank’s medium-term inflation target (in a range between 1.5% and 4.5%) and it is below the nominal GDP growth rate of around 5.5%, according to market expectations.
The Group performs a sensitivity analysis of the impairment test by considering reasonable changes in the main assumptions used in the test. For the main CGU, the following maximum increases or decreases were assumed, expressed in percentage points:
| Changes in key assumptions, In percentage points | Spain | Germany | Brazil |
|---|---|---|---|
| Financial variables | |||
| Discount rate | +/-0.5 | +/-0.5 | +/-1 |
| Perpetuity growth rates | +/-0.25 | +/-0.25 | +/-0.5 |
| Long-term operating variables | |||
| OIBDA Margin | +/-1.5 | +/-1.5 | +/-2 |
| Ratio of CapEx/ Revenues | +/-0.75 | +/-0.75 | +/-1 |
The sensitivity analysis revealed a gap between the recoverable value and carrying amount for the main CGUs at December 31, 2022.As indicated above, in 2021 an impairment loss of 393 million euros was recognized on the goodwill allocated to Telefónica del Perú. The Group has performed the annual impairment test at the end of 2022. As a result of the analysis performed, no additional impairment has been recognized. Regarding the sensitivity of the calculation of the value in use of Telefónica del Perú to reasonable variations in the key assumptions used, an increase of 100 basis points, in the WACC of 10.4%, would result in an impairment of goodwill in the amount of 160 million euros, while a decrease of 25 basis points in the perpetuity growth rate of 2.4% would have a negative impact of 11 million euros. In turn, a decrease in the OIBDA margin by approximately 1 percentage point would result in an impairment of goodwill of 95 million euros, and an increase in the investment ratio by 0.5 percentage points would have a negative impact on the carrying amount of goodwill of approximately 60 million euros.
In Ecuador, the uncertainty of the political situation has raised the country risk indicator, with its consequent impact on financial costs and the discount rate used to estimate the recoverable value of the investment. Therefore, in the sensitivity of the calculation of the value in use of Telefónica Ecuador to reasonable variations in the key assumptions, an increase of around 150 basis points in the WACC, which is around 16%, would result in an impairment of goodwill of approximately 30 million euros, while a decrease of around 25 basis points in the perpetual growth rate of 2% would have no negative impact on the carrying value of goodwill. On the operating assumptions side, a 1.75 percentage point decrease in the OIBDA margin would result in an impairment of goodwill of approximately 12 million euros, and a 0.9 percentage points increase in the investment ratio would result in a negative impact on the carrying amount of goodwill of approximately 3 million euros.
In Chile, the economy growth slowed down in 2022 due to various factors that had a negative impact on family income. These include the withdrawal of fiscal measures, a slowing labor market and high inflation that was above 10% throughout the year, and which forced the Central Bank of Chile to raise interest rates. On the other hand, the constitutional reform process, later revoked and reactivated, has added uncertainty, harming the country's short- and medium-term growth expectations. In this context, the sharp rise in interest rates has increased the discount rate to 9.4%. Therefore, in the sensitivity of the calculation of the value in use of Telefónica de Chile to reasonable variations in the key assumptions, an increase of around 50 points basis points in the WACC would result in an impairment of goodwill of 60 million euros, while a decrease of around 25 basis points in the perpetuity growth rate (2.8%) would not have a negative impact on the carrying amount. On the business side, a 1.25 percentage point decrease in the OIBDA margin would result in an impairment of goodwill of 116 million euros and an increase of 0.63 percentage points in the investment ratio would have a negative impact of approximately 60 million euros on the carrying amount of goodwill.
The composition and movements in 2022 and 2021 of the items comprising net "Property, plant and equipment" were as follows:
2022
| Millions of euros | Balance at 12/31/2021 | Additions | Depre- ciation | Disposals | Impair- ments | Transfers and others | Translation differences and hyperinflation adjustments | Business combi- nations | Balance at 12/31/2022 |
|---|---|---|---|---|---|---|---|---|---|
| Land and buildings | 2,660 | 25 | (216) | (22) | (12) | 104 | 97 | 5 | 2,641 |
| Plant and machinery | 17,752 | 1,323 | (3,707) | (28) | (43) | 1,908 | 933 | 27 | 18,165 |
| Furniture, tools and other items | 552 | 74 | (210) | (1) | (1) | 132 | 26 | 4 | 576 |
| PP&E in progress | 1,761 | 2,867 | — | (12) | (3) | (2,353) | 71 | 1 | 2,332 |
| Total PP&E | 22,725 | 4,289 | (4,133) | (63) | (59) | (209) | 1,127 | 37 | 23,714 |
2021
| Millions of euros | Balance at 12/31/2020 | Addi- tions(1) | Depre- ciation | Disposals | Impair- ments | Transfers and others | Translation differences and hyperinflation adjustments | Business combi- nations | Business sale | Balance at 12/31/2021 |
|---|---|---|---|---|---|---|---|---|---|---|
| Land and buildings | 2,829 | 22 | (241) | (37) | (2) | 141 | 31 | 2 | (85) | 2,660 |
| Plant and machinery | 18,676 | 1,249 | (3,893) | (11) | — | 1,780 | 236 | 12 | (297) | 17,752 |
| Furniture, tools and other items | 623 | 90 | (226) | — | — | 56 | 8 | 1 | — | 552 |
| PP&E in progress | 1,641 | 2,519 | — | (18) | (3) | (2,393) | 16 | — | (1) | 1,761 |
| Total PP&E | 23,769 | 3,880 | (4,360) | (66) | (5) | (416) | 291 | 15 | (383) | 22,725 |
(1) Total additions of property, plant and equipment in 2021 amounted to 4,286 million euros, including the additions corresponding to companies held for sale and sold companies during the annual reporting period (see Note 2).
Telefónica Spain's investments in property plant and equipment in 2022 and 2021 amounted to 1,288 and 1,155 million euros, respectively. The rapid rollout of fiber continues, with more than 28 million premises passed in Telefónica Spain by the end of 2022, as well as the development of the 5G network reaching, 85% population coverage by the end of the year.
Telefónica Germany's investments in property, plant and equipment in 2022 and 2021 amounted to 854 and 913 million euros, respectively. The strong progress in 5G rollout and network modernization continues. 5G population coverage stood at approximately 80% at the end of 2022.
Telefónica Brazil's investments in property, plant and equipment in 2022 and 2021 amounted to 1,277 and 1,049 million euros, respectively. The investments were mainly dedicated to the expansion of the coverage and capacity of the 4G mobile networks, with a coverage of 96% of the population, and to the improvement of the quality of the network and the expansion of the FTTH network in the fixed business, with more than 23.3 million premises passed.
Telefónica Hispam's investments in property, plant and equipment in 2022 and 2021 amounted to 732 and 680 million euros, respectively. Investments continued to focus on the improvement of the mobile networks (with the expansion of the coverage and capacity reinforcement), as well as on the deployment of its own Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 45 fixed network. Efficient management of available resources and optimization of CapEx are the main management levers in the region, with a focus on simplification, digitalization of processes and the search for synergies through the promotion of regional initiatives.
Telefónica United Kingdom's investments in property, plant and equipment in 2021, up to the completion of the transaction (see Note 2), amounted to 366 million euros.
"Impairments" in 2022 includes an impairment loss related to assets of Telefónica Argentina, amounting to 56 million euros.
"Business combinations" in 2022 mainly correspond to the acquisition of property, plant and equipment of Oi, the Incremental Group and the BE-terna Group amounting to 29, 1 and 6 million euros (see Note 5), respectively.
"Business combinations" in 2021 mainly corresponded to the inclusion of Cancom Ltd in the consolidation perimeter (see Note 5) amounted to 15 million euros.
In 2022, there was an increase in the depreciation of property, plant and equipment amounting to 8 million euros (47 million euros in 2021) due to the reduction in the useful lives of certain assets of Telefónica México as a result of the transformation of the operating model announced in November 2019.
"Transfers and others" in 2021 included the reclassifications of property, plant and equipment of Telefónica El Salvador and fiber optic assets of Telefónica Colombia amounted to 70 and 53 million euros respectively, to "Non-current assets and disposal groups held for sale" of the statement of financial position (see Note 30).
“Business sale” in 2021 mainly corresponded to the sales of InfraCo, SpA and the second phase of the sale of towers by Telefonica Germany (see Note 2) amounted to 158 and 126 million euros, respectively, and the assets associated to Fibrasil following the Caisse de dépôt et placement du Québec (CDPQ) agreement and the sale of two data centers in Spain after the agreement with Nabiax (see Note 10) for a total amount of 36 and 63 million euros, respectively.
The effect of translating into euros of property, plant and equipment of the Group's companies in Argentina and Venezuela, together with the effect of the hyperinflation adjustments (see Note 3.a), is shown in the column "Translation differences and hyperinflation adjustments".
Telefónica Group companies purchased insurance policies to reasonably cover the possible risks to which their property, plant and equipment used in operations are subject, with suitable limits and coverage. Additionally, as part of its commercial activities and network deployment, the Group maintains several property acquisition commitments. The timing of scheduled payments in this regard is disclosed in Note 26.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A.# 46 Property, plant and equipment
The gross cost, accumulated depreciation and impairment losses of property, plant and equipment at December 31, 2022 and 2021 were as follows:
| Millions of euros | Gross cost | Accumulated depreciation | Impairment losses | PP&E |
|---|---|---|---|---|
| Land and buildings | 9,097 | (6,375) | (81) | 2,641 |
| Plant and machinery | 91,319 | (72,742) | (412) | 18,165 |
| Furniture, tools and other items | 5,157 | (4,566) | (15) | 576 |
| PP&E in progress | 2,343 | — | (11) | 2,332 |
| Total PP&E | 107,916 | (83,683) | (519) | 23,714 |
| Millions of euros | Gross cost | Accumulated depreciation | Impairment losses | PP&E |
|---|---|---|---|---|
| Land and buildings | 8,624 | (5,905) | (59) | 2,660 |
| Plant and machinery | 86,779 | (68,713) | (314) | 17,752 |
| Furniture, tools and other items | 4,697 | (4,133) | (12) | 552 |
| PP&E in progress | 1,774 | — | (13) | 1,761 |
| Total PP&E | 101,874 | (78,751) | (398) | 22,725 |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 47
The movement of rights of use in 2022 and 2021 is as follows:
| Millions of euros | Balance at 12/31/2021 | Additions | Amortization | Disposals | Business combinations | Transfers and others | Translation differences and hyperinflation | Balance at 12/31/2022 |
|---|---|---|---|---|---|---|---|---|
| Rights of use on land and natural properties | 793 | 367 | (279) | (7) | — | (15) | 26 | 885 |
| Rights of use on buildings | 3,561 | 1,402 | (1,139) | (29) | 110 | (11) | 236 | 4,130 |
| Rights of use on plant and machinery | 3,024 | 596 | (574) | (19) | — | (5) | 15 | 3,037 |
| Other rights of use | 201 | 83 | (72) | (2) | 1 | 11 | 5 | 227 |
| Total of rights of use | 7,579 | 2,448 | (2,064) | (57) | 111 | (20) | 282 | 8,279 |
| Millions of euros | Balance at 12/31/2020 | Additions(1) | Sale of the towers division of Telxius | Amortization | Disposals | Business combinations | Transfers and others | Translation differences and hyperinflation | Balance at 12/31/2021 |
|---|---|---|---|---|---|---|---|---|---|
| Rights of use on land and natural properties | 762 | 316 | (85) | (191) | (15) | — | (11) | 17 | 793 |
| Rights of use on buildings | 2,819 | 776 | 1,096 | (1,012) | (94) | 4 | (40) | 12 | 3,561 |
| Rights of use on plant and machinery | 1,238 | 796 | 1,478 | (382) | (109) | — | 1 | 2 | 3,024 |
| Other rights of use | 163 | 91 | 11 | (64) | (3) | 4 | 2 | (3) | 201 |
| Total of rights of use | 4,982 | 1,979 | 2,500 | (1,649) | (221) | 8 | (48) | 28 | 7,579 |
(1) Total additions of rights of use in 2021 amounted to 2,439 million euros, including the additions corresponding to companies held for sale and sold companies during the annual reporting period. Additions of rights of use are detailed in Note 4. "Business combinations" in 2022 corresponds to the acquisition of rights of use of Oi, the Incremental Group and the BE-terna Group (see Note 5) amounting to 105, 1 and 5 million euros, respectively. "Business combinations" in 2021 corresponded to the inclusion of Cancom Ltd in the consolidation perimeter (see Note 5) amounted to 8 million euros. The effect of the translation into euros of rights of use of the Group's companies in Argentina and Venezuela, together with the effect of the hyperinflation adjustments (see Note 3.a) is shown in the column "Translation differences and hyperinflation adjustments". In 2022, there was an increase in amortization of rights of use amounting to 17 million euros (40 million euros in 2021) due to the reduction in the useful lives of certain rights of use of Telefónica México as a result of the transformation of the operating model announced in November 2019. In 2021 Telxius sold its telecommunications towers division to American Tower Corporation (see Note 2). The Telefónica Group operators maintained the leases agreements of the towers signed with the companies sold, subsidiaries of Telxius. Consequently, as of the closing date of the transactions, rights of use were recorded in the consolidated statement of financial position in the amount of 2,633 million euros. “Sale of the towers division of Telxius” column also includes the derecognition of rights of use with third parties corresponding to the second phase of the sale agreement between Telefonica Germany and Telxius in the amount of 133 million euros. "Transfers and others" in 2021 included the transfer to "Non-current assets and disposal groups held for sale" of the rights of use of Telefónica El Salvador amounted to 36 million euros (see Note 30).
The gross cost and accumulated depreciation of the rights of use at December 31, 2022 and 2021 are as follows:
| Millions of euros | Gross cost | Accumulated depreciation | Rights of use |
|---|---|---|---|
| Rights of use on land and natural properties | 1,923 | (1,038) | 885 |
| Rights of use on buildings | 8,053 | (3,923) | 4,130 |
| Rights of use on plant and machinery | 4,560 | (1,523) | 3,037 |
| Other rights of use | 469 | (242) | 227 |
| Total of rights of use | 15,005 | (6,726) | 8,279 |
| Millions of euros | Gross cost | Accumulated depreciation | Rights of use |
|---|---|---|---|
| Rights of use on land and natural properties | 1,491 | (698) | 793 |
| Rights of use on buildings | 6,214 | (2,653) | 3,561 |
| Rights of use on plant and machinery | 4,003 | (979) | 3,024 |
| Other rights of use | 404 | (203) | 201 |
| Total of rights of use | 12,112 | (4,533) | 7,579 |
The detail of expenses related to leases included in Supplies and Other expenses (see Note 3.g) of the consolidated income statement for 2022 and 2021 are as follows:
| Millions of euros | 2022 | 2021 |
|---|---|---|
| Short-term leases included in operating results as supplies | 22 | 23 |
| Variable lease payments not included in the measurement of lease liabilities | 17 | 18 |
| Total expenses as supplies | 39 | 41 |
| Short-term leases included in external services | 52 | 39 |
| Leases of low-value assets included in external services | 8 | 9 |
| Variable lease payments not included in the measurement of lease liabilities | 26 | 32 |
| Total expenses as external services (Note 26) | 86 | 80 |
| Total lease expenses | 125 | 121 |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 49
The detail of investments accounted for by the equity method and the share of income/(loss) of these investments is the following:
| % Holding | Investments accounted for by the equity method | Share of income (loss) of investments accounted for by the equity method |
|---|---|---|
| Millions of euros | 2022 | |
| 31/12/2022 | 31/12/2021 | 2022 |
| VMED O2 UK Ltd | 50% | 10,779 |
| Movistar Prosegur Alarmas | 50% | 252 |
| FiBrasil Infraestructura e Fibra Ótica, S.A. | 50% | 79 |
| Unsere Grüne Glasfaser | 50% | 108 |
| Opal Jvco Limited (nexfibre) | 25% | 55 |
| Others | 2 | 9 |
| Joint ventures | 11,275 | |
| Daytona Midco, S.L. (Nabiax) | 20% | 120 |
| Adquira España, S.A. | 44.44% | 4 |
| HoldCo Infraco SpA. (Onnet Fibra Chile) | 40% | 79 |
| Alamo HoldCo S.L. (Onnet Fibra Colombia) | 40% | 12 |
| Internet para todos S.A.C. | 54.67% | 55 |
| Telefónica Factoring España, S.A. | 50% | 7 |
| Telefónica Factoring do Brasil, Ltda. | 50% | 3 |
| Telefónica Factoring Peru, S.A.C. | 50% | 2 |
| Telefónica Factoring Colombia, S.A. | 50% | 1 |
| Telefónica Factoring México, S.A.de C.V. | 50% | 1 |
| Telefónica Factoring Chile, SpA. | 50% | 1 |
| Telefónica Factoring Ecuador, S.A. | 50% | — |
| Telefónica Consumer Finance, Establecimiento Financiero de Crédito, S.A. | 50% | 19 |
| Movistar Consumer Finance Colombia SAS | 50% | 2 |
| Others | 6 | 1 |
| Associates | 312 | |
| Total | 11,587 |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 50
The detail of the movement in investments accounted for by the equity method in 2022 and 2021 is as follows:
| Investments accounted for by the equity method | Millions of euros |
|---|---|
| Balance at 12/31/2020 | 427 |
| Additions | 12,329 |
| Disposals | (5) |
| Translation differences and other comprehensive income (loss) | 350 |
| (Loss) income | (127) |
| Dividends | (198) |
| Transfers and others | (3) |
| Balance at 12/31/2021 | 12,773 |
| Additions | 181 |
| Disposals | (12) |
| Translation differences and other comprehensive income (loss) | (646) |
| Income (loss) | 217 |
| Dividends | (920) |
| Transfers and others | (6) |
| Balance at 12/31/2022 | 11,587 |
On January 11, 2022, once the corresponding authorizations from the regulatory authorities were obtained and after the fulfilment of certain agreed conditions, the transaction between Colombia Telecomunicaciones S.A. ESP BIC (Telefónica Colombia) and a Colombian company controlled by Kohlberg Kravis Roberts - KKR (Onnet Fibra Colombia S.A.S) for the sale and purchase of certain fiber assets owned by Telefónica Colombia and for the provision of wholesale connectivity services by Onnet Fibra Colombia S.A.S to Telefónica Colombia, the development of activities of deployment of fiber network, and other associated services, was completed. Telefónica Colombia received, as consideration, 187 million U.S. dollars (approximately 165 million euros at the exchange rate at such date) and 40% of the shares of a Spanish company controlled by KKR, Alamo HoldCo S.L., the sole shareholder of Onnet Fibra Colombia S.A.S. (see Note 30). The gain included in "Other income" in the consolidated income statement for the year 2022 amounted to 162 million euros (see Note 26). Additions for the year 2022 include the fair value assigned to the 40% of the investment in Alamo HoldCo, S.L. amounting to 28 million euros. On May 24, 2022, Telefónica Infra, S.L. achieved a 20% stake in Daytona Midco S.L. as a result of the agreement reached on May 7, 2021 with Asterion Industrial Partners ("Asterion") for the contribution to Nabiax (a subsidiary of Asterion) of four data centers owned by the Telefónica Group (see Note 29.c). Additions for the year 2022 regarding this transaction amounted to 41 million euros. Additions for the year 2022 also includes the capital increase of 50 million euros at Unsere Grüne Glasfaser (27 million euros in 2021, see Note 28).On July 29, 2022, Telefónica, Liberty Global and InfraVia (see Note 29.c.) reached an agreement for the establishment of a joint venture, "nexfibre", for the deployment of fiber-to-the-home (FTTH) in the United Kingdom. Once the relevant regulatory authorizations were obtained and the other conditions were fulfilled, the closing of the transaction took place on December 15, 2022. After closing, Liberty Global and Telefónica participate by halves in a joint vehicle that holds a 50% interest in nexfibre, with InfraVia owning the remaining 50%. "Translation differences and other comprehensive income (loss)" for the year 2022 mainly includes the impact of the pound sterling depreciation associated with the investment in VMO2, amounting to 627 million euros and the results of the defined benefit pension plan in VMO2 amounting to 106 million euros. This also includes gains imputed to equity on derivatives financial instruments in Unsere Grüne Glasfaser amounting to 69 million euros. In June, September and December 2022, dividends of 125 million pounds sterling (equivalent to 146 million euros) 290 million pounds sterling (equivalent to 324 million euros) and 385 million pounds sterling (equivalent to 439 million euros), respectively, were received from VMED O2 UK Ltd. In December 2021, a dividend was received from VMED O2 UK Ltd for an amount of 161 million pounds sterling (equivalent to 187 million euros, see Note 28). Additions for the year 2021 mainly includes the fair value of the 50% stake in VMO2 at the date of incorporation, which amounts to 12,012 million euros (see Note 2). In July 2021, the sale transaction of 60% of the shares of Infraco, SpA was completed. In 2021 additions, the value of the shareholding after the operation is included, amounting to 75 million euros. Additionally, the value of the 50% stake in Fibrasil at the date of the transaction amounting to 73 million euros is included in additions for the year 2021. In July 2021, the partial closing of the transaction with Asterion took place, Telefónica obtained 13.94% of the company Daytona Midco S.L. and its subsidiary Digital Data Center Bidco, S.L.U. (Nabiax), registering 81 million euros in additions.
The fair value calculation for VMED O2 UK Ltd at the time of its constitution was based on a discounted cash flows valuation, using the methods of multiples of comparable companies and multiples of transactions as a cross- check.
The valuation emanated from the business plan of the joint venture for the 2021-2023 period that resulted from the aggregation of the individual business plans of O2 and Virgin Media approved by Telefónica and Liberty Global, respectively, extended to 2030 and the synergies plan prepared by the strategy teams of both groups. The following is a description of the main variables considered in the fair value calculation, according to the primary method:
The Group has performed an impairment analysis of the investment in VMO2 at the end of the year. 2022 has been a challenging year for the United Kingdom. In addition to higher inflation due to external factors (rising energy prices, supply chain problems and food prices) and domestic factors (very dynamic labour market), interest rates have risen, which has had a negative impact on the disposable income of households and businesses. This was followed after the summer by an episode of high financial volatility as a result of inconsistent fiscal policy decisions. Despite the difficult macroeconomic context VMO2 has delivered its set guidance and made strong strategic and operational progress throughout the year. The company introduced new products, like TV Stream and Switch up and continues to drive fixed mobile convergence with its VOLT product. VMO2 delivered synergies according to its plan and the fixed footprint reached 16.1 million premises passed, meeting the full year build targets. In mobile, it expanded 5G services to more than 1,600 towns and cities, on-track to deliver 5G services to 50% of the UK population in 2023. In addition, on December 15, 2022, Telefónica Infra, Liberty Global and InfraVia Capital Partners entered into a joint venture (see Note 29.c) which will deploy fibre to the home (FTTH) to 5 million homes in the UK not currently served by VMO2's network, with the possibility of expansion to an additional 2 million homes. The fibre network will offer wholesale FTTH access to telecommunications service providers, with VMO2 acting as the anchor tenant, as well as providing a range of technical services. As a result of the analysis performed, the Group has concluded that as at December 31, 2022 the value in use continues to exceed the carrying value of the investment, although the headroom has been reduced. The discount rate used to calculate the value in use at December 31, 2022 has increased from 6.9% to 7.3% due to the macroeconomic tensions in the UK and despite the downward revision, more than 20 months after the establishment of the joint venture, of the specific premium (alpha) considered in the calculation of the initial fair value. The perpetuity growth rate has been maintained at the 1% used in the initial valuation, which is below the real terminal growth forecast for the UK economy and despite higher inflation in the medium-term than assumed in the initial scenario.
Regarding the sensitivity of the calculation to reasonably possible variations in key assumptions:
The values of operating variables included in the valuation are within the ranges expected by analysts for comparable companies in the region.
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Non current assets | 46,280 | 48,779 |
| Current assets | 3,782 | 3,554 |
| Cash and cash equivalents | 555 | 415 |
| Total Assets | 50,062 | 52,333 |
| Non current liabilities | 20,840 | 20,593 |
| Non current financial liabilities | 19,668 | 19,185 |
| Non-current lease liabilities | 725 | 885 |
| Other non current liabilities | 447 | 523 |
| Current liabilities | 7,786 | 7,605 |
| Current financial liabilities | 3,248 | 2,841 |
| Current lease liabilities | 221 | 219 |
| Other current liabilities | 4,317 | 4,545 |
| Total Liabilities | 28,626 | 28,198 |
| Equity (100% VMO2) | 21,436 | 24,135 |
| 50% Telefónica Group | 10,718 | 12,068 |
| Acquisition costs | 61 | 61 |
| Investments accounted for by the equity method | 10,779 | 12,129 |
| Millions of euros | January - December 31 2022 | June 1 - December 31 2021 |
|---|---|---|
| Revenues | 12,155 | 7,223 |
| Other operating income | 551 | 290 |
| Operating expenses | (8,305) | (5,063) |
| OIBDA | 4,401 | 2,450 |
| Depreciation and amortization | (4,170) | (2,395) |
| Operating income | 231 | 55 |
| Share of income (loss) of investments accounted for by the equity method | 1 | — |
| Financial | # Consolidated Financial Statements 2022 |
| 2023 | 2024 | 2025 | 2026 | 2027 | Subsequent years | Total | |
|---|---|---|---|---|---|---|---|
| Purchase commitments | 1,106 | 154 | 89 | 60 | 58 | 37 | 1,504 |
| Programming commitments | 698 | 606 | 446 | 437 | 413 | 204 | 2,804 |
| Network and connectivity commitments | 891 | 82 | 57 | 24 | 22 | 199 | 1,275 |
| Other commitments | 359 | 265 | 264 | 266 | 124 | 16 | 1,294 |
| Total commitments VMO2 (100%) | 3,054 | 1,107 | 856 | 787 | 617 | 456 | 6,877 |
Purchase commitments include unconditional and legally binding obligations related to the purchase of customer premises and other equipment and certain service- related commitments, including call center, information technology and maintenance services. Programming commitments consist of obligations associated with programming contracts that are enforceable and legally binding that includes minimum fees. Network and connectivity commitments include service commitments associated with the network extension program in the U.K. and commitments associated with the mobile virtual network operator (MVNO) agreements. On the date of closing of the transaction, Telefónica and Liberty Global entered with VMO2 into certain service agreements, either on a transitional or ongoing basis. Likewise, Telefónica licensed the use of Telefónica and O2 brand rights to VMO2 (see Note 29.c). The breakdown of balances and transactions related to associates and joint ventures recognized with VMO2 in the consolidated statement of financial position and consolidated income statement is as follows:
| 12/31/2022 | 12/31/2021 | |
|---|---|---|
| Receivables from associates and joint ventures for current operations | 40 | 54 |
| Payables to associates and joint ventures | 5 | 259 |
| 2022 | 2021 | |
|---|---|---|
| Revenue from operations with associates and joint ventures | 130 | 103 |
| Expenses from operations with associates and joint ventures | 63 | 29 |
"Payables to associates and joint ventures" includes the obligation at December 31, 2021 in relation to the O2 UK pension plans arising as a result of the constitution of VMED O2 UK Ltd. amounting to 213 million pounds sterling (253 million euros at closing exchange rate of 2021, see Note 22) and that it has been paid in 2022 (see Note 28).
In July 2021 Movistar Prosegur Alarmas, S.L. (formerly Prosegur Alarmas España, S.L.) acquired 100% of Prosegur Soluciones, S.A.U. The breakdown of the key financial highlights of Movistar Prosegur Alarmas group for the latest period available at the time of preparation of these consolidated financial statements and the reconciliation with the carrying amount in the Group are as follows:
| 12/31/2022 | 12/31/2021 | |
|---|---|---|
| Assets | 352 | 224 |
| Liabilities | (346) | (202) |
| Net assets | 6 | 22 |
| Purchase price allocation | ||
| Assets | 136 | 146 |
| Liabilities | (35) | (38) |
| Net assets | 101 | 108 |
| % Holding | 50% | 50% |
| Group’s share in equity | 54 | 65 |
| Goodwill | 198 | 198 |
| Carrying amount in the Telefónica Group | 252 | 263 |
On March 2, 2021, Telefónica Brasil, S.A. ("Vivo") and Telefónica Infra, S.L., infrastructures unit of Telefónica´s Group ("T. Infra"), reached an agreement with Caisse de dépôt et placement du Quebec ("CDPQ") for the construction, development and operation of a fiber (FTTH) network in Brazil, in mid-sized cities outside the State of Sao Paulo, through a joint venture entity, FiBrasil Infraestrutura e Fibra Ótica S.A. ("FiBrasil"). On July 2, 2021, once the pertinent authorizations were obtained, the transaction closed, in wich Telefónica Group and CDPQ each held 50% in FiBrasil under a co-control governance model. Telefónica Group participation is distributed equally between Vivo and T.Infra. The terms of the transaction encompass a total investment by CDPQ of up to 1,800 million reals (approximately 267 million euros at the date of the agreement), comprising payments to both Vivo and FiBrasil, for 50% stake in FiBrasil and also certain payments to be made by T. Infra in the equivalent economic terms, for a 25% stake in FiBrasil. CDPQ´s capital contributions, in addition to expected leverage to be raised by the joint venture, will provide a fully funded business plan to accomplish FiBrasil´s deployment targets.
The breakdown of items related to associates and joint ventures recognized in the consolidated statements of financial position and consolidated income statements is as follows:
| 12/31/2022 | 12/31/2021 | |||||
|---|---|---|---|---|---|---|
| Associates | Joint ventures | Total | Associates | Joint ventures | Total | |
| Credits and other financial assets from associates and joint ventures | 217 | 11 | 228 | 87 | 10 | 97 |
| Receivables from associates and joint ventures (Note 14) | 66 | 85 | 151 | 34 | 87 | 121 |
| Long-term contractual liabilities to associates and joint ventures | 82 | 51 | 133 | — | 31 | 31 |
| Payables to associates and joint ventures (Note 22) | 72 | 21 | 93 | 72 | 272 | 344 |
| Short-term contractual liabilities to associates and joint ventures | 7 | 12 | 19 | — | 8 | 8 |
| Other short-term liabilities to associates and joint ventures (Note 22) | — | 1 | 1 | — | — | — |
| 2022 | 2021 | 2020 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Associates | Joint ventures | Total | Associates | Joint ventures | Total | Associates | Joint ventures | Total | |
| Revenue from operations with associates and joint ventures | 209 | 251 | 460 | 65 | 263 | 328 | 13 | 255 | 268 |
| Expenses from operations with associates and joint ventures | 199 | 116 | 315 | 86 | 36 | 122 | 37 | 2 | 39 |
| Financial revenues with associates and joint ventures | 27 | 1 | 28 | 1 | — | 1 | — | — | — |
| Financial expenses with associates and joint ventures | 1 | 9 | 10 | 1 | — | 1 | — | — | — |
"Credits and other financial assets from associates and joint ventures" at December 31, 2022 includes 82 million euros of loans and 59 million euros of trade receivables granted by Colombia Telecomunicaciones, S.A. ESP BIC to the associate company Álamo Holdco, S.L. and it subsidiary Onnet Fibra Colombia S.A.S., respectively. Additionally, this line includes 75 million euros corresponding to the subordinated debt granted by Telefónica Chile to the associate company HoldCo Infraco, SpA. generated by the sale of 40% of the fiber optic business (87 million euros as of December 31, 2021, see Note 12). "Long-term contractual liabilities to associates and joint ventures" at December 31, 2022 includes 82 million euros corresponding to Colombia Telecomunicaciones, S.A. ESP BIC with the associate company Onnet Fibra Colombia, S.A.S. "Revenue from operations with associates and joint ventures" in 2022 mainly includes 88 million euros corresponding to the transactions of the Group with the associate company HoldCo Infraco SpA (52 million euros in 2021) and 97 million euros with the associate company Onnet Fibra Colombia, S.A.S. In 2021 it included 98 million euros corresponding to the transactions of the Group with the joint venture Tesco Mobile Ltd. from January 1, to the date of the incorporation of VMED O2 UK (232 million euros in 2020). "Expenses from operations with associates and joint ventures" in 2022 mainly includes 121 million euros corresponding to the transactions of the Group with the associate company HoldCo Infraco SpA (50 million euros in 2021) and 39 million euros with the associate company Álamo Holdco, S.L.
The significant shareholders of the Company are Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), CaixaBank, S.A. and BlackRock, Inc. Based on the information provided by CaixaBank, S.A. for the 2022 Annual Report Corporate Governance, as updated per share capital of Telefónica, S.A. as of December 31, 2022, the shareholding of CaixaBank, S.A. in Telefónica’s share capital were 3.50%. Based on the information provided by Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) for the 2022 Annual Report on Corporate Governance, as updated per share capital of Telefónica, S.A. as of December 31, 2022, the shareholding of BBVA in Telefónica’s share capital were 4.87%. Likewise, and according to the aforementioned information provided by BBVA, the percentage of economic rights attributed to Telefónica, S.A. shares owned by BBVA amounts to 4.97% of the Company's share capital. Based on the information notified by BlackRock, Inc to the CNMV on March 31, 2020, as updated per the share capital of Telefónica, S.A. as of December 31, 2022, the shareholding of BlackRock, Inc in Telefónica’s share capital were 4.48%. Based on the Schedule 13G/A filed with the SEC, on October 7, 2022, BlackRock, Inc. beneficially owned 4.96% of Telefónica, S.A. shares and 4.49% of voting rights. During 2022 and 2021, the Group carried out no significant transactions with BlackRock, Inc.other than the corresponding dividends paid. The following is a summary of significant transactions between the Telefónica Group and BBVA and CaixaBank companies, other than the payment of the dividend corresponding to its shareholding. All transactions were carried out at market prices.
On November 20, 2020, Telefónica Digital España, S.L.U. and Compañía Chilena de Inversiones, S.L., an affiliated company of BBVA, entered into an agreement related to the incorporation of a subsidiary in Colombia with the aim of commercializing loans to consumers and SME in such country. On January 5, 2021, this company was incorporated as a 50/50 joint venture between the two companies, under the name Movistar Consumer Finance Colombia, S.A.S (see Note 10).
The Telefónica Group holds a 50% interest in Telefónica Consumer Finance, E.F.C., S.A., a company controlled by CaixaBank (see Note 10). The Telefónica Group and BBVA each hold a 44.44% interest in the joint venture Adquira España, S.A. (see Note 10).
The Telefónica Group has a 50% interest in Telefónica Factoring España and its subsidiaries in Brazil, Peru, Colombia, Mexico, Chile and Ecuador, accounted for by the equity method (see Note 10), in which BBVA and CaixaBank have minority interests.
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.
The balances as of December 31, 2022 and 2021, and the transactions carried out in 2022 and 2021 of Telefónica Group companies with the aforementioned associates and joint ventures in which BBVA and CaixaBank hold interests are shown below:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Receivables from associates and joint ventures for current operations | 7 | 6 |
| Payables to associates and joint ventures | 7 | 36 |
| Millions of euros | 2022 | 2021 |
|---|---|---|
| Revenue from operations with associates and joint ventures | 13 | 13 |
| Expenses from operations with associates and joint ventures | 7 | 9 |
| Finance cost from operations with associates and joint ventures | 1 | 1 |
The net fair value of the outstanding derivatives as of December 31, 2022 contracted with BBVA and CaixaBank amounts to 185 and 41 million euros, respectively (314 and 26 million euros, respectively, as of December 31, 2021). The nominal value of these derivatives amounted to 5,778 and 264 million euros, respectively (6,664 million euros with BBVA and 264 million euros with CaixaBank in 2021). As explained in the 'Derivatives policy' section of Note 19, this volume is so high because derivatives can be applied several times to the same underlying asset for an amount equal to its face value.
As of December 31, 2022, the Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 56 derivatives contracted with BBVA and CaixaBank account for approximately 7% of the total amount of outstanding derivatives contracted by the Group with external counterparties (see Note 19). Additionally, at December 31, 2022, collateral guarantees on derivatives from BBVA and CaixaBank have been received, amounting to 236 million euros and 43 million euros, respectively (262 million euros and 21 million euros respectively at December 31, 2021).
In mid-2021, a new Fusion portfolio came into force that included a rental device. The Group has an agreement with CaixaBank to in turn rent these devices (a model known as "rent to rent"), covered by a framework financing agreement previously formalized between Telefónica and CaixaBank.
In 2022, the volume of these operations with CaixaBank amount to 405 million euros (186 million euros in 2021) which have involved 19 million euros in financial expenses. As of December 31, 2022, the balance of the account payable to CaixaBank amounted to 501 million euros (176 million euros as of December 31, 2021).
Likewise, the Group carries out other equipment rental operations with CaixaBank (equipment at customers' homes, such as routers or decoders). In 2022, the volume of this equipment leasing transactions was 82 million euros (92 million euros in 2021), with financial expenses amounting to 3 million euros (1 million euros in 2021). As of December 31, 2022, the debt with CaixaBank for these concepts amounts to 119 million euros (73 million euros in 2021).
The impact on the consolidated income statement of the Telefónica Group of the rest of the operations with BBVA and CaixaBank in 2022 and 2021 is shown below:
BBVA
| Millions of euros | 2022 | 2021 |
|---|---|---|
| Finance costs | 11 | 8 |
| Receipt of services | 7 | 14 |
| Purchase of goods | — | 2 |
| Other expenses | 3 | 1 |
| Total costs | 21 | 43 |
| Finance income | 14 | 5 |
| Dividends received (1) | 15 | 8 |
| Services rendered | 40 | 26 |
| Sale of goods | 7 | 9 |
| Other income | 7 | 5 |
| Total revenues | 83 | 53 |
(1) At December 31, 2022, Telefónica held a 0.73% stake (0.66% stake at December 31, 2021) in the share capital of Banco Bilbao Vizcaya Argentaria, S.A. (see Note 12).
CaixaBank
| Millions of euros | 2022 | 2021 |
|---|---|---|
| Finance costs | 6 | 6 |
| Receipt of services | 5 | 10 |
| Purchase of goods | 53 | 57 |
| Total costs | 64 | 73 |
| Services rendered | 69 | 83 |
| Sale of goods | 51 | 67 |
| Other income | 2 | 1 |
| Total revenues | 122 | 151 |
The following table shows the balance sheet positions of these operations as of December 31, 2022 and 2021, as well as the current guarantees and other off-balance sheet positions.
BBVA
| Millions of euros | 2022 | 2021 |
|---|---|---|
| Finance arrangements: loans, capital contributions and others (borrower) | 140 | 155 |
| Finance arrangements: loans and capital contributions (lender) | 13 | 10 |
| Factoring operations | — | 108 |
| Guarantees | 165 | 147 |
CaixaBank
| Millions of euros | 2022 | 2021 |
|---|---|---|
| Finance arrangements: loans, capital contributions and others (borrower) | 148 | 145 |
| Finance arrangements: loans and capital contributions (lender) | 37 | 82 |
| Factoring operations | — | 28 |
| Guarantees | 160 | 190 |
The most significant balances and transactions with associates and joint ventures are detailed in Note 10. During 2022 and 2021, the Directors and senior executives performed no 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 29.g and Appendix II.
Telefónica contracted a civil liability insurance scheme (D&O) for Directors, managers and staff with similar functions in the Telefónica Group, with standard conditions for these types of insurance and a premium attributable to 2022 of 6,598,467 euros (5,303,931 euros in 2021). This scheme provides coverage for Telefónica, S.A. and its subsidiaries in certain cases.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 57
The breakdown of financial assets and other non-current assets of the Telefónica Group at December 31, 2022 and December 31, 2021 is as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Non-current financial assets (Note 16) | 6,219 | 6,062 |
| Investments | 497 | 479 |
| Other long-term credits | 981 | 890 |
| Deposits and guarantees | 1,163 | 1,254 |
| Trade receivables | 1,019 | 752 |
| Receivables for subleases | 19 | 27 |
| Impairment of trade receivables | (128) | (112) |
| Derivative financial assets (Note 19) | 2,668 | 2,772 |
| Other non-current assets | 1,882 | 1,285 |
| Contractual assets (Note 23) | 359 | 209 |
| Deferred expenses (Note 23) | 854 | 555 |
| Long-term receivables for taxes | 345 | 299 |
| Prepayments | 324 | 222 |
| Total | 8,101 | 7,347 |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 58
The movement in investments, other long-term credits, deposits and guarantees, trade receivables, long-term receivables for subleases and impairment of trade receivables in 2022 and 2021, is as follows:
| Millions of euros | Investments | Other long- term credits | Deposits and guarantees | Trade receivables | Long-term receivables for subleases | Impairment of trade receivables |
|---|---|---|---|---|---|---|
| Balance at 12/31/20 | 457 | 252 | 1,633 | 551 | 15 | (122) |
| Additions | 9 | 686 | 195 | 540 | 11 | (6) |
| Disposals | (41) | (6) | (30) | (272) | — | 45 |
| Translation differences | — | (9) | 9 | — | — | (2) |
| Fair value adjustments and financial updates | 56 | 14 | 8 | (2) | — | — |
| Transfers and other | (2) | (47) | (561) | (65) | 1 | (27) |
| Balance at 12/31/21 | 479 | 890 | 1,254 | 752 | 27 | (112) |
| Additions | 12 | 503 | 64 | 616 | 4 | (10) |
| Disposals | (74) | (94) | (33) | (162) | (4) | 3 |
| Translation differences | (1) | 2 | 69 | 12 | 1 | (13) |
| Fair value adjustments and financial updates | 80 | 64 | 26 | (2) | — | — |
| Transfers and other | 1 | (384) | (217) | (197) | (9) | 4 |
| Balance at 12/31/22 | 497 | 981 | 1,163 | 1,019 | 19 | (128) |
“Investments” includes the fair value of investments in companies where Telefónica exercises no significant influence or control and for which there is no specific short-term disposal plan (see Note 3.i).
The Telefónica Group’s shareholding in Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) amounted to 249 million euros (232 million euros at December 31, 2021), representing 0.73% of its share capital at December 31, 2022 (0.66% at December 31, 2021).
At December 31, 2022, Telefónica maintained a 0.59% stake in the share capital of China Unicom (Hong Kong) Limited, valued at 105 million euros (same percentage at December 31, 2021, valued at 80 million euros).
On May 19, 2022 Telefónica signed an agreement with the company Global Alconaba, S.L., for the sale of 50,147,058 shares of Promotora de Informaciones, S.A. (PRISA), equivalent to 7.076% of its share capital. As a result of this sale, 71 million euros of losses from financial assets measured at fair value through comprehensive income have been reclassified to retained earnings. As of December 31, 2022 Telefónica's shareholding in PRISA amounted to 1.87% of the company's share capital and was valued at 4 million euros (9.03% at December 31, 2021 valued at 36 million euros).# Other long-term credits
This line item includes long-term financial assets of Telefónica Germany amounting to 104 million euros and 85 million euros at December 31, 2022 and 2021, respectively, that are mainly intended to cover obligations from the defined benefit plan of Telefónica Germany but do not represent "plan assets" in accordance with IAS 19 (see Note 24).
Additions for the year 2022 include financial instruments (Federal Treasury Certificates) of Pegaso PCS, S.A. de C.V. amounting to 260 million euros, for the purpose of securing certain legal proceedings with the Mexican tax Administration Service. These instruments are classified as long-term based on the estimated term of the proceedings and accrue interest according to the time elapsed (see Note 28).
Additionally, additions for the year 2022 include 82 million euros of loans granted by Colombia Telecomunicaciones, S.A. ESP BIC to the associate company Álamo Holdco, S.L. (see Note 10).
At December 31, 2022 other long-term credits include 75 million euros corresponding to the subordinated debt granted by Telefónica Chile to the associate company HoldCo Infraco, SpA. generated by the sale of 40% of the Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 59 fiber optic business (87 million euros as of December 31, 2021, see Note 10).
"Additions" in 2021 included the notes issued by the international issue platform Single Platform Investment Repackaging Entity, S.A. ("Spire") deposited in a securities account owned by Telefónica, S.A. with a notional of 1,000 million dollars of which 295 million euros are registered as "Other long-term credits" and 591 million euros were registered as "other current financial assets".
Transfers for the year 2022 include the short-term transfer of the notes mentioned above for an amount of 313 million euros, all of which were registered at December 31, 2022 in "Other current financial assets" for an amount of 939 million euros (see Note 15).
Additionally in 2021, Telxius recorded additions amounting to 246 million euros associated with the collection right arising with American Tower Corporation as a result of the sale of the telecommunications towers division in Europe (Spain and Germany) in June 2021. At December 31, 2022 the collection right amounted to 264 million euros.
The vast majority of long-term credits, recognized at amortized cost (Note 16), are considered to be low credit risk assets, therefore the impairment analysis was carried out on the basis of expected credit losses in the next twelve months.
Telefónica Brazil has non-current judicial deposits amounting to 501 million euros (see Note 24) at December 31, 2022 (431 million euros at December 31, 2021).
At December 31, 2022, there were deposits related to the collateral guarantees on derivatives (CSA) signed by Telefónica, S.A. and its counterparties for the credit risk management of derivatives amounting to 365 million euros of which 42 million euros cross currency swap (564 million euros at December 31, 2021 that included 279 million euros related to cross currency swap).
In relation with collateral contracts, in 2022 there is an additional guarantee of 79,034 bonds issued by Telefónica Emisiones, S.A.U. deposited in a securities account owned by Telefónica, S.A. with a notional of 78 million euros at December 31, 2022 (166,678 bonds for a nominal amount of 173 million euros at December 31, 2021).
The vast majority of deposits and guarantees recognized at amortized cost (Note 16), are considered to be low credit risk assets, therefore the impairment analysis was carried out on the basis of expected credit losses in the next 12 months.
"Additions" for the year in 2022 include trade receivables amounting to 69 million euros from Colombia Telecomunicaciones, S.A. ESP BIC to the associate Onnet Fibra Colombia SAS, 59 million euros at December 31, 2022, see Note 10.
At December 31, 2022 includes Telefónica Germany trade receivables at fair value through other comprehensive income for an amount of 292 million euros (269 million euros as of December 31, 2021, see Note 16).
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 60
The detail of inventories of the Telefónica Group at December 31, 2022 and December 31, 2021 is as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Audiovisual rights | 823 | 1,131 |
| Mobile terminals and other equipments | 701 | 584 |
| Other inventories | 57 | 71 |
| Inventories impairment provision | (35) | (37) |
| Inventories | 1,546 | 1,749 |
"Audiovisual rights" mainly includes the rights to broadcast sport events (see Note 29.c) and rights to broadcast films, television series and documentaries (see Note 3.j).
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 61
The detail of receivables and other current assets of the Telefónica Group at December 31, 2022 and December 31, 2021 is as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Receivables (Note 16) | 7,340 | 6,903 |
| Trade receivables | 9,680 | 8,926 |
| Impairment of trade receivables | (2,891) | (2,531) |
| Receivables from associates and joint ventures (Note 10) | 151 | 121 |
| Other receivables | 400 | 387 |
| Other current assets | 1,794 | 1,384 |
| Contractual assets (Note 23) | 195 | 133 |
| Capitalized costs (Note 23) | 885 | 668 |
| Prepayments | 714 | 583 |
| Total | 9,134 | 8,287 |
The movement in impairment of trade receivables in 2022 and 2021 is as follows:
| Millions of euros | |
|---|---|
| Impairment provision at December 31, 2020 | 2,549 |
| Allowances | 598 |
| Inclusion of companies | (38) |
| Amounts applied | (545) |
| Translation differences and other | (33) |
| Impairment provision at December 31, 2021 | 2,531 |
| Allowances | 613 |
| Transfers | 12 |
| Amounts applied | (397) |
| Translation differences and other | 132 |
| Impairment provision at December 31, 2022 | 2,891 |
Public-sector net trade receivables at December 31, 2022 and 2021 amounted to 518 million euros and 439 million euros, respectively.
The detail of the age of the accounts receivable balances from customers and their corrections for impairment as of December 31, 2022 and 2021 is as follows:
12/31/2022
| Millions of euros | Trade receivables | Impairment |
|---|---|---|
| Unbilled receivables | 2,495 | (9) |
| Amount not overdue invoiced | 3,011 | (154) |
| Less than 90 days | 1,024 | (160) |
| Between 90 and 180 days | 347 | (150) |
| Between 180 and 360 days | 534 | (381) |
| More than 360 days | 2,269 | (2,037) |
| Total | 9,680 | (2,891) |
12/31/2021
| Millions of euros | Trade receivables | Impairment |
|---|---|---|
| Unbilled receivables | 2,316 | (16) |
| Amount not overdue invoiced | 2,976 | (114) |
| Less than 90 days | 893 | (141) |
| Between 90 and 180 days | 333 | (125) |
| Between 180 and 360 days | 416 | (306) |
| More than 360 days | 1,992 | (1,829) |
| Total | 8,926 | (2,531) |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 62
The breakdown of other financial assets of the Telefónica Group at December 31, 2022 and December 31, 2021 is as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Short-term credits | 128 | 1,306 |
| Short-term deposits and guarantees | 439 | 760 |
| Short-term derivative financial assets (Note 19) | 712 | 995 |
| Other current financial assets | 1,165 | 774 |
| Total | 2,444 | 3,835 |
Short-term credits at December 31, 2021, included bank deposits with a maturity in one month formalized by Telfisa Global, B.V. which amounted to 1,190 million euros.
Short-term deposits and guarantees at December 31, 2022 include current judicial deposits amounting to 106 million euros (see Note 24) constituted by Telefónica Brazil (17 million euros at December 31, 2021) including the judicial deposit of the amount withheld from the acquisition price of OI's mobile assets, in the amount of 522 million Brazilian reais (94 million euros, see Note 5).
At December 31, 2021, 433 million euros of deposits maturing in more than 90 days from Telefónica Móviles Chile were included, contracted with the funds obtained from the issue in November 2021 of a bond (see Appendix III).
Additionally at December 31, 2022 there were 232 million euros registered in deposits (150 million euros at December 31, 2021), associated with collateral guarantees of Telefónica, S.A. classified as current according to the maturity of the underlying derivative instruments which they relate to.
The vast majority of short-term credits and deposits and guarantees recognized at amortized cost and at fair value with changes in "Other comprehensive income" (Note 16) are considered to be low credit risk assets.
"Other current financial assets" include short-term investments in financial instruments to cover commitments undertaken by the Group’s insurance companies, amounted to 126 million euros at December 31, 2021 (105 million euros at December 31, 2021) and were recorded at fair value.
Additionally at December 31, 2022 this included the notes 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. with a notional of 1,000 million dollars equivalent to 939 million euros registered entirely under "Other current financial assets". At December 31, 2021 1,000 million dollars were deposited, of which 591 million euros were registered as "Other current financial assets" and 295 million euros were registered as "Other long-term credits" (see Note 12).
Current financial assets that are highly liquid and have maturity periods of three months or less from the date contracted, and present an insignificant risk of value changes, are recorded under “Cash and cash equivalents” on the accompanying consolidated statement of financial position.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A.# Note 16. Breakdown of financial assets
The breakdown of financial assets of the Telefónica Group at December 31, 2022 is as follows:
| Fair value through profit or loss | Fair value through other comprehensive income | Measurement hierarchy | Amortized cost | Total carrying amount | Total fair value | |
|---|---|---|---|---|---|---|
| Held for trading | Fair value option | Debt instruments | Equity instruments | Hedges | Level 1 (Quoted prices) | |
| Millions of euros | ||||||
| Non-current financial assets (Note 12) | 323 | — | 350 | 465 | 2,404 | 464 |
| Investments | 32 | — | — | 465 | — | 390 |
| Credits and other financial assets | 27 | — | 58 | — | — | 74 |
| Deposits and guarantees | — | — | — | — | — | — |
| Derivative instruments | 264 | — | — | — | 2,404 | — |
| Trade receivables | — | — | 292 | — | — | 292 |
| Trade receivables for subleases | — | — | — | — | — | — |
| Impairment of trade receivables | — | — | — | — | — | — |
| Current financial assets | 405 | — | 833 | — | 466 | 181 |
| Trade receivables (Note 14) | — | — | 792 | — | — | 792 |
| Impairment of trade receivables (Note 14) | — | — | — | — | — | — |
| Other current financial assets (Note 15) | 405 | — | 41 | — | 466 | 181 |
| Cash and cash equivalents | — | — | — | — | — | — |
| Total | 728 | — | 1,183 | 465 | 2,870 | 645 |
The calculation of the fair values of the Telefónica Group's debt instruments required an estimate, for each currency and counterparty, of a credit spread curve using the prices of the Group's bonds and credit derivatives.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022
Telefónica, S. A.
64
The breakdown of financial assets of the Telefónica Group at December 31, 2021 was as follows:
| Fair value through profit or loss | Fair value through other comprehensive income | Measurement hierarchy | Amortized cost | Total carrying amount | Total fair value | |
|---|---|---|---|---|---|---|
| Held for trading | Fair value option | Debt instruments | Equity instruments | Hedges | Level 1 (Quoted prices) | |
| Millions of euros | ||||||
| Non-current financial assets (Note 12) | 506 | — | 269 | 452 | 2,301 | 380 |
| Investments | 27 | — | — | 452 | — | 372 |
| Credits and other financial assets | 8 | — | — | — | — | 8 |
| Deposits and guarantees | — | — | — | — | — | — |
| Derivative instruments | 471 | — | — | — | 2,301 | — |
| Trade receivables | — | — | 269 | — | — | 269 |
| Trade receivables for subleases | — | — | — | — | — | — |
| Impairment of trade receivables | — | — | — | — | — | — |
| Current financial assets | 218 | 1 | 956 | — | 908 | 160 |
| Trade receivables (Note 14) | 1 | — | 917 | — | — | 918 |
| Impairment of trade receivables (Note 14) | — | — | — | — | — | — |
| Other current financial assets (Note 15) | 217 | 1 | 39 | — | 908 | 160 |
| Cash and cash equivalents | — | — | — | — | — | — |
| Total | 724 | 1 | 1,225 | 452 | 3,209 | 540 |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022
Telefónica, S. A.
65
2022
At December 31, 2022, Telefónica, S.A.´s share capital amounted to 5,775,237,554 euros and is 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 Board of Directors of Telefónica, S.A. at its meeting held on April 8, 2022, has resolved to carry out the implementation of the share capital reduction through the cancellation of own shares approved by the Annual General Shareholders’ Meeting held on April 8, 2022. In April 2022, the share capital of Telefónica, S.A. was reduced in the amount of 139,275,057 euros, through the cancellation of 139,275,057 own shares of the Company held as treasury stock, with a nominal value of one euro each. The share capital of the Company resulting from the reduction was set at 5,639,772,963 euros corresponding to 5,639,772,963 shares with a nominal value of one euro each. Related to the capital reduction the share premium was reduced by 409 million euros. The reduction did not entail the return of contributions to the shareholders since the Company is the owner of the cancelled shares. The reduction was carried out with a charge to unrestricted reserves, through the allocation of a reserve for cancelled share capital in an amount equal to the nominal value of the cancelled shares (i.e. for an amount of 139,275,057 euros), which may only be used in compliance with the same requirements as those established for the reduction of share capital, by application of the provisions of section 335. c) of the Spanish Companies Act. Accordingly, as laid down in such section, the creditors of the Company will not have the right to oppose the reduction mentioned in section 334 of the Spanish Companies Act in connection with the share capital reduction. On April 22, 2022, the deed relating to the share capital reduction was registered in the Commercial Registry of Madrid. On June 24, 2022 the deed of capital increase amounting to 135,464,591 euros, divided into 135,464,591 ordinary shares, with a nominal value of one euro each, and issued against reserves as part of the scrip dividend, was filed in the Madrid Commercial registry. Following the share capital increase, the share capital was set up at 5,775,237,554 euros.
The shares of Telefónica, S.A. are represented by book entries that are listed on the Spanish Electronic Market (within the selective Ibex 35 index) and on the four Spanish Stock Exchanges (Madrid, Barcelona, Valencia and Bilbao), as well as on the New York and Lima Stock Exchanges (on these latter two Exchanges through American Depositary Shares (ADSs), with each ADS representing one share of the Company).
2021
At December 31, 2021, Telefónica, S.A.´s share capital amounted to 5,779,048,020 euros and is divided into 5,779,048,020 common shares, of a single series and with a par value of 1 euro each, fully paid in. The Board of Directors of Telefónica, S.A. at its meeting held on April 23, 2021, resolved to carry out the implementation of the share capital reduction through the cancellation of own shares approved by the Annual General Shareholders’ Meeting held on April 23, 2021. The share capital of Telefónica, S.A. was reduced in the amount of 82,896,466 euros, through the cancellation of 82,896,466 own shares of the Company held as treasury stock, with a nominal value of one euro each. The share capital of the Company resulting from the reduction was set at 5,443,534,596 euros corresponding to 5,443,534,596 shares with a nominal value of one euro each. Related to the capital reduction the share premium was reduced by 305 million euros. The reduction was carried out with a charge to unrestricted reserves, through the allocation of a reserve for cancelled share capital in an amount equal to the nominal value of the cancelled shares (i.e. for an amount of 82,896,466 euros), which may only be used in compliance with the same requirements as those established for the reduction of share capital. Accordingly, the creditors of the Company did not have the right to oppose the reduction mentioned in section 334 of the Spanish Companies Act in connection with the share capital reduction. On May 5, 2021, the deed relating to the share capital reduction was registered in the Commercial Registry of Madrid. On June 22, 2021 the deed of capital increase amounting to 194,518,911 euros, divided into 194,518,911 ordinary shares, with a nominal value of one euro each, and issued against reserves as part of the scrip dividend, was filed in the Madrid Commercial registry. Following the share capital increase, the share capital was set up at 5,638,053,507 euros. On November 3, 2021, the Board of Directors agreed to submit for the approval of the General Shareholders Meeting of the Company the adoption of the appropriate corporate resolutions to execute a capital reduction by means of a redemption of treasury shares representing approximately 1.65% of the share capital. On December 23, 2021, the capital increased in the amount of 140,994,513 euros, in which 140,994,513 ordinary shares with a par value of one euro each were issued against reserves as part of the scrip dividend. Following the share capital increase, the share capital was set at 5,779,048,020 euros. On that date, the deed was filed in Madrid Companies' Register.
As regards the authorizations conferred in respect of the share capital, the shareholders acting at the Ordinary General Shareholders’ Meeting held on June 12, 2020 resolved to delegate to the Board of Directors, as broadly as required by Law, pursuant to the provisions of Section 297.1.b) of the Companies Act, the power to increase the share capital on one or more occasions and at any time, within a period of five year 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.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022
Telefónica, S. A.
66The Board of Directors was also authorized to exclude pre-emptive rights in whole or in part, as provided in section 506 of the Companies Act. However, the power to exclude pre-emptive rights is limited to 20% of the share capital on the date on which the resolution is adopted. In accordance with the above-mentioned authorization, as of the end of fiscal year 2022, the Board would be authorized to increase the share capital by the maximum nominal amount of 2,596,065,843 euros. Furthermore, the shareholders acting at 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. Furthermore, 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. Furthermore, on June 8, 2018, shareholders voted to authorize the acquisition by the Board of Directors of Telefónica, S.A. treasury shares, up to the limits and pursuant to the terms and conditions established at the Shareholders’ Meeting, within a maximum five-year period from that date. However, it specified that in no circumstances could the par value of the shares acquired, added to that of the treasury shares already held by Telefónica, S.A. and by any of its controlled subsidiaries, exceed the maximum legal percentage at any time.
Approval was given at the General Shareholders’ Meeting of April 8, 2022 to pay a dividend in two tranches. The first tranche through a scrip dividend amounting to approximately 0.15 euros per share took place on June 2022 and consist on the assignment of free allotment rights with an irrevocable purchase commitment by the Company. The second tranch amounting to approximately 0.15 euros per share took place in December 2022, after the adoption of the corresponding corporate resolutions.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 67
At its meeting held on May 25, 2022, the Executive Commission of Telefónica, S.A. Board of Directors agreed to carry out the execution of the increase in paid-up capital, related to the shareholders compensation by means of a scrip dividend. Thus, each shareholder received one free allotment right for each Telefónica share held. Such free allotment rights were traded on the Continuous Market in Spain during a period of 15 calendar days. Once this trading period ended, the shareholders of 25.54% of the free-of-charge allotment rights accepted the irrevocable purchase commitment assumed by Telefónica, S.A. The payment to these shareholders was made on June 16, 2022. The gross impact of this dividend amounts to 213 million euros. On the other hand, the shareholders of 74.46% of the free-of-charge allotment rights were entitled, therefore, to receive new shares of Telefónica, S.A. So the final number of shares issued on June 24, 2022 in the capital increase was 135,464,591 shares with a nominal value of 1 euro each. The second tranch of the dividend was paid on December 15, 2022 and had an impact in equity amounting to 854 million euros.
Approval was given at the General Shareholders’ Meeting of April 23, 2021 to pay a scrip dividend amounting to approximately 0.35 euros per share in two tranches, consisting of the assignment of free allotment rights with an irrevocable purchase commitment by the Company, and a subsequent capital increase by means of the issue of new shares to fulfill said allotments, following a specific calculation mechanism which might result in variations of the amount. The distribution of the first tranch, amounting approximately 0.20 euros per share, took place in June of 2021 and the second tranch amounting approximately 0.15 euros per share took place in December 2021, after the adoption of the corresponding corporate resolutions.
At its meeting held on May 26, 2021, the Executive Commission of Telefónica, S.A. Board of Directors agreed to carry out the execution of the increase in paid-up capital, related to the shareholders compensation by means of a scrip dividend. Thus, each shareholder received one free allotment right for each Telefónica share held. Such free allotment rights were traded on the Continuous Market in Spain during a period of 15 calendar days. Once this trading period ended, the shareholders of 28.53% of the free-of-charge allotment rights accepted the irrevocable purchase commitment assumed by Telefónica, S.A. Cash payment to these shareholders was made on June 17, 2021. The gross impact of this dividend amounts to 308 million euros. On the other hand, the shareholders of 71.47% of the free- of-charge allotment rights were entitled, therefore, to receive new shares of Telefónica, S.A. So the final number of shares issued after June 22, 2021 in the capital increase was 194,518,911 shares with a nominal value of 1 euro each. The Executive Commission of Telefónica, S.A. Board of Directors meeting of November 3, 2021 agreed the implementation of the second capital increase with charge to reserves related to the shareholder compensation by means of a scrip dividend. Thus, each shareholder received 1 free allotment right for each Telefónica share held. The shareholders of 34.98% of the free-of-charge allotment rights accepted the irrevocable purchase commitment assumed by Telefónica, S.A. Cash payment was made on December 17, 2021 and had an impact in equity amounting to 292 million euros. On the other hand, the shareholders of 65.02% of the free-of-charge allotment rights were entitled, therefore, to receive new shares of Telefónica, S.A. So the final number of shares issued on December 23, 2021 in the capital increase was 140,994,513 shares with a nominal value of one euro each.
Approval was given at the General Shareholders’ Meeting of June 12, 2020 to pay a scrip dividend amounting to approximately 0.40 euros per share in two tranches, consisting of the assignment of free allotment rights with an irrevocable purchase commitment by the Company, and a subsequent capital increase by means of the issue of new shares to fulfill said allotments, following a specific calculation mechanism which might result in variations of the amount. The distribution of the first tranche, amounting approximately 0.20 euros per share, took place in June of 2020 and the second tranche, amounting approximately 0.20 euros per share, took place in December 2020, after the adoption of the corresponding corporate resolutions.
At its meeting held on June 12, 2020, the Board of Directors agreed to carry out the execution of the increase in paid-up capital, related to the shareholders compensation by means of a scrip dividend. Thus, each shareholder received one free allotment right for each Telefónica share held. Such free allotment rights were traded on the Continuous Market in Spain during a period of 15 calendar days. Once this trading period ended, the shareholders of 36.99% of the free-ofcharge allotment rights accepted the irrevocable purchase commitment assumed by Telefónica, S.A. Cash payment was made on July 3, 2020 and had an impact in equity amounting to 371 million euros. On the other hand, the shareholders of 63.01% 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 30, 2020 in the capital increase was 136,305,986 shares with a nominal value of 1 euro each. The Executive Commission of Telefónica, S.A. Board of Directors meeting of December 4, 2020 agreed the implementation of the second capital increase with charge to reserves related to the shareholder compensation by means of a scrip dividend.
The Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A.68 shareholders of 33.12% of the free of- charge allotment rights accepted the irrevocable purchase commitment assumed by Telefónica, S.A. Cash payment was made on December 30, 2020 and had an impact in equity amounting to 342 million euros. On the other hand, the shareholders of 66.88%of the free of-charge allotment rights were entitled, therefore, to receive new shares of Telefónica, S.A. So the final number of ordinary shares with a nominal value of 1 euro issued in the capital increase was 197,993,390 corresponding to 3.72% of the share capital, being 197,993,390 euros the capital increase.
Proposed distribution of results of the parent company Telefónica, S.A. generated 880 million euros of losses in 2022. The Company’s Board of Directors will submit the following proposed distribution of 2022 results for approval at the Shareholders’ Meeting:
| Millions of euros | Legal reserve | Unrestricted reserves | Total |
|---|---|---|---|
| (880) | (880) |
c) Other equity instruments
Undated deeply subordinated securities
Unless specified otherwise, undated deeply subordinated securities were issued by Telefónica Europe, B.V. The characteristic of undated deeply subordinated securities, the detail of the tender offer and the amounts repurchased in the operations and the amount amortized in advance, are the following (million euros):
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 69
| Issue date | Annual Fix | Variable | Exercisable by issuer | Tender Offer 11/23/2022 (1) | Amount repurchased 12/31/2022 | Redemption 12/31/2022 |
|---|---|---|---|---|---|---|
| 11/23/2022 (1) | 7.125% from 11/23/28 | SWAP + spread | incremental 2028 | — | — | — |
| 11/24/2021 (2) | 2.875% from 05/24/28 | SWAP + spread | incremental 2028 | 750 | — | — |
| 2/12/2021 (2) | 2.376% from 05/12/29 | SWAP + spread | incremental 2029 | 1,000 | — | — |
| 2/5/2020 (1) | 2.502% from 05/05/27 | SWAP + spread | incremental 2027 | 500 | — | — |
| 09/24/2019 | 2.875% from 09/24/27 | SWAP + spread | incremental 2027 | 500 | — | — |
| 03/14/2019 | 4.375% from 03/14/25 | SWAP + spread | incremental 2025 | 1,300 | — | — |
| 03/22/2018 | 3% from 12/04/23 | SWAP + spread | incremental 2023 | 824 | 824 | (74) |
| 3.875% from 09/22/26 | SWAP + spread | incremental 2026 | 1,000 | — | — | |
| 12/07/2017 | 2.625% from 06/07/23 | SWAP + spread | incremental 2023 | 676 | 676 | (547) |
| 03/31/2014 | 5.875% from 03/31/24 | SWAP + spread | incremental 2024 | 1,000 | — | — |
| Total | 7,550 | 7,550 |
(1) Green undated deeply subrodinated securities (see Note 29d)
(2) Sustanible undated deeply subordinated securities (see Nota 29d)
In all issuances of undated deeply subordinated securities (hybrid instruments), the issuer has an option to defer the payment of coupons and holders of such securities cannot call for payment. As the repayment of principal and the payment of coupons depend solely on Telefónica’s decision, these undated deeply subordinated securities are equity instruments and are presented under “Other equity instruments” in the accompanying consolidated statement of changes in equity.
In November 2022, Telefónica Europe, B.V. carried out several transactions on its hybrid capital:
(a) a new issue amounting to 750 million euros, guaranteed by Telefónica, S.A. (see Note 29.d);
(b) a tender offer on a hybrid instruments, denominated in euros, with first call dates in March and September 2023. The issuer accepted the purchase in cash of the tendered securities in a principal amount of 621 million euros.
In December 2022, Telefónica Europe, B.V. was exercised the clean-up call option for the remaining hybrid instruments with first non-call date March 2023, with an aggregate principal amount of 129 million euros.
In 2022, the payment of the coupons related to hybrids instruments, in an aggregate amount, net of tax effects, of 201 million euros (263 million and 335 million euros in 2021 and 2020, respectively), was recorded as “Retained earnings” in the consolidated statements of changes in equity.
In 2022 and 2021, the payments related to the undated deeply subordinated securities include the premium of the tender offers carried out in these periods amounting to -1 million euros and 61 million euros, respectively.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 70
d) Legal reserve
According to the consolidated text of the Spanish 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 of December 31, 2022 the legal reserve amounts to 1,059 million euros representing 18.34% of the share capital at the date.
e) Retained earnings
These reserves include undistributed profits of companies constituting the consolidated Group minus interim dividends paid against profit for the year, actuarial gains and losses, the impact of the asset ceiling on defined benefit plans and the payment of coupons related to subordinated securities, if applicable. These reserves also include revaluation reserves and the reserve for canceled share capital. These reserves are regulated by some restrictions for their distribution.
Revaluation reserves
The balance of Revaluation reserves arose as a result of the revaluation made pursuant to Spanish Royal Decree- Law 7/1996 of June 7, and may be used, free of tax, to offset any losses incurred in the future and to increase capital. It may also 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 was recorded for accounting purposes or when the revalued assets were transferred or recognized. In this respect, 4 million euros were reclassified to “Retained earnings” in 2022 (4 million euros in 2021) corresponding to revaluation reserves subsequently considered to be unrestricted. At December 31, 2022, this reserve amounted to 54 million euros (58 million euros at December 31, 2021).
Reserve for canceled share capital
In accordance with Section 335.c) of the Spanish 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 should record a reserve for canceled share capital for an amount equal to the par value of the canceled shares, which can only be used upon satisfaction of the same requirements as those applicable to the reduction of share capital. In 2022 was recorded in this account 139 million euros (83 million euros in 2021). The cumulative amount as of December 31, 2022 is 954 million euros.
f) Translation differences
The breakdown of the accumulated contribution of translation differences attributable to equity holders of the parent at December 31 is as follows:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Brazilian real | (14,031) | (15,292) | (15,365) |
| Pound sterling | (322) | 309 | (3,344) |
| Venezuelan bolivar | (3,734) | (3,755) | (3,754) |
| Argentine peso | (1,364) | (1,702) | (2,178) |
| Other currencies | (1,272) | (1,452) | (1,339) |
| Total Group | (20,723) | (21,892) | (25,980) |
The negative translation differences of Telefónica United Kingdom accumulated in equity at June 1, 2021 were reclassified to the 2021 income statement as a result of the establishment of VMED O2 UK Ltd (see Note 2), for an amount of 3,135 million euros. Likewise, the negative translation differences associated with the sale of the Telxius Group tower divisions and Telefónica de Costa Rica were also reclassified to the income statement for the amount of 37 and 21 million euros, respectively.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 71
g) Treasury share instruments
Telefónica, S.A. held the following treasury shares at December 31, 2022, 2021 and 2020:
| Euros per share | Number of shares | Acquisition price | Trading price | Market value(*) | % | |
|---|---|---|---|---|---|---|
| Treasury shares at 12/31/22 | 85,217,621 | 4.00 | 3.39 | 288 | 1.476% | |
| Treasury shares at 12/31/21 | 139,329,370 | 3.92 | 3.85 | 537 | 2.411% | |
| Treasury shares at 12/31/20 | 98,231,380 | 4.84 | 3.25 | 319 | 1.777% |
(*) Millions of euros.
The following transactions involving treasury shares were carried out in 2022, 2021 and 2020:
| Number of shares | |
|---|---|
| Treasury shares at 12/31/19 | 77,562,635 |
| Acquisitions | 68,640,303 |
| Scrip dividend | 6,252,817 |
| Employee share option plan | (3,118,898) |
| Other movements | (51,105,477) |
| Treasury shares at 12/31/20 | 98,231,380 |
| Acquisitions | 122,032,764 |
| Scrip dividend | 6,291,518 |
| Employee share option plan | (4,329,826) |
| Capital reduction | (82,896,466) |
| Treasury shares at 12/31/21 | 139,329,370 |
| Acquisitions | 90,403,530 |
| Scrip dividend | 563,415 |
| Employee share option plan | (5,391,956) |
| Capital reduction | (139,275,057) |
| Sales | (411,681) |
| Treasury shares at 12/31/22 | 85,217,621 |
There were treasury shares purchases in 2022 amounting to 365 million euros (478 and 234 million euros in 2021 and 2020, respectively)
On February 28, 2020, Telefónica de Contenidos, S.A.U. (currently Telefónica España Filiales, S.A.) acquired 50% of the capital stock of Prosegur Alarmas, S.L. with an in- kind delivery of 49,545,262 Telefónica shares, previously acquired to the Company, equivalent to 266 million euros as of the quotation on the delivery date included in "other movements".
On December 31, 2022, the third cycle of the Telefónica, S.A long-term incentive plan called "Performance Share Plan 2018-2022" and "Talent for the Future Share Plan 2018-2022" (see Note 27) ended.The Company also has different derivative instruments, to be settled by offset, on a nominal value equivalent to 193 million of Telefónica shares recorded in the statement of financial position at December 31, 2022 in accordance with their maturity date and fair value (192 million euros at December 31, 2021).
h) Equity attributable to non-controlling interests
“Equity attributable to non-controlling interests” represents the share of non-controlling interests in the equity and income or loss for the year of fully consolidated Group companies. The movements in this balance for the 2022, 2021 and 2020 consolidated statements of financial position are as follows:
Millions of euros
| | Balance at 12/31/21 | Sales of non- controlling interests and inclusion of companies | Acquisitions of non- controlling interests and exclusion of companies | Dividends paid | Profit/ (loss) for the year | Change in translation differences | Other movements | Balance at 12/31/22 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Telefônica Brasil, S.A. | 3,106 | — | (86) | (241) | 198 | 425 | (3) | 3,399 |
| Telefónica Deutschland Holding, A.G. | 2,353 | — | (48) | (161) | 68 | — | 25 | 2,237 |
| Colombia Telecomunicaciones, S.A., ESP | 409 | — | — | (7) | (4) | (47) | (7) | 344 |
| Telxius Telecom, S.A. | 546 | — | — | — | 50 | 13 | (10) | 599 |
| Other | 63 | 23 | (44) | (2) | (4) | 2 | 3 | 41 |
| Total | 6,477 | 23 | (178) | (411) | 308 | 393 | 8 | 6,620 |
Millions of euros
| | Balance at 12/31/20 | Sales of non- controlling interests and inclusion of companies | Acquisitions of non- controlling interests and exclusion of companies | Dividends paid | Profit/ (loss) for the year | Change in translation differences | Other movements | Balance at 12/31/21 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Telefônica Brasil, S.A. | 3,106 | — | (63) | (236) | 271 | 17 | 11 | 3,106 |
| Telefónica Deutschland Holding, A.G. | 2,346 | — | (56) | (165) | 218 | — | 10 | 2,353 |
| Colombia Telecomunicaciones, S.A., ESP | 408 | — | — | — | 7 | (28) | 22 | 409 |
| Telxius Telecom, S.A. | 1,089 | — | — | (2,645) | 2,098 | 16 | (12) | 546 |
| Other | 76 | — | — | (5) | (14) | 5 | 1 | 63 |
| Total | 7,025 | — | (119) | (3,051) | 2,580 | 10 | 32 | 6,477 |
Millions of euros
| | Balance at 12/31/19 | Sales of non- controlling interests and inclusion of companies | Acquisitions of non- controlling interests and exclusion of companies | Dividends paid | Profit/ (loss) for the year | Change in translation differences | Other movements | Balance at 12/31/20 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Telefônica Brasil, S.A. | 4,442 | (2) | — | (272) | 217 | (1,296) | 17 | 3,106 |
| Telefónica Deutschland Holding, A.G. | 2,544 | — | — | (156) | (30) | — | (12) | 2,346 |
| Colombia Telecomunicaciones, S.A., ESP | 526 | — | — | — | 11 | (62) | (67) | 408 |
| Telxius Telecom, S.A. | 681 | 323 | — | (44) | 187 | (69) | 11 | 1,089 |
| Other | 139 | — | (3) | (44) | (10) | (8) | 2 | 76 |
| Total | 8,332 | 321 | (3) | (516) | 375 | (1,435) | (49) | 7,025 |
In 2022, "sales of non-controlling interest and inclusion of companies" reflected the impact of the acquisition by the consortion form by CAA and Vauban of 45% of the company Bluevia for 23 million euros (see Note 2). In 2021 noteworthy is the result attributable to minority shareholders of Telxius from the sale of its telecommunications towers division (see Note 2) and the dividend distribution related with this transaction (Note 28). In 2020, "Sales of non-controlling interests and inclusion of companies" reflected the capital increase of Telxius amounting to 645 million euros, of which 323 million euros correspond to non-controlling interest. The profit for the year attributed to Telxius Group in 2020 includes the effect of the recognition of deferred tax assets for temporary differences of Telxius Towers Germany amounting to 184 million euros.
Note 4 contains the revenues, OIBDA, Operating income, capital expenditure and the main items of the statement of financial position for the main segments of the Telefónica Group with non-controlling interests, namely Telefónica Brazil and Telefónica Germany. The detail of these figures for Colombia Telecomunicaciones and Telxius Telecom is as follows:
Millions of euros
| Colombia Telecomunicaciones | 2022 | 2021 | 2020 |
| :-------------------------- | :---- | :---- | :---- |
| Revenues | 1,517 | 1,312 | 1,249 |
| OIBDA | 569 | 413 | 438 |
| Depreciation and amortization | (308) | (314) | (325) |
| Operating income | 261 | 99 | 113 |
| Capital Expenditure | 261 | 151 | 156 |
| Fixed Assets | 1,116 | 1,264 | 1,530 |
| Total allocated assets | 2,696 | 2,725 | 2,864 |
| Total allocated liabilities | 2,001 | 1,878 | 2,049 |
Millions of euros
| Telxius Telecom | 2022 | 2021 | 2020 |
| :-------------------------- | :---- | :---- | :---- |
| Revenues | 421 | 587 | 826 |
| OIBDA | 218 | 6,332 | 520 |
| Depreciation and amortization | (66) | (72) | (269) |
| Operating income | 152 | 6,260 | 251 |
| Capital Expenditure | 65 | 91 | 348 |
| Fixed Assets | 507 | 475 | 452 |
| Total allocated assets | 2,129 | 2,083 | 2,840 |
| Total allocated liabilities | 1,163 | 1,225 | 2,785 |
The statements of cash flows of these companies are as follows:
Millions of euros
| Telefónica Brazil | 2022 | 2021 | 2020 |
| :-------------------------- | :------ | :------ | :------ |
| Net cash flow provided by operating activities | 3,678 | 2,949 | 3,517 |
| Net cash flow used in investing activities | (2,741) | (1,295) | (1,238) |
| Net cash flow used in financing activities | (1,674) | (1,467) | (1,817) |
| | (737) | 187 | 462 |
Millions of euros
| Telefónica Germany | 2022 | 2021 | 2020 |
| :-------------------------- | :------ | :------ | :------ |
| Net cash flow provided by operating activities | 2,732 | 2,407 | 2,386 |
| Net cash flow used in investing activities | (1,608) | (875) | (459) |
| Net cash flow used in financing activities | (1,339) | (1,820) | (1,342) |
| | (215) | (288) | 585 |
Millions of euros
| Colombia Telecomunicaciones | 2022 | 2021 | 2020 |
| :-------------------------- | :------ | :------ | :------ |
| Net cash flow provided by operating activities | 180 | 344 | 276 |
| Net cash flow provided by (used in) investing activities | 30 | (153) | (189) |
| Net cash flow provided by (used in) financing activities | (225) | (218) | (42) |
| | (15) | (27) | 45 |
Millions of euros
| Telxius Telecom | 2022 | 2021 | 2020 |
| :-------------------------- | :------ | :------ | :------ |
| Net cash flow provided by operating activities | 152 | (627) | 528 |
| Net cash flow provided by (used in) investing activities | (63) | 6,874 | (1,141) |
| Net cash flow provided by (used in) financing activities | (89) | (6,164) | 575 |
| | — | 83 | (38) |
The breakdown of financial liabilities at December 31, 2022 and the corresponding maturities schedule is as follows:
Millions of euros
| | Current | Non-current | Maturity 2023 | 2024 | 2025 | 2026 | 2027 | Subsequent years | Non-current total | Total |
| :---------------------------------- | :------ | :---------- | :------------ | :---- | :---- | :---- | :---- | :--------------- | :---------------- | :---- |
| Debentures and bonds | 1,948 | 1,130 | 3,126 | 2,098 | 4,170 | — | — | 18,796 | 29,320 | 31,268 |
| Promissory notes & commercial paper | 544 | 127 | 54 | 12 | 3 | — | — | 159 | 355 | 899 |
| Total Issues | 2,492 | 1,257 | 3,180 | 2,110 | 4,173 | — | — | 18,955 | 29,675 | 32,167 |
| Loans and other payables | 1,184 | 673 | 572 | 202 | 376 | — | — | 1,537 | 3,360 | 4,544 |
| Derivative instruments (Note 19) | 344 | 80 | 65 | 109 | — | — | — | 520 | 1,250 | 2,024 |
| Total | 4,020 | 2,010 | 3,817 | 2,421 | 5,069 | — | — | 21,742 | 35,059 | 39,079 |
The estimate of future payments for interest on these financial liabilities at December 31, 2022 is as follows: 1,254 million euros in 2023, 1,147 million euros in 2024, 1,057 million euros in 2025, 978 million euros in 2026, 871 million euros in 2027 and 7,840 million euros in years after 2027. For floating rate financing, the Group mainly estimates future interest using the forward curve of the various currencies at December 31, 2022.
Derivative instruments in the table above include the fair value of derivatives classified as financial liabilities, i.e. when they have a negative mark-to-market, yet excluding the fair value of derivatives classified as current financial assets (712 million euros, see Note 15) and non-current financial assets (2,668 million euros, see Note 12).
In 2021 and 2022, the Group entered into agreements to extend payment terms with various suppliers, and with factoring companies when such payments are discounted. When the new extended payment terms exceed customary payment terms in the industry, trade liabilities are reclassified to other financial liabilities and the deferred payments made are recognized in net cash flows used in financing activities (see Note 28). At December 31, 2022, there was no outstanding balance pending payment. At December 31, 2021 the corresponding amount pending payment recognized in "Loans and other payables" line was 36 million euros. The deferred payments made in relation to this item during the year amounted to 41 million euros (108 million euros in 2021).
The composition of the financial liabilities by category at December 31, 2022 and 2021 is as follows:
December 31, 2022
| | Fair value through profit or loss | Measurement hierarchy | | | | Liabilities at amortized cost | Total carrying amount | Total fair value |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| | Held for trading | Fair value option | Hedges | Level 1 (Quoted prices) | Level 2 (Other directly observable market inputs) | Level 3 (Inputs not based on observable market data) | | | |
| Issues | — | — | — | — | — | — | 32,167 | 32,167 | 29,314 |
| Loans and other payables | — | — | — | — | — | — | 4,544 | 4,544 | 4,514 |
| Derivative instruments | 973 | — | 1,395 | — | — | — | — | 2,368 | 2,368 |
| Total financial liabilities | 973 | — | 1,395 | — | — | — | 36,711 | 39,079 | 36,196 |
December 31, 2021
| | Fair value through profit or loss | Measurement hierarchy | | | | Liabilities at amortized cost | Total carrying amount | Total fair value |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| | Held for trading | Fair value option | Hedges | Level 1 (Quoted prices) | Level 2 (Other directly observable market inputs) | Level 3 (Inputs not based on observable market data) | | | |
| Issues | — | — | — | — | — | — | 35,408 | 35,408 | 39,412 |
| Loans and other payables | — | — | — | — | — | — | 4,693 | 4,693 | 4,656 |
| Derivative instruments | 524 | — | 1,670 | 6 | — | — | — | 2,194 | 2,194 |
| Total financial liabilities | 524 | — | 1,670 | 6 | — | — | 40,101 | 42,295 | 46,262 |
The calculation of the fair values of the Telefónica Group’s debt instruments required an estimate of the credit spread curve for each currency and corresponding subsidiary using the prices of the Group’s bonds and credit derivatives.At December 31, 2022, some of the financing arranged by Telefónica Group companies in Latin America (Peru), which amounted to approximately 1% of the Telefónica Group’s gross debt, was subject to compliance with certain financial covenants. To date, these covenants are being met and have no impact on the debt of the Telefónica Group companies. Due to the absence of cross-defaults, breach of the covenants would not affect the debt at Telefónica, S.A. level. Some of the financial liabilities of Telefónica Group includes adjustments in the amortized cost at December 31, 2022 and 2021 as a result of fair value interest rate and exchange rate hedges.
The movement in issues, promissory notes, commercial paper, loans and other payables in 2022 and 2021 arising from financial activities is as follows:
| Millions of euros | Balance at 12/31/2021 | Cash received | Cash paid | Translation differences and exchange gains and losses | Financial updates | Other movements | Balance at 12/31/2022 |
|---|---|---|---|---|---|---|---|
| Issues | 33,920 | 1,746 | (3,541) | 724 | (1,623) | 42 | 31,268 |
| Promissory notes and commercial paper | 1,488 | 7 | (600) | 4 | — | — | 899 |
| Loans and other payables | 4,693 | 742 | (1,802) | 55 | (38) | 894 | 4,544 |
| Millions of euros | Balance at 12/31/2020 | Cash received | Cash paid | Translation differences and exchange gains and losses | Financial updates | Other movements | Balance at 12/31/2021 |
|---|---|---|---|---|---|---|---|
| Issues | 38,749 | 561 | (5,847) | 889 | (444) | 12 | 33,920 |
| Promissory notes and commercial paper | 2,273 | 53 | (1,042) | 5 | — | 199 | 1,488 |
| Loans and other payables | 4,535 | 3,120 | (3,178) | (32) | 80 | 168 | 4,693 |
Financial updates of debenture and bond issues include mainly the value adjustment of the basis adjustment bonds due to their fair value hedges, impacted by interest rate hikes. At December 31, 2022, the nominal amount of outstanding debentures and bonds issues was 31,095 million euros (32,156 million euros at December 31, 2021). Appendix III presents the characteristics of all outstanding debentures and bond issues at the year-end 2022, and the significant issues made during the year.
Telefónica, S.A. has a full and unconditional guarantee on issues made by Telefónica Emisiones, S.A.U., and Telefónica Europe, B.V., both of which are wholly owned finance subsidiaries of Telefónica, S.A. No other subsidiaries of Telefónica, S.A. provide guarantees on these issues.
The main programs for issuance of promissory notes and commercial paper are the following:
Other movements in "Loans and other payables" at December 31, 2022 include collections and payments related to collateral liabilities deposit associated with Telefónica, S.A. debt for a net amount of 580 million euros (309 million euros at December 31, 2021). The average interest rate on outstanding loans and other payables at December 31, 2022 was 3.45% (1.30% in 2021). This percentage does not include the impact of hedges arranged by the Group.
The main financing transactions included under “Interest-bearing debt” line outstanding at December 31, 2022 and 2021 and their nominal amounts are provided in Appendix V. Interest-bearing debt arranged or repaid in 2022 mainly includes the following:
| Description | Limit 12/31/2022 (million euros) | Currency | Outstanding balance 12/31/2022 (million euros) | Arrangement date | Maturity date | Drawndown 2022 (million euros) | Repayment 2022 (million euros) |
|---|---|---|---|---|---|---|---|
| Telefónica, S.A. | |||||||
| Bilateral loan | — | EUR | 150 | 09/26/2022 | 12/15/2032 | 150 | — |
| Sustainable syndicated (1) | 5,500 | EUR | — | 03/15/2018 | 01/13/2027 | — | — |
| Bilateral loan | 125 | EUR | — | 12/23/2022 | 06/23/2033 | — | — |
| Colombia Telecomunicaciones S.A. E.S.P. | |||||||
| Bilateral loan (2) | — | USD | — | 03/24/2020 | 01/26/2022 | — | 117 |
| Telefónica Brasil, S.A. | |||||||
| Bilateral loan | — | USD | 199 | 04/04/2022 | 09/28/2023 | 199 | — |
| Bluevia Fibra S.L.U. | |||||||
| Syndicated | 360 | EUR | 245 | 11/16/2022 | 12/20/2027 | 245 | — |
| Telxius Telecom, S.A. | |||||||
| Syndicated | 300 | EUR | 201 | 12/01/2017 | 12/01/2024 | 100 | 70 |
(1) On January 13, 2022 there was maturity extension of the sustainability-linked syndicated loan facility for 5,500 million euros. The loan has two annual extension options at Telefónica, S.A. request with a maturity maximum up to 2029 (see Note 29.d).
(2) On January 26, 2022 there was an early repayment for 132 million dollars of the bilateral loan originally scheduled to mature in 2023.
At December 31, 2022, the Telefónica Group presented availabilities of financing from different sources that amounted to approximately 11,737 million euros (12,182 million euros at December 31, 2021), of which 11,434 million euros will mature in more than twelve months. Within these availabilities of financing, 10,114 million euros are included, whose interests are linked to the fulfillment of sustainability objectives. Of these, 3,864 million euros correspond to committed lines and bilateral financing, 750 million euros correspond to the sustainable syndicated loan of Telefónica Germany GmbH & Co. OHG (see Annex V) and 5,500 million euros correspond to the sustainable syndicated loan of Telefónica, S.A. (see Note 29.d).
The breakdown of “Loans and other payables” line by currency at December 31, 2022 and 2021, and the equivalent value of foreign-currency loans in euros, is as follows:
| Currency | Local Currency 12/31/2022 | Local Currency 12/31/2021 | Euros 12/31/2022 | Euros 12/31/2021 |
|---|---|---|---|---|
| Euro | 2,823 | 3,148 | 2,823 | 3,148 |
| U.S. dollar | 514 | 885 | 481 | 781 |
| Brazilian real | 1,688 | 225 | 303 | 36 |
| Colombian peso | 1,402,435 | 1,399,759 | 273 | 310 |
| Mexican peso | 4,501 | 64 | 217 | 3 |
| Uruguayan peso | 5,456 | 5,456 | 128 | 108 |
| Chilean Peso | 181,601 | 177,845 | 199 | 186 |
| Other currencies | 120 | 121 | ||
| Total Group | 4,544 | 4,693 |
The Telefónica Group 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 the Group companies are as follows:
The Telefónica Group actively manages these risks through the use of derivatives (primarily on exchange rates, interest rates, credit, share prices and commodities) and by incurring debt in local currencies, where appropriate, with a view to optimize the financial cost and to stabilizing cash flows, the income statement and investments. In this way, it attempts to protect the Telefónica Group’s solvency, facilitate financial planning and take advantage of investment opportunities.# The Telefónica Group manages its exchange rate risk and interest rate risk in terms of net financial debt (including leases under IFRS 16) plus commitments as calculated by the Group.
The Telefónica Group believes that these parameters are more appropriate to understand its debt position. Net financial debt and net financial debt plus commitments take into account the impact of the Group’s cash balance and cash equivalents including derivatives positions with a positive value linked to liabilities. Neither net financial debt nor net financial debt plus commitments as calculated by the Telefónica Group should be considered as a substitute for gross financial debt (the sum of current and non-current interest- bearing debt). For a more detailed description on reconciliation of net financial debt and net financial debt plus commitments to gross financial debt, see Note 2.
The fundamental objective of the exchange rate risk management policy is that, in event of depreciation in foreign currencies relative to the euro, any potential losses in the value of the OIBDA generated by the businesses in such currencies (caused by depreciation in exchange rates of a foreign currency relative to the euro) are offset (to some extent) by savings from the reduction in the euro value of debt denominated in such currencies. This objective is also reflected on the decrease of the sensitivity to exchange rate variations of the net debt to OIBDA ratio, in order to protect the Group's solvency. The degree of exchange rate hedging varies depending on the type of investment and may easily and actively be adjusted. For transactions of purchase or sale of business in currencies other than euro, additional hedges can be made on the estimated prices of the transactions or on estimated cash flows and OIBDA.
At December 31, 2022, the net financial debt in Latin American currencies was equivalent to approximately 6,360 million euros (6,853 million euros in 2021). However, the Latin American currencies in which this debt is denominated is not distributed in proportion to the OIBDA generated in each currency. The future effectiveness of the strategy described above as an economic hedge of exchange rate risks therefore depends on which currencies depreciate relative to the euro.
Telefónica occasionally takes out dollar-denominated debt to hedge the euro-dollar intermediate component in the relation Euro-Latin American currencies, either in Spain (where such debt is associated with an investment as long as it is considered to be an effective hedge) or in the country itself, where the market for local currency financing or hedges may be inadequate or non-existent. At December 31, 2022, the Telefónica Group’s net financial debt denominated in dollars to hedge that component was equivalent to 978 million euros of asset position (418 million euros of asset position in 2021).
At December 31, 2022, net financial debt in pounds sterling was equivalent to 597 million euros (374 million euros at December 31, 2021). As a consequence of setting up in June 2021 of the joint venture VMO2 (see Note 2), the previous objective of maintaining a debt in pounds sterling in the consolidated balance sheet of the Group of twice OIBDA has been modified, as a result of changing the consolidation of UK assets (VMO2 is registered by equity method) and incorporating VMO2 to leverage higher than the ratio of twice Debt OIBDA. The synthetic debt target denominated in pounds will be directly related to the flows that are expected to be repatriated from VMO2.
The Telefónica Group also manages exchange rate risk by seeking to reduce the negative impact of any exchange rate exposure on the income statement, as a result of transactions recognized on the statement of financial position sheet and highly probable transactions, regardless of whether there are open positions. Such open position exposure can arise for any of three reasons: (i) a thin market for local derivatives or difficulty in sourcing local currency finance which makes 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 financing 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 risk of depreciation.
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, as follows: issues in currencies other than the functional currency of the Group company, 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.
In 2022, net foreign exchange results were obtained from the management of the exchange rate (excluding monetary correction) for a total negative net result of 23.4 million euros (negative net result of 0.2 million euros in 2021).
The following table illustrates the sensitivity of foreign currency gains and sensitivity losses and of equity to changes in exchange rates, where: a) in calculating the impact on the income statement, the exchange rate position affecting the income statement at the end of 2022 was considered constant during 2023; b) in calculating the impact on equity, only monetary items have been considered, namely debt and derivatives such as hedges of net investment and loans to subsidiaries related to the investment, breakdown of which is considered constant in 2023 and identical to that existing at the end of 2022. In both cases, Latin American currencies are assumed to change their value against the dollar and the rest of the currencies against the euro by 10%.
| Millions of euros | Currency | Change | Impact on the consolidated income statement | Impact on consolidated equity |
|---|---|---|---|---|
| All currencies vs EUR | 10% | (11) | (314) | |
| USD vs EUR | 10% | — | (48) | |
| Other currencies vs EUR | 10% | 1 | (56) | |
| Latin American currencies vs USD | 10% | (12) | (210) | |
| All currencies vs EUR | (10%) | 11 | 314 | |
| USD vs EUR | (10%) | — | 48 | |
| Other currencies vs EUR | (10%) | (1) | 56 | |
| Latin American currencies vs USD | (10%) | 12 | 210 |
The Group’s monetary position in Venezuela at December 31, 2022 is a net asset position of 4,206 million Venezuelan digital bolivars equivalent to 87 million euros (240 million Venezuelan digital bolivars equivalent to 13 million euros at December 31, 2021). The net monetary position exposure in 2022 has been an asset position, which led to a higher financial expense of 101 million euros due to the effect of the monetary correction for inflation during the year (24 million euros of income in 2021).
The main objective of the interest rate risk management policy is to bring the Company's financing costs in line with the budget for financial expenses for the current year, as well as the current strategic plan. In accordance with this objective, Telefónica decided to actively adjust the exposure of its debt to interest rates, i.e., the amount of debt that would accrue interest at fixed rates and variable rates. In order to meet this target, Telefónica mainly carried out the following:
a) The interest rate of borrowings tied to a variable interest rate was set.
b) Interest rate fluctuations of debt tied to a variable interest rate were reduced.
c) Fixed rate debt instruments were converted into variable market rate debt instruments.
These transactions may be carried out against an existing underlying asset or those that are highly likely to take place in the future (for example, a highly probable future issue of debt).
The Telefónica Group’s financial expenses are exposed to changes in interest rates. In 2022 the Euro, Brazilian Real, British Pound, American Dollar and Chilean peso were the short-term rates that accounted for most of the exposure. In nominal terms, at December 31, 2022, 88.3% of Telefónica’s net financial debt was pegged to fixed interest rates for a period greater than one year, compared to 95.4% in 2021. Of the remaining 11.7% (net debt at floating rates or at fixed rates maturing within one year), no debt had interest rates bounded in a period over one year, the same as on December 31, 2021.
In addition, early retirement and Individual Suspension Plan liabilities (see Note 24) were discounted to present value over the year, based on the curve for instruments with very high credit quality. The increase in interest rates during the year has led to a decrease in the market value of these liabilities. However, this decrease was nearly completely offset by the decrease in the market value of the hedges on these positions.
Net financial expenses amounted to 1,313 million euros in 2022, down 51 million euros compared to 2021, mainly due to extraordinary income related to the payment by the Spanish administration to the Group of delayed interest in connection with tax litigation in Spain, which more than offset the increase in the expenses due to the increase in interest rates and a higher level of debt denominated in Brazilian reais.
To illustrate the sensitivity of the Company's net financial expense to fluctuations in short-term interest rates, on one hand a 100 basis point increase in interest rates in all currencies in which Telefónica has financial positions at December 31, 2022, and a 100 basis point decrease in all currencies has been assumed, and on the other hand a constant position equal to the position at year-end has been considered.# Financial Instruments and Financial Risk Management
To calculate the sensitivity of equity to fluctuations in interest rates, on one hand a 100 basis point increase in interest rates in all currencies and in all periods on the yield curve in which Telefónica has financial positions at December 31, 2022, and a 100 basis point decrease in all currencies and all periods was assumed, and on the other hand only positions with cash flow hedges were considered, which are basically the only positions in which changes in market value due to interest rate fluctuations are recognized in equity.
| Change in basis points (bp) | Impact on consolidated income statement | Impact on consolidated equity |
|---|---|---|
| +100bp | (34) | 61 |
| -100bp | 34 | (61) |
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 27), the shares to be delivered to employees under such plan may be either Telefónica S.A. treasury shares, acquired by itself or any of its Group companies, or newly issued shares. The possibility of delivering shares to beneficiaries of the plans in the future, implies a risk since there could be an obligation to hand over a maximum number of shares at the end of each phase, 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 phase if the share price is above the corresponding price on the phase start date. 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 allocated to Senior Executive Officers of the Telefónica Group consisting of the delivery of shares of Telefónica, S.A. This plan has a total duration of five years and is divided into three mutually exclusive cycles of three years each. Each of the cycles commenced, respectively, in January 2018, 2019 and 2020. The first (2018) and the second (2019) of the three cycles matured on December 31, 2020 and on December 31, 2021 with a result of a delivery of shares to its participants in 2021 and in 2022, respectively.
In 2021, the General Shareholder’s Meeting approved a new Long-Term Incentive Plan allocated to Senior Executive Officers of the Telefónica Group consisting of the delivery of shares of Telefónica, S.A. This plan has a total duration of five years and is divided into three mutually exclusive cycles of three years each. In January 2021 and in January 2022 two cycles have commenced and the last one will start in January 2023 (see Note 27).
Finally, the 2022 Shareholder’s Meeting approved a Global Employee Incentive Share Purchase Plan for shares of Telefónica, S.A. for the Employees of the Telefónica Group, which is expected to deliver shares to its participants in 2024 (see Note 27).
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, the Group may use part of the treasury shares of Telefónica, S.A. held at December 31, 2022 to cover shares deliverable under the outstanding Plans. The net asset value of the treasury shares could increase or decrease depending on variations in Telefónica, S.A.’s share price.
The Telefónica Group 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:
At December 31, 2022, the average maturity of net financial debt (26,687 million euros) was 13.11 years (including undrawn committed credit facilities). At December 31, 2022, financial liabilities (Note 18) and lease liabilities (Note 20) scheduled to mature in 2023 amounted to 4,020 and 2,020 million euros, respectively. These maturities are lower than the amount of funds available, calculated as the sum of:
a) cash and cash equivalents and current financial assets;
b) annual cash generation projected for 2022, and
c) undrawn credit facilities arranged with banks whose original maturity is over one year (an aggregate of 11,434 million euros at December 31, 2022), providing flexibility to the Telefónica Group with regard to accessing capital or credit markets in the next two years.
For a further description of the Telefónica Group’s liquidity and capital resources in 2022, see Note 18 and Appendix V.
The Telefónica Group managed or mitigated country risk by pursuing two lines of action (in addition to its normal business practices):
Regarding the first point, at December 31, 2022, the Telefónica Group’s Latin American companies had net financial debt not guaranteed by the Parent company of 2,462 million euros, which represents 9.2% of net financial debt of the Group. Nevertheless, in certain countries, such as Venezuela, there is a net cash balance (instead of a net liability balance).
Regarding the net repatriation of funds to Spain, 693 million euros from Latin America companies have been received in 2022, of which 652 million euros was in the form of dividends.
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.
Net CVA (CVA+DVA) or Credit Valuation Adjustment 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. At the same time, and in order to address the credit risk, Telefónica considers the use of CDS, novations, derivatives with break clauses and signing CSA's 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). Additionally, for Treasury surpluses managed at Telefónica S.A, a criteria based on CDs has been added, similar to that used for the selection of counterparties to operate with derivatives, for the selection of counterparties for the placement of those surpluses.
The Telefónica Group considers customer credit risk management as a key element to achieve its business and customer base growth targets in a sustainable way. This management approach relies on the active evaluation of the risk-reward balance within the commercial operations and on the adequate separation between the risk ownership and risk management functions.# Formal delegation of authority procedures and management practices are implemented in the different Group companies, taking into account benchmark risk management techniques, 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. The Telefónica Group’s maximum exposure to credit risk is initially represented by the carrying amounts of the financial assets and the guarantees given by the Telefónica Group. Several Telefónica Group companies provide operating guarantees granted by external counterparties, which are offered during their normal commercial activity, in bids for Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 85 licenses, permits and concessions, and spectrum acquisitions. At December 31, 2022, these guarantees amounted to approximately 6,657 million euros (6,192 million euros at December 31, 2021).
Telefónica’s corporate finance department takes into consideration several factors for the evaluation of the Telefónica’s capital structure, 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. In addition, Telefónica also uses as reference net financial debt (excluding items of a non- recurring or exceptional nature) that allows for 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 flows generation that are considered, when evaluating the financial structure of the Telefónica Group and its different areas.
During 2020 a fundamental reform of major interest rate benchmarks was launched globally, including the replacement of some interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as ‘IBOR reform’). The Group has exposures to IBORs on its financial instruments that will be replaced or reformed as part of these market-wide initiatives, thus the Group anticipates that IBOR reform will impact its Risk Management Areas. During 2022, the transition has been made to the new reference indices affected as of December 31, 2022, except for the USD Libor, whose transition will be made in June 2023. In the 2022 financial year, thanks to the decisions agreed in 2021 to manage the changes in the GBP Libor and CHF Libor, there have been no impacts from those changes. Regarding to the Euribor, and according to the European Union Benchmarks Regulation, the Group expects that it will continue to exist as a benchmark rate for the foreseeable future. The Group applies the amendments to IFRS 9 to those hedging relationships directly affected by IBOR reform, and therefore it assumes that the benchmark interest rate is not altered as a result of it.
The detail of notional amounts of the hedging instruments in hedging relationships which are subject to the reform as of December 31, 2022 and December 31, 2021 is as follows:
| Gross notional in original currency (in millions) | Interest rate index/Tenor | 2022 | 2021 |
|---|---|---|---|
| USD Libor 3M | 32,947 | 35,140 | |
| USD Libor 1M | — | — | |
| USD Libor 6M | 140 | 140 |
The corporate finance department leads a working team to manage the transition in the Group. It closely monitors the market and the outputs from the industry, including announcements by the IBOR regulators on the discontinuation dates of current IBORs, which have recently undergone changes. Another relevant aspect of the reform is the need to incorporate substitute indexes (known as fallbacks) of the reference rates used into the contracts. In order to incorporate these substitute indexes into the contracts, The Group has decided not to adhere to the ISDA Protocol and has negotiated bilateral contracts with each affected counterparty during 2022 and 2021. The Group will continue to apply the amendments of IFRS 9 until the uncertainty arising from the benchmark interest rate reforms with respect to the timing and amount of the underlying cash-flows to which the Group is exposed ends. In relation to the benchmark interest rate reform, IFRS regulations have incorporated information requirements on the exposure of entities to benchmark interest rates in the process of transition at the close of financial year 2022. At December 31, 2022 the book value of assets referenced to USD Libor rates amounts to 516 million euros (333 million euros at December 31, 2021) and the book value of financial liabilities including lease liabilities referenced to USD Libor rates amounts to 920 million euros (661 million euros at December 31, 2021).
At December 31, 2022, the nominal value of outstanding derivatives with external counterparties amounted to 83,706 million euros equivalent, a 1% decrease from December 31, 2021 (84,794 million euros equivalent). 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 canceled, 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 Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 86 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. The main principles in the management of derivatives are detailed below:
1) Derivatives based on a clearly identified hedged items. Telefónica’s derivatives policy emphasizes the following points:
2) Matching of the hedged item to one side of the derivative. This matching basically applies to foreign currency debt and derivatives hedging foreign currency payments by Telefónica Group subsidiaries. The aim is to eliminate the risk arising from changes in foreign currency interest rates. Nonetheless, even when the aim is to achieve perfect hedging for all cash flows, the lack of liquidity in certain markets, especially in Latin American currencies, has meant that historically there have been mismatches between the terms of the hedges and those of the debts they are meant to hedge. The Telefónica Group intends to reduce these mismatches, provided that doing so does not involve disproportionate costs. In this regard, if adjustment does prove too costly, the financial timing of the underlying asset in foreign currency will be modified in order to minimize interest rate risk in foreign currency. In certain cases, the timing of the underlying as defined for derivative purposes may not be exactly the same as the timing of the contractual underlying.
3) Matching the company contracting the derivative and the company that owns the hedged item. Generally, the aim is to ensure that the hedging derivative and the hedged asset or liability belong to the same company. Sometimes, however, the holding companies (Telefónica, S.A. and Telefónica Latinoamérica Holding, S.L.) have arranged hedges on behalf of a subsidiary that owns the underlying asset.The main reasons for separating the hedge and the underlying asset were the chance of differences in the legal validity of local and international hedges (as a result of unforeseen legal changes) and the different credit ratings of the counterparties (of the Telefónica Group companies as well as those of the banks). 4) Ability to measure the derivative’s fair value using the valuation systems available to the Telefónica Group. Telefónica uses several tools to evaluate and manage the risk involved in derivatives and debt. Among these tools are the Calypso system, extensively used in various financial institutions, and the specialized libraries in the MBRM financial calculation, both of which are widespread throughout the market and have shown proven reliability. In order to perform these calculations, customary market techniques are used when configuring the calculation methods, and information from money market curves is used on a daily basis as market inputs (swaps, depos, FRA, etc.) for interest rates, official fixings for exchange rates and the interest rates and volatility matrices for interest and exchange rates that are listed in the multi-contributor systems, Reuters and Bloomberg. For those yield curves that are less liquid or whose prices published in Reuters and Bloomberg are considered not to adequately reflect the market situation, these curves will be requested from relevant banks in these markets. 5) Sale of options only when there is an underlying exposure. Telefónica considers the sale of options when: i) there is an underlying exposure (on the consolidated statement of financial position or associated with a highly probable cash outflow) that would offset the potential loss for the year if the counterparty exercised the option. This exposure does not have to be treated as a purchased option, but rather it can be another type of hedged item (in these cases, hedge accounting does not apply since this hedging instrument does not meet the criteria required by accounting standards to treat the sale of options as hedging instruments), or ii) the option is part of a structure in which another derivative offsets any loss. The sale of options is also permitted in option structures where, at the moment they are taken out, the net premium is either positive or zero.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 87
For instance, it would be possible to sell short-term options on interest rate swaps that entitle the counterparty to receive a certain fixed interest rate, below the level prevailing at the time the option was sold. This would mean that if rates fell and the counterparty exercised its option, the Group would swap part of its debt from floating rate to a lower fixed rate, having received a premium. 6) Hedge accounting. The main risks that may qualify for hedge accounting are as follows:
•Variations in market interest rates (either money-market rates, credit spreads or both) that affect the value of the underlying asset or the measurement of the cash flows.
•Variations in exchange rates that change the value of the underlying asset in the company’s functional currency and affect the measurement of the cash flow in the functional currency.
•Variations in the valuation of any financial asset, particularly shares of companies included in the portfolio of “Equity instruments”.
•Variations in the price of commodities related to contracts that the Group has with third parties.
Regarding the underlying:
•Hedges can cover all or part of the value of the underlying.
•The risk to be hedged can be for the whole period of the transaction or for only part of the period.
•The underlying may be a highly probable future transaction, or a contractual underlying (loan, foreign currency payment, investment, financial asset, etc.) or a combination of both that defines an underlying with a longer term.
The main coverage instruments used are:
•Forwards / NDF: they are used mainly for exchange rate hedges related to commercial positions in foreign currency. They can also be used to hedge financing in foreign currency and net investment hedge in foreign currency.
•Exchange Rate Options: in some cases, this type of instruments can be used linked to future CapEx and OpEx operations and investments and divestments in foreign currency.
•Spots: for purchases and sales of currencies that are made same day value or two days’ value. Generally used for operational needs or for divestments of operations in foreign currency.
•Currency swaps: this type of transaction is generally executed to hedge bonds issuance or loans issued in foreign currency or net investment hedge.
•Interest Swaps / Interest Rate Options: these instruments are used to manage the interest rate of the debt portfolio. Their use of them is ruled by the Financial Expenses Budget with the objective of its fulfillment. Both the volume to be contracted and the maturity of these products are determined by the underlying assets to be hedged. It is possible that in several markets the maturity, as well as the low liquidity, does not allow to contract a "perfect” hedge, but this circumstance will have to be analyzed case by case.
•CDS: in order to manage the counterparty credit risk or CVA / DVA, CDS operations can be arranged to mitigate this risk.
•Derivatives of Commodities associated to:
▪Price risk hedge (mainly Electricity) associated with the Group's own contracts.
▪Supporting the business lines that may need it and always hedging the commercial risks of the signed contracts. They would be settled by differences, this is, in a non-deliverable format.
•Equity Derivatives: these are derivatives that address strategic decisions or hedging needs, either to hedge future investments or hedge existing risks. They protect Telefónica from the potential appreciation or depreciation in the price of the shares they hold as underlying.
Between the hedged item and the hedging instrument there is an economic relationship, this is, in general terms they move in opposite directions due to the same risk or risk covered. In other words, there must be an expectation that the value of the hedging instrument and the value of the hedged item will change systematically in opposite directions in response to the movements of one of the following elements:
•the same underlying item; or
•Underlying items that are economically related in such sense that they respond similarly to the risk that is being hedged.
Depending on the complexity of the hedge relationship and the way in which the hedge has been structured, a quantitative or qualitative analysis will have to be performed to demonstrate that there is an economic relationship between the hedged item and the hedging instrument. This may on occasion mean that the hedging instruments have longer terms than the related contractual
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 88
underlying. This happens when the Telefónica Group enters into long-term swaps, caps or collars to protect the Group against interest rate increases that may raise the financial expense of its promissory notes, commercial paper and some floating rate loans which mature earlier than their hedges. These floating rate financing programs are highly likely to be renewed and Telefónica commits to this by defining the underlying asset in a more general way as a floating rate financing program whose term coincides with the maturity of the hedge. In those cases in which the underlying assets representing the risk hedged are canceled or refinanced early, and if there is an open risk with similar characteristics as the underlying asset that was canceled or refinanced early, either because there is new financing or because there is an underlying asset with similar characteristics and risk profile, the hedge may remain in force with the derivatives assigned thereto and the risk will be subject to the hedge arranged in the aforementioned refinancing. When either of these situations occurs, the effectiveness of the hedge will be reviewed taking into account the new situation.
There can be three types of hedges:
•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 instrument used is options.
•Hedges of net investment in consolidated foreign subsidiaries. Generally, such hedges are arranged by Telefónica S.A. and other Telefónica holding companies. Wherever possible, these hedges are implemented through real debt in foreign currency. Often, 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 may also be that, due to the debt market deepness, the debt in the currency concerned is not 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. When using options, forwards or cross-currency swaps as hedging instruments, the exclusion of the time value of the option, the element at maturity of the forward and the currency spread of the cross-currency swap of the hedging relationship are evaluated on a case by case basis, in order to be treated as hedge costs. Hedges can comprise a combination of different derivatives. Management of accounting hedges is not static, and the hedging relationship may change before maturity.The interruption of the hedge accounting is possible within the framework of the management of financial risks and described in the internal document of “financial risks management and hedging strategy under IFRS 9”. To gauge the efficiency of transactions defined as accounting hedges, the Group analyzes the extent to which the changes in the fair value or in the cash flows attributable to the hedged item would offset the changes in fair value or cash flows attributable to the hedged risk using a linear regression model prospectively. To evaluate the effectiveness of hedges, under IFRS 9, there is no numerical range under which it is accepted that a hedge is effective and hence the hedge accounting standards are applicable. Therefore, Telefónica considers that if there is an economic relationship, not dominated by changes in credit risk and if the appropriate hedging rationale has been designated, the requirements for effectiveness are met. However, at the moment when ineffectiveness arises, Telefónica will evaluate whether there is still an economic relationship or whether the designated hedging rationale is appropriate. The possible sources of ineffectiveness that Telefónica can have 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 and implemented by the company financial officers (who are responsible for balancing the interests of each company 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. New companies joining the Telefónica Group as a result of mergers or acquisitions may also need time to adapt.
7) Cancellation of derivatives. When a derivative transaction is canceled, the company may:
• Cancel the derivative and pay its market value.
• Take the opposite position which cancels out the variability thereof, if cancellation costs are high or if it is recommended for operating or business reasons.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 89
The breakdown of the financial results recognized in 2022, 2021 and 2020 is as follows:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Interest income | 384 | 191 | 185 |
| Dividends received | 25 | 14 | 12 |
| Other financial income | 894 | 174 | 159 |
| Subtotal | 1,303 | 379 | 356 |
| Changes in fair value of asset derivatives at fair value through profit or loss | 377 | 132 | 255 |
| Changes in fair value of liability derivatives at fair value through profit or loss | (861) | (24) | (507) |
| Changes in the fair value of debt instruments and other assets at fair value to profit or loss | 8 | — | (3) |
| Transfer from equity of results of cash flow hedges - future cash flows that are no longer expected to happen | (2) | — | — |
| (Loss)/Gain on fair value hedges | (1,818) | (517) | 563 |
| Gain/(loss) on adjustment to items hedged by fair value hedges | 1,763 | 527 | (525) |
| Subtotal | (533) | 118 | (217) |
| Interest expenses | (1,548) | (1,290) | (1,320) |
| Financial expenses on lease liabilities (see Note 20) | (393) | (274) | (193) |
| Ineffective portion of cash flow hedges | (15) | (41) | 45 |
| Accretion of provisions and other liabilities | 276 | (169) | (280) |
| Other financial expenses | (317) | (137) | (131) |
| Subtotal | (1,997) | (1,911) | (1,879) |
| Net finance costs excluding foreign exchange differences and hyperinflation adjustments | (1,227) | (1,414) | (1,740) |
"Other financial income" in 2022 includes 526 million euros corresponding to delayed interest after the Agreement for the Execution of the Judgment of the Audiencia Nacional issued on October 24, 2022 (see Note 25, Inspections of the tax group in Spain). "Other financial income" in 2022 included 139 million euros corresponding to the default interest as a result of the final decisions in favor of Telefónica Brazil about the right to deduct the ICMS from the calculation basis of PIS/COFINS (90 million euros and 85 million euros in 2021 and 2020, respectively, see Note 25). "(Loss)/Gain on fair value hedges" includes mainly the impact on income of fair value hedges contracted by Telefónica, S.A., which are similarly reflected under "Gain/ (loss) on adjustment to items hedged by fair value hedges" and therefore, have no significant net impact on the consolidated income statement. The increase in both items with respect to previous years is a consequence of the increase in interest rates. The impact of hyperinflation on the net monetary position of the Group’s subsidiaries in Argentina amounted to 39 million euros in 2022 (25 million euros in 2021 and 43 million euros in 2020) and is recorded under Exchange differences in the consolidated income statement.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 90
The movement of the net position of derivatives during the years ended December 31, 2022 and December 31, 2021 is as follows:
| Millions of euros | Movement in 2022 | Movement in 2021 |
|---|---|---|
| Opening balance of assets/(liabilities) | 1,573 | 13 |
| Financing payments | 715 | 34 |
| Financing proceeds | (89) | 89 |
| Interest (proceeds)/payments | 283 | (91) |
| Other (proceeds)/payments | (17) | (31) |
| Fair value adjustments through other comprehensive income | 1,031 | 1,733 |
| Movements with counterparty in the income statement | (2,649) | (538) |
| Translation differences | 169 | 393 |
| Other movements | (4) | (29) |
| Closing balance of assets/(liabilities) | 1,012 | 1,573 |
The variation in 2022 represents a decrease of 561 million euros of asset (increase of 1,560 million euros of liability in 2021) mainly due to the increase in dollar and euro interest rates and the evolution of the EUR/USD exchange rate. These variations are mostly by a similar impact and in the opposite direction in the hedge accounting of the different issuances and loans in dollar and euro currency of the Telefónica Group. As of December 31, 2022 the derivatives portfolio amount a net positive value of 1,012 million euros (a net positive value of 1,573 as of December 31, 2021). This amount includes a net positive value of 638 million euros due to hedges (cross currency swaps) to transfer financial debt issued in foreign currency to local currency (a positive value of 188 million euros at December 31, 2021).
The calculation of the fair values of the Telefónica Group’s debt instruments required an estimate, for each currency and counterparty, of a credit spread curve using the prices of the Group’s bonds and credit derivatives. The derivatives portfolio was measured through the techniques and models normally used in the market, based on money market curves and volatility prices available in the markets. Additionally, the credit valuation adjustment or net CVA per counterparty (CVA+DVA) is calculated on that measurement as the method used to measure the credit risks of the counterparties and also Telefónica for the purpose of adjusting the fair value valuation of the derivatives. This adjustment reflects the possibility of bankruptcy or credit rating impairment of the counterparty and Telefónica. Derivatives arranged by the Group at December 31, 2022 are detailed in Appendix IV.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 91
The breakdown of Telefónica’s hedges and other derivative instruments at December 31, 2022 and December 31, 2021, their fair value at year-end and the expected maturity schedule is as set forth in the table below:
| December 31, 2022 | |
|---|---|
| Millions of euros | |
| Notional amount - Maturities (*) | |
| 2023 | |
| Derivative instruments of accounting hedges | (2,034) |
| Interest rate risk | (795) |
| Cash flow hedges | 3 |
| Fair value hedges | (798) |
| Exchange rate risk | (1,340) |
| Cash flow hedges | 744 |
| Fair value hedges | 837 |
| Net investments hedges | (2,921) |
| Interest rate and exchange rate risk | 101 |
| Cash flow hedges | 101 |
| Fair value hedges | — |
| Undesignated derivatives | (1,964) |
| Other derivatives of interest rate | (1,539) |
| Other derivatives of exchange rate | (1,132) |
| Other derivatives | 707 |
| Total derivative instruments | (3,998) |
| No derivatives instruments of accounting hedges ()* | — |
| Exchange rate risk | — |
| Fair value hedges | — |
| Net investments hedges | — |
() For interest rate hedges, the positive amount is in terms of "fixed payment.” For foreign currency hedges, a positive amount means payment in functional vs. foreign currency.
() Positive amounts indicate payables.
(**) Of the hedging instruments that are not derivatives, 141 million euros correspond to "Loans and other debts"" (see Note 18).# Consolidated Financial Statements 2022
December 31, 2021
Millions of euros
| Notional amount - Maturities (*) | Book value of the derivative and no-derivative instruments (**) | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2023 | 2024 | Later | Total | Non-current asset | Current asset | Non-current liabilities | Current liabilities | Total |
| Derivative instruments of accounting hedges | (5,020) | (904) | 98 | 8,805 | 2,979 | (2,301) | (908) | 1,438 | 232 |
| Interest rate risk | 63 | (801) | (1) | (2,860) | (3,599) | (914) | (480) | 22 | 4 |
| Cash flow hedges | 64 | — | — | 1,060 | 1,124 | (24) | (11) | 11 | 4 |
| Fair value hedges | (1) | (801) | (1) | (3,920) | (4,723) | (890) | (469) | 11 | — |
| Exchange rate risk | (5,021) | 26 | 19 | 8,824 | 3,848 | (1,245) | (131) | 1,124 | 228 |
| Cash flow hedges | 318 | 32 | 19 | 8,824 | 9,193 | (1,245) | (102) | 1,124 | 95 |
| Fair value hedges | 209 | (6) | — | — | 203 | — | (28) | — | 18 |
| Net investments hedges | (5,548) | — | — | — | (5,548) | — | (1) | — | 115 |
| Interest rate and exchange rate risk | (62) | (129) | 80 | 2,841 | 2,730 | (142) | (297) | 292 | — |
| Cash flow hedges | 189 | 118 | 80 | 2,841 | 3,228 | (97) | (104) | 292 | — |
| Fair value hedges | (251) | (247) | — | — | (498) | (45) | (193) | — | — |
| Undesignated derivatives | (1,254) | (1,187) | (303) | (1,238) | (3,982) | (471) | (87) | 397 | 127 |
| Other derivatives of interest rate | (963) | (1,283) | (303) | (1,238) | (3,787) | (244) | (55) | 170 | 8 |
| Other derivatives of exchange rate | (740) | (370) | — | — | (1,110) | (214) | (23) | 142 | 101 |
| Other derivatives | 449 | 466 | — | — | 915 | (13) | (9) | 85 | 18 |
| Total derivative instruments | (6,274) | (2,091) | (205) | 7,567 | (1,003) | (2,772) | (995) | 1,835 | 359 |
| No derivatives instruments of accounting hedges (***) | — | — | 133 | — | 133 | — | — | 132 | — |
| Exchange rate risk | — | — | 133 | — | 133 | — | — | 132 | — |
| Fair value hedges | — | — | — | — | — | — | — | — | — |
| Net investments hedges | — | — | 133 | — | 133 | — | — | 132 | — |
() For interest rate hedges, the positive amount is in terms of "fixed payment.” For foreign currency hedges, a positive amount means payment in functional vs. foreign currency.
() Positive amounts indicate payables.
(**) Of the hedging instruments that are not derivatives, 132 million euros correspond to "Loans and other debts" (see Note 18).
The detail of hedged items by fair value hedges at December 31, 2022 and December 31, 2021 are as follows:
December 31, 2022
Millions of euros
| Hedged items carrying amount | Accumulated amount in the hedged item adjusted by fair value hedge (*) | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Interest rate risk | Exchange rate risk | Interest rate and exchange rate risk | Total | Interest rate risk | Exchange rate risk | Interest rate and exchange rate risk | Total | Of which: accumulated amount of any hedge item that have cesased to be adjusted for gains and losses | |
| Assets | 15 | 250 | — | 265 | 8 | 22 | — | 30 | — |
| Financial assets and other non-current assets | 8 | 96 | — | 104 | 8 | 1 | — | 9 | — |
| Receivables and other current assets | — | 152 | — | 152 | — | 21 | — | 21 | — |
| Other current financial assets | 7 | — | — | 7 | — | — | — | — | — |
| Other heading of assets | — | 2 | — | 2 | — | — | — | — | — |
| Liabilities | 8,125 | 1,295 | 1,619 | 11,039 | (88) | (38) | 67 | (59) | 21 |
| Non-current financial liabilities | 7,735 | 468 | 1,454 | 9,657 | (89) | — | 15 | (74) | 36 |
| Payables and other non-current liabilities | — | 60 | — | 60 | — | (2) | — | (2) | — |
| Current financial liabilities | 387 | 11 | 165 | 563 | — | — | 52 | 52 | 52 |
| Payables and other current liabilities | 3 | 756 | — | 759 | 1 | (36) | — | (35) | (16) |
(*) Accumulated amount adjusted by fair value hedge is shown with negative sign when it reduces the value (lowest liability or lowest asset) and viceversa.
December 31, 2021
Millions of euros
| Hedged items carrying amount | Accumulated amount in the hedged item adjusted by fair value hedge (*) | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Interest rate risk | Exchange rate risk | Interest rate and exchange rate risk | Total | Interest rate risk | Exchange rate risk | Interest rate and exchange rate risk | Total | Of which: accumulated amount of any hedge item that have cesased to be adjusted for gains and losses | |
| Assets | — | 226 | — | 226 | — | 4 | — | 4 | — |
| Financial assets and other non-current assets | — | 101 | — | 101 | — | 1 | — | 1 | — |
| Receivables and other current assets | — | 106 | — | 106 | — | 3 | — | 3 | — |
| Other heading of assets | — | 19 | — | 19 | — | — | — | — | — |
| Liabilities | 6,101 | 1,437 | 2,460 | 9,998 | 1,322 | (23) | 390 | 1,689 | 63 |
| Non-current financial liabilities | 5,987 | 558 | 1,919 | 8,464 | 1,309 | — | 195 | 1,504 | 52 |
| Non-current lease liabilities | 31 | — | — | 31 | (2) | — | — | (2) | — |
| Payables and other non-current liabilities | — | 55 | — | 55 | — | (3) | — | (3) | — |
| Current financial liabilities | 83 | — | 541 | 624 | 15 | — | 195 | 210 | 16 |
| Payables and other current liabilities | — | 824 | — | 824 | — | (20) | — | (20) | (5) |
(*) Accumulated amount adjusted by fair value hedge is shown with negative sign when it reduces the value (lowest liability or lowest asset) and vice versa.
The evolutions of hedges in equity at December 31, 2022 and December 31, 2021 are as follows:
Millions of euros
| Derivative instruments | No derivative instruments | Total | Gross amount | Tax effect | Total hedges in equity | Gains (losses) of cash flow hedges | |
|---|---|---|---|---|---|---|---|
| Derivatives - Net investment hedges | No Derivatives - Net investment hedges | Interest rate risk | Exchange rate risk | Exchange and interest rate risks | Derivatives | ||
| Balance at 12/31/2021 | (70) | 247 | (270) | 705 | (5) | 607 | (170) |
| Changes in the fair value registered in equity | 4 | 1,235 | 612 | (743) | (4) | 1,104 | (284) |
| Transfer to the initial value of hedged item | 1 | (2) | (7) | — | — | (8) | 2 |
| Transfer to the income statement of the period - the hedged future cash flows are no longer expected to happen | — | 1 | — | — | — | 1 | — |
| Transfer to the income statement of the period - the hedged item has affected profit or loss | 26 | (620) | (127) | 10 | — | (711) | 181 |
| Total translation differences | 2 | — | 2 | (6) | — | (2) | 5 |
| Other movements | — | — | — | 4 | — | 4 | (4) |
| Balance at 12/31/2022 | (37) | 861 | 210 | (30) | (9) | 995 | (270) |
| Amounts remaining in equity for continuing hedges | 10 | 826 | 290 | (30) | (9) | 1,087 | |
| Amounts remaining in equity from any hedging relationship for which hedge accounting is no longer applied | (47) | 35 | (80) | — | — | (92) | |
| Balance at 12/31/2022 | (37) | 861 | 210 | (30) | (9) | 995 |
The total amount of "Transfer to the income statements of the period - the hedged item has affected profit or loss" has impacted in financial results, reported under "Interest expenses" amounted to +181 million euros (+72 million euros in 2021), see detail of "Net finance costs excluding foreign exchange differences and hyperinflation adjustments" in this Note, and in exchange differences amounted to +536 million euros (+873 million euros in 2021).
Millions of euros
| Derivative instruments | No derivative instruments | Total | Gross amount | Tax effect | Total hedges in equity | Gains (losses) of cash flow hedges | |
|---|---|---|---|---|---|---|---|
| Derivatives - Net investment hedges | No Derivatives - Net investment hedges | Interest rate risk | Exchange rate risk | Exchange and interest rate risks | Derivatives | ||
| Balance at 12/31/2020 | (154) | (443) | (523) | 2,061 | — | 941 | (295) |
| Changes in the fair value registered in equity | 34 | 1,473 | 445 | (353) | (5) | 1,594 | (396) |
| Transfer to the initial value of hedged item | — | (1) | (1) | — | — | (2) | 1 |
| Transfer to the income statement of the period - the hedged future cash flows are no longer expected to happen | — | — | — | — | — | — | — |
| Transfer to the income statement of the period - the hedged item has affected profit or loss | 48 | (782) | (188) | (962) | — | (1,884) | 478 |
| Total translation differences | 2 | — | (3) | — | — | (1) | 1 |
| Other movements | — | — | — | (41) | — | (41) | 41 |
| Balance at 12/31/2021 | (70) | 247 | (270) | 705 | (5) | 607 | (170) |
| Amounts remaining in equity for continuing hedges | (7) | 211 | (184) | 705 | (5) | 720 | |
| Amounts remaining in equity from any hedging relationship for which hedge accounting is no longer applied | (63) | 36 | (86) | — | — | (113) | |
| Balance at 12/31/2021 | (70) | 247 | (270) | 705 | (5) | 607 |
The evolution of cost of hedging in equity in 2022 and 2021 are as follows:
Exchange rate risk
Millions of euros
| Total gross amount | Tax effect | Total cost of hedging in equity | A time-period related hedge item | |
|---|---|---|---|---|
| Balance at 12/31/2020 | (75) | (75) | 19 | (56) |
| Changes in the fair value registered in equity | 128 | 128 | (32) | 96 |
| Transfer to the income statement of the period - the hedged item has affected profit or loss | (10) | (10) | 2 | (8) |
| Balance at 12/31/2021 | 43 | 43 | (11) | 32 |
| Changes in the fair value registered in equity | (59) | (59) | 15 | (44) |
| Transfer to the income statement of the period - the hedged item has affected profit or loss | (9) | (9) | 2 | (7) |
| Balance at 12/31/2022 | (25) | (25) | 6 | (19) |
The details of the ineffective portion of accounting hedges with impact on the income statement in 2022 and 2021 are as follows:
2022
Millions of euros
| Changes in fair value of the hedging instrument | Changes in the fair value of hedges item for the hedged risk | Ineffective portion hedged registered in the income statement | |
|---|---|---|---|
| Interest rate risk | (1,257) | (1,238) | (19) |
| Cash flow hedges | 35 | 35 | — |
| Fair value hedges | (1,292) | (1,273) | (19) |
| Exchange rate risk | (8) | (8) | — |
| Cash flow hedges | 1,108 | 1,108 | — |
| Net investment hedges | (1,116) | (1,116) | — |
| Interest rate and exchange rate risk | 462 | 475 | (13) |
| Cash flow hedges | 462 | 475 | (13) |
| Total | (803) | (771) | (32) |
2021
Millions of euros
| Changes in fair value of the hedging instrument | Changes in the fair value of hedges item for the hedged risk | Ineffective portion hedged registered in the income statement | |
|---|---|---|---|
| Interest rate risk | (142) | (143) | 1 |
| Cash flow hedges | 8 | 7 | 1 |
| Fair value hedges | (150) | (150) | — |
| Exchange rate risk | 960 | 994 | (34) |
| Cash flow hedges | 1,510 | 1,544 | (34) |
| Net investment hedges | (550) | (550) | — |
| Interest rate and exchange rate risk | 412 | 418 | (6) |
| ## Notes to the consolidated financial statements | |||
| ### Consolidated Annual Report 2022 |
Telefónica, S. A.
99
The evolution of lease liabilities in 2022 and 2021 were as follows:
| Millions of euros | Lease liabilities |
|---|---|
| Balance at 12/31/2021 | 8,070 |
| Additions | 2,487 |
| Principal and interests payments | (2,361) |
| Principal payments (Note 28) | (1,996) |
| Interests payments (Note 28) | (365) |
| Disposals | (59) |
| Business combinations | 124 |
| Accrued interests | 393 |
| Translation differences and hyperinflation adjustments | 246 |
| Transfers and others | (223) |
| Balance at 12/31/2022 | 8,677 |
| Millions of euros | Lease liabilities |
|---|---|
| Balance at 12/31/2020 | 5,294 |
| Additions | 2,030 |
| Sale of the towers division of Telxius | 2,650 |
| Principal and interests payments | (1,859) |
| Principal payments (Note 28) | (1,782) |
| Interests payments (Note 28) | (246) |
| Minus: Payments of companies held for sale and sold companies during 2021 | 169 |
| Disposals | (288) |
| Business combinations | 14 |
| Accrued interests (1) | 259 |
| Translation differences and hyperinflation adjustments | 29 |
| Transfers and others | (59) |
| Balance at 12/31/2021 | 8,070 |
(1) Total accrued interests in 2021 amounted to 274 million euros, including the additions corresponding to companies held for sale and sold companies during the annual reporting period (see Note 19).
"Additions" includes fixed asset sale and leaseback transactions, which amounted to 125 million euros in 2022 (51 million euros in 2021). The gain recorded in 2022 and 2021 for sale and leaseback transactions amounted to 381 million euros and 263 million euros, respectively (see Note 26). "Business combinations" in 2022 include 117 million euros of lease liabilities related to the acquisition of rights of use of Oi (see Note 29), as well as, 2 and 5 million euros for the incorporation of the Incremental group and the BE-terna group, respectively (see Note 2 and 5). "Business combinations" in 2021 corresponded to the acquisition of Cancom (see Note 5) amounted to 14 million euros. There are commitments for leases not started at December 31, 2022 amounting to 1,569 million euros, mainly related to the sites construction agreement between Telefónica Germany GmbH and Telxius Towers Germany GmbH (at December 31, 2021 1,307 million euros). In 2021 Telxius sold its telecommunications towers division to American Tower Corporation (see Note 2). The Telefónica Group operators maintained the leases agreements of the towers signed with the companies sold subsidiaries of Telxius. Consequently, as of the closing date of the transactions, lease liabilities were recorded in the consolidated statement of financial position in the amount of 2,775 million euros. “Sale of the towers division of Telxius” also includes the recognition of lease liabilities with third parties corresponding to the second phase of the sale agreement between Telefonica Germany and ATC in the amount of 125 million euros. "Transfers and others" in 2022 includes the reclassification of lease liabilities on the shutdown site contracts of Pegaso PCS amounting to 264 million euros. "Transfers and others" in 2021 included the reclassification of lease liabilities of Telefónica El Salvador amounted to 43 million euros to "Liabilities associated with non-current assets and disposal groups held for sale" of the statement of financial position (see Note 30).
Telefónica, S. A.
100
The maturity schedule of lease liabilities at December 31, 2022 is as follows:
| Millions of euros | Current | Non-Current | Total |
|---|---|---|---|
| Maturity | |||
| 2023 | 2,107 | ||
| 2024 | 1,700 | ||
| 2025 | 1,413 | ||
| 2026 | 1,064 | ||
| 2027 | 851 | ||
| Subsequent years | 2,173 | ||
| Non-current total | 7,201 | ||
| Total | 9,308 |
Telefónica, S. A.
101
The composition of “Payables and other non-current liabilities” of the Telefónica Group at December 31, 2022 and December 31, 2021 is as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Payables | 1,914 | 1,733 |
| Trade payables | 463 | 236 |
| Payables for spectrum acquisition | 1,293 | 1,361 |
| Other payables | 158 | 136 |
| Other non-current liabilities | 1,632 | 1,356 |
| Contractual liabilities (Note 23) | 891 | 829 |
| Deferred revenue | 199 | 217 |
| Current tax payables | 542 | 310 |
| Total | 3,546 | 3,089 |
"Non-currrent debt for spectrum acquisition" as of December 31, 2022 and December 31, 2021, is detailed below:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Telefónica Spain | 74 | 79 |
| Telefónica Colombia | 85 | — |
| Telefónica Brazil | 243 | 292 |
| Telefónica Germany | 891 | 990 |
| Total | 1,293 | 1,361 |
The outstanding liabilities at December 31, 2022 from the acquisition of spectrum licenses by Telefónica Brazil in November 2021 (see Note 6) amounted to 1,844 million Brazilian real (331 million euros) including 1,192 million Brazilian reais (214 million euros) are classified as non- current. At December 31, 2021, outstanding liabilities amounted to 4,451 million Brazilian reais (704 million euros at exchange rate of 2021), including 1,704 million Brazilian reais (270 million euros at closing exchange rate of 2021) were classified as non-current. In June 2019 Telefónica Germany acquired a total of 90 MHz spectrum at a cost of 1,425 million euros. The Company, like the other auction participants, reached an agreement to defer payments in interest-free annual installments until 2030, instead of an upfront one-time payment (see Appendix VI). In 2022 and 2021, payments amounting to 108 million euros have been made each year (see Note 28). The current value of the debt at December 31, 2022 amounted to 998 million euros (1,097 million euros at December 31, 2021), 891 million euros have a maturity of more than twelve months (990 million euros at December 31, 2021). Payments for financed licenses for the years 2022 and 2021 amounted to 657 and 165 million euros, respectively (see Note 28). “Deferred revenues” include grants amounting to 53 million euros at December 31, 2022 (55 million euros at December 31, 2021).
Telefónica, S. A.
102
The composition of “Payables and other current liabilities” at December 31, 2022 and December 31, 2021 is as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Payables | 12,018 | 11,872 |
| Trade payables | 7,545 | 6,982 |
| Payables to suppliers of property, plant and equipment | 2,841 | 2,752 |
| Payables for spectrum acquisition | 248 | 569 |
| Other payables | 1,088 | 997 |
| Dividends pending payment | 203 | 228 |
| Payables to associates and joint ventures (Note 10) | 93 | 344 |
| Other current liabilities | 1,491 | 1,338 |
| Contract liabilities (Note 23) | 1,038 | 958 |
| Deferred revenue | 102 | 115 |
| Advances received | 350 | 265 |
| Other liabilities to associates and joint ventures (Note 10) | 1 | — |
| Total | 13,509 | 13,210 |
"Current debt for spectrum acquisition" as of December 31, 2022 and December 31, 2021, is detailed below:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Telefónica Germany | 107 | 107 |
| Telefónica Colombia | 17 | 5 |
| Telefónica Brazil | 117 | 434 |
| Telefónica Spain | 7 | 7 |
| Others | — | 16 |
| Total | 248 | 569 |
At December 31, 2022 and December 31, 2021, “Payables for spectrum acquisition”, includes the debt maturing within twelve months of the spectrum licenses in Telefónica Brazil adquired in November 2021 and the spectrum licenses in Telefónica Germany adquired in June 2019 (see Note 21). “Payables to associates and joint ventures" at December 31, 2021 included the obligation in relation to the O2 UK pension plans arising as a result of the constitution of VMED O2 UK Ltd amounted to 213 million pounds sterling (253 million euros at closing exchange rate of 2021, see Notes 10 and 29.c). “Deferred revenue” includes grants amounting to 17 million euros at December 31, 2022 (12 million euros at December 31, 2021).
The composition of current "Other payables" at December 31, 2022 and December 31, 2021 is as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Accrued employee benefits | 608 | 516 |
| Other non-financial non-trade payables | 480 | 481 |
| Total | 1,088 | 997 |
Telefónica, S. A.
103
Information on average payment period to suppliers. Third additional provision, “Information requirement” of Law 15/2010 of July 5, modified by Law 18/2022, of September 28. In accordance with the aforementioned Law 15/2010, the following information corresponding to the Spanish companies of the Telefónica Group is disclosed:
| 2022 | 2021 | |
|---|---|---|
| Number of days | ||
| Weighted average maturity period | 53 | 54 |
| Ratio of payments | 55 | 56 |
| Ratio of outstanding invoices | 42 | 42 |
| Millions of euros | ||
| Total payments | 8,362 | 7,671 |
| Outstanding invoices | 1,251 | 1,264 |
On October 19, 2022, Law 18/2022, of September 28, on the creation and growth of companies, came into force, which modifies the third additional provision of Law 15/2010. The new standard establishes the obligation to publish in annual accounts, in addition to the information already required, the monetary volume and number of invoices paid in a period less than the maximum established in the late payment regulations, and the percentage they represent of the total number of invoices and on the total monetary payments to your suppliers.# Consolidated Financial Statements 2022
The movement of contractual assets and capitalized costs in 2022 and 2021 is as follows:
| Millions of euros | Balance at 12/31/2021 | Additions | Disposals | Transfers | Translation differences and hyperinflation adjustments | Balance at 12/31/2022 |
|---|---|---|---|---|---|---|
| Long-term contractual assets (Note 12) | 209 | 261 | (12) | (100) | 1 | 359 |
| Contractual assets | 210 | 261 | (12) | (100) | 1 | 360 |
| Impairment losses | (1) | — | — | — | — | (1) |
| Short-term contractual assets (Note 14) | 133 | 294 | (337) | 100 | 5 | 195 |
| Contractual assets | 141 | 295 | (340) | 100 | 6 | 202 |
| Impairment losses | (8) | (1) | 3 | — | (1) | (7) |
| Total | 342 | 555 | (349) | — | 6 | 554 |
| Millions of euros | Balance at 12/31/2020 | Additions | Disposals | Transfers | Translation differences and hyperinflation adjustments | Balance at 12/31/2021 |
|---|---|---|---|---|---|---|
| Long-term contractual assets (Note 12) | 145 | 113 | — | (49) | — | 209 |
| Contractual assets | 146 | 113 | — | (49) | — | 210 |
| Impairment losses | (1) | — | — | — | — | (1) |
| Short-term contractual assets (Note 14) | 104 | 180 | (198) | 48 | (1) | 133 |
| Contractual assets | 113 | 182 | (201) | 48 | (1) | 141 |
| Impairment losses | (9) | (2) | 3 | — | — | (8) |
| Total | 249 | 293 | (198) | (1) | (1) | 342 |
Once the amounts recognized as contract assets become receivables, which normally occurs when they are invoiced, they are transferred to the "Trade receivables" heading. In this regard, the balance of the contract assets account basically represents amounts not yet due.
The movement of the deferred expenses in 2021 and 2020 is as follows:
| Millions of euros | Balance at 12/31/2021 | Additions | Disposals | Transfers | Translation differences and hyperinflation adjustments | Other movements | Balance at 12/31/2022 |
|---|---|---|---|---|---|---|---|
| Non-current capitalized costs (Note 12) | 555 | 820 | (2) | (547) | 19 | 9 | 854 |
| Of obtaining a contract | 371 | 671 | — | (447) | 6 | 9 | 610 |
| Of fulfilling a contract | 184 | 149 | (2) | (100) | 13 | — | 244 |
| Impairment losses | — | — | — | — | — | — | — |
| Current capitalized costs (Note 14) | 668 | 630 | (987) | 547 | 20 | 7 | 885 |
| Of obtaining a contract | 537 | 509 | (801) | 448 | 10 | 7 | 710 |
| Of fulfilling a contract | 131 | 121 | (186) | 99 | 10 | — | 175 |
| Impairment losses | — | — | — | — | — | — | — |
| Total | 1,223 | 1,450 | (989) | — | 39 | 16 | 1,739 |
| Millions of euros | Balance at 12/31/2020 | Additions | Disposals | Transfers | Translation differences and hyperinflation adjustments | Other movements | Balance at 12/31/2021 |
|---|---|---|---|---|---|---|---|
| Non-current capitalized costs (Note 12) | 331 | 631 | — | (401) | (6) | — | 555 |
| Of obtaining a contract | 212 | 496 | — | (334) | (3) | — | 371 |
| Of fulfilling a contract | 119 | 135 | — | (67) | (3) | — | 184 |
| Impairment losses | — | — | — | — | — | — | — |
| Current capitalized costs (Note 14) | 580 | 489 | (799) | 400 | (2) | — | 668 |
| Of obtaining a contract | 469 | 388 | (653) | 333 | — | — | 537 |
| Of fulfilling a contract | 111 | 101 | (146) | 67 | (2) | — | 131 |
| Impairment losses | — | — | — | — | — | — | — |
| Total | 911 | 1,120 | (799) | (1) | (8) | — | 1,223 |
In 2020, the Group revisited the allocation to profit or loss period of incremental costs of obtaining a contract with indefinite duration, to match it with the pattern of transfer of goods or services under the contract to which those costs relate. Pursuant to this analysis such costs are recognized as an asset and expensed on a systematic basis, considering the renewals estimated on the basis of the customer churn rate, except in situations in which there are costs on contract renewal that are commensurate with the costs paid on the initial contract.
The movement of contractual liabilities of contracts with customers in 2022 and 2021 is as follows:
| Millions of euros | Balance at 12/31/2021 | Additions | Disposals (previous years) | Disposals (current year) | Transfers | Translation differences and hyperinflation adjustments | Other movements | Balance at 12/31/2022 |
|---|---|---|---|---|---|---|---|---|
| Long-term contractual liabilities (Note 21) | 829 | 300 | (2) | — | (242) | 6 | — | 891 |
| Short-term contractual liabilities (Note 22) | 958 | 5,546 | (984) | (4,756) | 236 | 16 | 22 | 1,038 |
| Total | 1,787 | 5,846 | (986) | (4,756) | (6) | 22 | 22 | 1,929 |
| Millions of euros | Balance at 12/31/2020 | Additions | Disposals (previous years) | Disposals (current year) | Transfers | Translation differences and hyperinflation adjustments | Other movements | Balance at 12/31/2021 |
|---|---|---|---|---|---|---|---|---|
| Long-term contractual liabilities (Note 21) | 762 | 270 | (4) | (11) | (206) | 18 | — | 829 |
| Short-term contractual liabilities (Note 22) | 976 | 5,182 | (725) | (4,694) | 204 | 2 | 13 | 958 |
| Total | 1,738 | 5,452 | (729) | (4,705) | (2) | 20 | 13 | 1,787 |
The maturity schedule of contractual liabilities at December 31, 2022 is as follows:
| Millions of euros | 2023 | 2024 | 2025 | Subsequent years | Total |
|---|---|---|---|---|---|
| Contractual liabilities, activation fees | 23 | 9 | 2 | 1 | 35 |
| Contractual liabilities, sales of prepay cards | 524 | — | — | — | 524 |
| Contractual liabilities, services | 308 | 75 | 30 | 64 | 477 |
| Contractual liabilities, sales of handsets | 26 | 5 | — | — | 31 |
| Contractual liabilities, sales of other equipments | 3 | — | — | 20 | 23 |
| Contractual liabilities, irrevocable rights to use | 70 | 69 | 62 | 421 | 622 |
| Other contractual liabilities | 84 | 17 | 16 | 100 | 217 |
| Maturity of performance obligations | 1,038 | 175 | 110 | 606 | 1,929 |
The amounts of provisions in 2022 and 2021 are as follows:
| | \multicolumn{3}{c|}{12/31/2022} | \multicolumn{3}{c|}{12/31/2021} |
| :--------------------------------------- | :------ | :---------- | :------ | :------ | :---------- | :------ |
| Millions of euros | Current | Non-current | Total | Current | Non-current | Total |
| Employee benefits | 885 | 4,093 | 4,978 | 1,003 | 5,395 | 6,398 |
| Termination plans | 135 | 241 | 376 | 254 | 374 | 628 |
| Post-employment defined benefit plans | 9 | 329 | 338 | 8 | 400 | 408 |
| Other benefits | 741 | 3,523 | 4,264 | 741 | 4,621 | 5,362 |
| Dismantling of assets | 26 | 502 | 528 | 25 | 552 | 577 |
| Other provisions | 720 | 1,910 | 2,630 | 413 | 1,715 | 2,128 |
| Total | 1,631 | 6,505 | 8,136 | 1,441 | 7,662 | 9,103 |
a) Employee benefits
In 2022 the Group recorded a provision of 179 million euros (1,663 million euros in 2021). In 2022, 57 million euros corresponds to Teléfonica Spain (1,382 million euros in 2021, mainly relating to the Individual Suspension Plan described in “Other benefits”).
The distribution by segment of the restructuring costs, in terms of their impact on operating income, is as follows:
| Millions of euros | 2022 | 2021 |
|---|---|---|
| Telefónica Spain | 57 | 1,382 |
| Telefónica Germany | 16 | 22 |
| Telefónica Hispam | 98 | 174 |
| Other companies | 8 | 85 |
| Total | 179 | 1,663 |
Termination plans
The movement in provisions for termination plans in 2022 and 2021 is as follows:
| Millions of euros | Total |
|---|---|
| Provisions for termination plans at 12/31/2020 | 785 |
| Additions | 249 |
| Retirements/amount applied | (409) |
| Translation differences, hyperinflation adjustments and accretion | 3 |
| Provisions for termination plans at 12/31/2021 | 628 |
| Additions | 106 |
| Retirements/amount applied | (311) |
| Transfers | (43) |
| Translation differences, hyperinflation adjustments and accretion | (4) |
| Provisions for termination plans at 12/31/2022 | 376 |
Telefónica Spain
The 2011-2013 labor force reduction plan in Telefónica de España, concluded with 6,830 participating employees and the provisions recorded at December 31, 2022 and 2021 amounted to 38 million euros and 145 million euros, respectively. The companies bound by these commitments calculated provisions required at 2022 and 2021 year-ends using the biometric table PERM2020 published in the resolution of December 17, 2020 combined with the invalidity table published in the ministerial order of 1977 and a high quality credit market based interest rate. The discount rate used for the termination plans of Telefónica Spain at December 31, 2022 was 3.43% with an average plan length of 0.74 years.
Post-employment defined benefit plans
The Group has a number of defined benefit plans in the countries where it operates.# Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
The following tables present the main data of these plans:
| Millions of euros | Germany | Brazil | Hispam | Others | Total |
|---|---|---|---|---|---|
| Obligation | 208 | 622 | 64 | 19 | 913 |
| Assets | (101) | (751) | — | (18) | (870) |
| Net provision before asset ceiling | 107 | (129) | 64 | 1 | 43 |
| Asset ceiling | — | 266 | — | — | 266 |
| Total | 107 | 137 | 64 | 1 | 309 |
| Net provision | 117 | 138 | 75 | 8 | 338 |
| Net assets | 10 | 1 | 11 | 7 | 29 |
| Millions of euros | Germany | Brazil | Hispam | Others | Total |
|---|---|---|---|---|---|
| Obligation | 322 | 549 | 67 | 22 | 960 |
| Assets | (99) | (660) | — | (15) | (774) |
| Net provision before asset ceiling | 223 | (111) | 67 | 7 | 186 |
| Asset ceiling | — | 199 | — | — | 199 |
| Total | 223 | 88 | 67 | 7 | 385 |
| Net provision | 231 | 103 | 67 | 7 | 408 |
| Net assets | 8 | 15 | — | — | 23 |
The movement in the present value of obligations in 2022 and 2021 is as follows:
| Millions of euros | Germany | Brazil | Hispam | Other | Total |
|---|---|---|---|---|---|
| Present value of obligation at 12/31/2020 | 350 | 643 | 74 | 19 | 1,086 |
| Translation differences | — | 5 | (4) | 1 | 2 |
| Current service cost | 10 | 4 | 2 | 1 | 17 |
| Interest cost | 2 | 48 | 7 | — | 57 |
| Actuarial losses and gains | (36) | (115) | (4) | 1 | (154) |
| Benefits paid | (4) | (36) | (4) | (1) | (45) |
| Plan curtailments | — | — | (22) | — | (22) |
| Other movements | — | — | 18 | 1 | 19 |
| Present value of obligation at 12/31/2021 | 322 | 549 | 67 | 22 | 960 |
| Translation differences | — | 74 | (7) | 1 | 68 |
| Current service cost | 11 | 3 | 4 | 1 | 19 |
| Interest cost | 3 | 54 | 6 | — | 63 |
| Actuarial losses and gains | (123) | (10) | 3 | — | (130) |
| Benefits paid | (5) | (48) | (4) | (1) | (58) |
| Plan curtailments | — | — | (3) | — | (3) |
| Other movements | — | — | (2) | (4) | (6) |
| Present value of obligation at 12/31/2022 | 208 | 622 | 64 | 19 | 913 |
Movements in the fair value of plan assets in 2022 and 2021 are as follows:
| Millions of euros | Germany | Brazil | Other | Total |
|---|---|---|---|---|
| Fair value of plan assets at 12/31/2020 | 95 | 693 | 13 | 801 |
| Translation differences | — | 6 | 1 | 7 |
| Interest income | — | 51 | — | 51 |
| Actuarial losses and gains | 3 | (42) | — | (39) |
| Participants contributions | 2 | — | — | 2 |
| Benefits paid | (2) | (33) | — | (35) |
| Transfers | 1 | — | 1 | 2 |
| Other movements | — | (15) | — | (15) |
| Fair value of plan assets at 12/31/2021 | 99 | 660 | 15 | 774 |
| Translation differences | — | 89 | 1 | 90 |
| Interest income | 1 | 65 | — | 66 |
| Actuarial losses and gains | (1) | (2) | — | (3) |
| Company contributions | 2 | — | — | 2 |
| Benefits paid | (3) | (42) | — | (45) |
| Transfers | 3 | — | 2 | 5 |
| Other movements | — | (19) | — | (19) |
| Fair value of plan assets at 12/31/2022 | 101 | 751 | 18 | 870 |
Telefónica Brazil sponsors the following post-employment benefit plans:
| Plans | Management entity | Sponsor |
|---|---|---|
| Health plans | ||
| Plano de Assistência Médica ao Aposentado y Programa de Coberturas Especiais (PAMA/PCE) | Fundação Sistel de Seguridade Social | Telefônica Brasil, jointly and severally with other companies resulting from the privatization of Telebrás (Telecomunicações Brasileiras, S.A.) |
| Assistencia médica – Lei 9.656/98 | Telefônica Brasil | Telefônica Brasil, Terra Networks, TGLog and TIS |
| Pension plans | ||
| PBS Assistidos (PBS-A) | Fundação Sistel de Seguridade Social | Telefônica Brasil, jointly and severally with other companies resulting from the privatization of Telebrás (Telecomunicações Brasileiras, S.A.) |
| CTB | Telefônica Brasil | Telefônica Brasil |
| Visão Prev | Telefônica Brasil | Telefônica Brasil, Terra Networks, TGLog, TIS and Cloud Co |
| BD Visão Prev | Telefônica Brasil | Telefônica Brasil |
The main actuarial assumptions used in valuing these plans are as follows:
| 12/31/2022 | 12/31/2021 | |
|---|---|---|
| Discount rate | 9.75% - 9.83% | 8.56% - 8.78% |
| Nominal rate of salary increase | 4.57% - 6.35% | 4.32% - 6.09% |
| Long term inflation rate | 3.50% | 3.25% |
| Growth rate for medical costs | 6.61% | 6.35% |
| Mortality tables | AT 2000 M/F | AT 2000 M/F |
The discount rate and growth rate for medical costs are considered to be the most significant actuarial assumptions with a reasonable possibility of fluctuations depending on demographic and economic changes and may significantly change the amount of the post-employment benefit obligation. The sensitivity to changes in these assumptions is shown below:
| Pension plans | Health plans | Total obligation | |
|---|---|---|---|
| Present value of the discounted obligation at the current discount rate | 354 | 268 | 622 |
| Present value of the obligation by increasing the discount rate by 0.5% | 341 | 253 | 594 |
| Present value of the obligation by reducing the discount rate by 0.5% | 367 | 286 | 653 |
| Pension plans | Health plans | Total obligation | |
|---|---|---|---|
| Present value of the obligation at the current growth rate for medical costs | 354 | 268 | 622 |
| Present value of the obligation by increasing the rate by 1% | 354 | 305 | 659 |
| Present value of the obligation by reducing the rate by 1% | 354 | 238 | 592 |
In 2015 Telefónica de España, S.A.U., Telefónica Móviles España, S.A.U. and Telefónica Soluciones de Informática y Comunicaciones de España, S.A.U. signed the first Collective Bargaining Agreement of Related Companies (CEV). This agreement considered elements that included a plan of measures for individual suspension of the employment relationship in 2016 and 2017, applying principles of voluntariness, universality, non-discrimination and social responsibility. In December 2016, the Collective Bargaining Agreement of Related Companies was extended until 2018 by virtue of the provisions thereof. In September 2019 Telefónica España signed the second Collective Agreement of Related Companies that includes, among other aspects, an "Individual Suspension Plan" that is completely voluntary for the year 2019, with the same conditions as the previous one. In 2021, Telefónica España signed a Social Pact for Employment supported by the largest trade unions, which contemplate and Individual Suspension Plan of employment, fully voluntary (see Note 2).
These plans are based on mutual agreement between the company and employees and entail the possibility of voluntarily suspending the employment relationship for an initial three-year period, renewable for consecutive three-year periods until the retirement age. Employees who meet the age and seniority requirements may enter the Individual Suspension Plans (PSI) in the periods opened for these purposes. At the end of each period, the current value of the forecast payment flows to meet the commitments of these programs (applying certain hypotheses regarding estimated number of accessions and future reintegration ratio) is recognized. At 2022 and 2021 year-ends, this figure was calculated using the biometric table PERM2020 published in the resolution of December 17, 2020 combined with the invalidity table published in the ministerial order of 1977 and a high quality credit market based interest rate. The provision at December 31, 2022 amounted to 4,150 million euros (5,240 million euros at December 31, 2021). The discount rate used for these provisions at December 31, 2022 was 3.71% with an average plans length of 3.53 years.
The table below shows the sensitivity of the value of termination, post-employment and other obligations, including the Individual Suspension Plans of Telefónica Group companies in Spain to changes in the discount rate:
| -100 b.p. | +100 b.p. | |||
|---|---|---|---|---|
| Impact on value | Impact on income statement | Impact on value | Impact on income statement | |
| (147) | (147) | 138 | 138 |
A 100 b.p. increase in the discount rate would reduce the value of the liabilities by 138 million euros and have a positive impact on the income statement of 138 million euros before tax. On the other hand, a 100 b.p. decrease in the discount rate would increase the value of the liabilities by 147 million euros and have a negative impact on the income statement of 147 million euros before tax. The Telefónica Group actively manages this position and has arranged a derivatives portfolio to significantly reduce the impact of changes in the discount rate (see Note 19).
The movement of provision for dismantling of assets in 2022 and 2021 is as follows:
| Millions of euros | |
|---|---|
| Dismantling of assets at December 31, 2020 | 677 |
| Additions | 36 |
| Accretion | (39) |
| Retirements/amount applied | (35) |
| Transfers | (4) |
| Business sale | (47) |
| Translation differences and other | (11) |
| Dismantling of assets at December 31, 2021 | 577 |
| Additions | 141 |
| Accretion | (160) |
| Retirements/amount applied | (41) |
| Transfers | 16 |
| Translation differences and other | (5) |
| Dismantling of assets at December 31, 2022 | 528 |
“Business sale” in 2021 included the second phase of the sale of towers by Telefonica Germany (see Note 2).
The detail by segments of provision for dismantling of assets in 2022 and 2021 is as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Telefónica Spain | 18 | 21 |
| Telefónica Germany | 323 | 396 |
| Telefónica Brazil | 71 | 60 |
| Telefónica Hispam | 116 | 100 |
| Total | 528 | 577 |
The movement in “Other provisions” in 2022 and 2021 is as follows:
| Millions of euros | |
|---|---|
| Other provisions at December 31, 2020 | 1,894 |
| Additions and accretion | 795 |
| Retirements/amount applied | (600) |
| Transfers | 45 |
| Translation differences and other | (6) |
| Other provisions at December 31, 2021 | 2,128 |
| Additions and accretion | 856 |
| Retirements/amount applied | (646) |
| Business combinations | 226 |
| Transfers | (7) |
| Translation differences and other | 73 |
| Other provisions at December 31, 2022 | 2,630 |
"Business combinations" in 2022 mainly correspond to provisions related to the acquisition of mobiles assets of Oi (see Note 5). The Group is exposed to risks of claims and litigation, mainly relating to tax and regulatory proceedings, and labor and civil claims. Given the nature of the risks covered by these provisions, no reliable schedule of potential payments, if any, can be determined.
Telefônica Brasil, S.A.and its subsidiaries are party to administrative and judicial proceedings and labor, tax and civil claims filed in different courts. The Telefónica Group management based on the opinion of its legal counsel, recognized provisions for proceedings for which an unfavorable outcome is considered likely. The balance of these provisions at December 31, 2022 and December 31, 2021 is shown in the following table:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Tax proceedings | 446 | 340 |
| Regulatory proceedings | 336 | 314 |
| Labor claims | 97 | 77 |
| Civil proceedings | 214 | 148 |
| Amounts to be refunded to customers | 108 | — |
| Provision for fines for canceling lease agreements | 99 | — |
| Total | 1,300 | 879 |
Additionally, Telefónica Brazil recognized contingent liabilities according to IFRS 3 generated on acquisition of the controlling interest of Vivo Participaçoes in 2011, GVT in 2015 and the mobile assets of Oi in 2022 (see Note 5). These contingent liabilities amounted to 176 million euros at December 31, 2022 (77 million euros at December 31, 2021).
In 2022, Complementary Law No. 194 was enacted in Brasil, leading to a reduction in the tax rate ICMS on communications services and the respective refund of these amounts to customers. The provision in Telefónica Brasil at December 31, 2022 amounted to 108 million euros. "Provision for fines for canceling lease agreements" relates to the acquisition of Garliava, resulting from the sale or shutdown of sites (see Note 5).
The detail of provisions for tax proceedings by nature of risk is as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Federal taxes | 140 | 118 |
| State taxes | 200 | 133 |
| Municipal taxes | 8 | 6 |
| FUST | 98 | 83 |
| Total | 446 | 340 |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 113
The breakdown of changes in provisions for tax proceedings in 2022 and 2021 is as follows:
| Millions of euros | |
|---|---|
| Balance at 12/31/2020 | 282 |
| Movements with a counterparty in the income statement | 44 |
| Write-offs due to payment | (19) |
| Monetary updating | 29 |
| Translation differences | 4 |
| Balance at 12/31/2021 | 340 |
| Movements with a counterparty in the income statement | 31 |
| Write-offs due to payment | (6) |
| Monetary updating | 37 |
| Translation differences | 44 |
| Balance at 12/31/2022 | 446 |
Group management and legal counsel understand that losses are possible from tax contingencies in federal, state, municipal and other taxes for an aggregated amount of 33,473 million Brazilian reals (6,009 million euros) as of December 31, 2022 (30,249 million Brazilian reals, 4,786 million euros as of December 31, 2021). The possible contingencies from the main income tax proceedings (federal tax) are described in Note 25. Noteworthy state tax-related contingencies include the "ICMS" tax (see Note 25). Moreover, Telefónica Brazil presently has different open proceedings regarding the Fundo de Universalização de Serviços de Telecomunicações (FUST, refer to Note 29).
With regard to regulatory proceedings, Telefónica Brazil is party to administrative proceedings against Agencia Nacional de Telecomunicações (ANATEL) based on an alleged failure to meet sector regulations and judicial proceedings to contest sanctions applied by ANATEL at the administrative level. Consolidated provisions totaled 1,869 million Brazilian reals (336 million euros) at December 31, 2022 (1,986 million Brazilian reals, 314 million euros at December 31, 2021). In addition, Group management and legal counsel understand that losses are possible from regulatory contingencies amounting to 5,845 million Brazilian reals (1,049 million euros) at December 31, 2022 (4,545 million Brazilian reals, 719 million euros at December 31, 2021), including the sanction for breaches of the Fixed Telephony Regulation (see Note 29.a).
In addition, Group management and legal counsel understand that losses are possible from civil proceedings, amounting to 391 million euros at December 31, 2022 (335 million euros at December 31, 2021).
In some situations, in connection with a legal requirement or presentation of guarantees, judicial deposits are made to secure the continuance of the claims under discussion. The judicial deposits by nature of risk at December 31, 2022 and December 31, 2021 are as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Tax proceedings | 280 | 238 |
| Labor claims | 21 | 29 |
| Civil proceedings | 248 | 132 |
| Regulatory proceedings | 54 | 45 |
| Garnishments | 4 | 4 |
| Total | 607 | 448 |
| Current (see Note 15) | 106 | 17 |
| Non-current (see Note 12) | 501 | 431 |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 114
Pursuant to a Ministerial Order dated December 27, 1989, Telefónica, S.A. files consolidated tax returns in Spain for certain Group companies. The consolidated tax group comprised 47 companies at December 31, 2022 (45 companies at December 31, 2021). 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. Group companies which are resident in Spain and which are not part of this consolidation regime and non-resident companies file individual or aggregated tax returns under the tax law applicable in each country.
The movements in deferred taxes in the Telefónica Group in 2022 and 2021 are as follows:
| Millions of euros | Deferred tax assets | Deferred tax liabilities |
|---|---|---|
| Balance at December 31, 2021 | 5,616 | 2,602 |
| Additions | 1,080 | 685 |
| Disposals | (1,877) | (400) |
| Transfers | 21 | (30) |
| Translation differences and hyperinflation adjustments | 42 | 184 |
| Company movements and others | 2 | 26 |
| Balance at December 31, 2022 | 4,884 | 3,067 |
| Millions of euros | Deferred tax assets | Deferred tax liabilities |
|---|---|---|
| Balance at December 31, 2020 | 6,416 | 2,620 |
| Additions | 952 | 499 |
| Disposals | (1,697) | (472) |
| Transfers | 2 | (60) |
| Translation differences and hyperinflation adjustments | (36) | 42 |
| Company movements and others | (21) | (27) |
| Balance at December 31, 2021 | 5,616 | 2,602 |
The Group assesses the recoverability of deferred tax assets based on the future activities carried out by the different companies, on tax regulations in the different countries in which these companies operate, and on the strategic decisions affecting the companies.
In July 2022, Telefónica was notified of the Supreme Court's ruling rejecting the appeal filed by the State Attorney's Office against the Supreme Court's ruling of October 29, 2021, which had upheld the criteria for the use of tax losses and deductions maintained by Telefónica in relation to the settlement agreements arising from the corporate income tax audit for those years (see Inspections of the tax group in Spain in this note). On October 24, 2022, the Supreme Court's ruling was enforced, ordering the refund to Telefónica of 790 million euros for taxes paid in those years, as well as 526 million euros in late-payment interest (see "Breakdown of financial result" in Note 19). As a result of the new assessments made, in 2022 tax credits of Telefónica, S.A.'s tax group that had been capitalized at December 31, 2021, amounting to 512 million euros for tax loss carryforwards and 278 million euros for tax credits, were derecognized. Also, in relation to the above, an addition of deferred tax assets of the tax group was recorded, with a balancing entry in the income tax of the consolidated income statement of tax loss carryforwards in the amount of 58 million euros and a derecognition of tax credits for deductions in the amount of 16 million euros.
In December 2022, the consortium formed by CAA and Vauban (see Note 2) acquired 45% of Bluevia Fibra, S.L. (Bluevia) for an amount of 1,021 million euros in cash. The transaction has not had any impact on the consolidated income statement as it is a change in the percentage of ownership that has not resulted in a loss of control. In the context of this transaction, Bluevia acquired from Telefónica de España a number of assets constituting the business object of Bluevia (see Note 29.c) at their fair value at the transaction date, which was higher than the pre-existing net book value, generating an accounting gain at the headquarters of Telefónica de España which, as Bluevia is outside the consolidation perimeter of the tax group of Telefónica, S.A., forms part of the taxable income of the aforementioned tax group. However, from an accounting point of view, this difference in value is not reflected in the consolidated accounts as it is a transaction between companies of the same Group. The difference between the tax value of these assets in Bluevia and their book value in the Group's consolidated accounts has generated an asset for deductible temporary differences amounting to 548 million euros, recorded as additions in the table above.
As of December 31, 2022, the estimated recoverability of the deferred tax assets of the companies that continue to form part of the tax group after the exit of Bluevia has been assessed. As a result of this analysis, a reversal of deferred tax assets for tax loss carryforwards amounting to 85 million euros and 112 million euros of deductions has been recorded.
In 2022 there were additions of deferred tax assets for 10 million euros as a result of the provisions recognized during the year in relation to the various workforce restructuring plans and other obligations with employees of the companies include in the group in Spain (see Note 24). Likewise, disposals of deferred tax assets in 2022 included the impact of the materialization of these provisions and its financial update, amounting to 319 million euros.
Telefónica Germany recognized tax credits for loss carryforwards generated in previous years amounting to 76 million euros and applied tax loss carryforwards amounting to 46 million euros in 2022.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022 Telefónica, S. A. 115Furthermore, Telefónica Germany recognized deferred tax liabilities disposals amounting to 42 million euros. The additions of deferred tax assets included tax credits recognized for 76 million euros by the German company Group 3G UMTS Holding GmbH. Furthermore, this company applied tax loss carryforwards in 2022 amounting to 76 million euros. Telefónica Brazil recognized deferred tax assets amounting to 78 million euros and applied tax loss carryforwards amounting 86 million euros in 2022. In addition Telefónica Brazil, recognized deferred tax liabilities amounting to 59 million euros and disposals amounting to 212 million euros. Telefónica Colombia recognized deferred tax assets amounting to 26 million euros and applied tax loss carryforwards amounting 119 million euros in 2022. Furthermore, recognized deferred tax liabilities amounting to 22 million euros. The movements relating to deferred taxes recognized directly in equity in 2022 amounted to 238 million euros of additions (net position of higher deferred tax liabilities) and 44 million euros of disposals (net position of higher deferred tax liabilities). Likewise, the amount of recognized deferred tax liabilities associated with investments in subsidiaries amounted to 319 million euros as of December 31, 2022 (220 million euros as of December 31, 2021). The amount of unrecognized deferred tax liabilities associated with investments in subsidiaries amounted to 234 million euros as of December 31, 2022 (256 million euros as of December 31, 2021).
Following the recoverability analysis of the Tax Group's deferred tax assets in Spain as of December 31, 2021, a reversal of deferred tax assets for tax loss carryforwards and deductions was recorded, with a balancing entry in income tax, amounting to 294 million euros (69 million euros of tax loss carryforwards and 225 million euros of deductions). In addition in 2021, the company completed the tax audit procedure for the years 2014 to 2017, which involved the consumption of deferred tax assets amounting to 199 million euros of tax loss carryforwards and 193 million euros of deductions. In addition to this, deferred tax liabilities and the associated deferred tax asset of 143 million euros was derecognized, after the state aid recuperation procedure corresponding to the years 2005 to 2018 goodwill tax amortization (see Tax deductibility of financial goodwill in Spain, later in this note). In 2021 there were additions of deferred tax assets for 348 million euros as a result of the provisions recognized during the year in relation to the various workforce restructuring plans and other obligations with employees of the companies included in the group in Spain (see Note 24). Likewise, disposals of deferred tax assets in 2021 included the impact of the materialization of these provisions, amounting to 240 million euros. Telefónica Brazil recognized deferred tax assets amounting to 221 million euros, mainly as a consequence of the Federal Supreme Court ruling of September 24, 2021, recognizing the unconstitutionality of the taxation in the Corporate Income Tax of interest received on taxes unduly paid in previous periods. In addition, recognized deferred tax liabilities amounting to 179 million euros mainly related to the tax amortization of goodwill. Telefónica Germany recognized tax credits for loss carryforwards generated in previous years amounting to 77 million euros and applied tax loss carryforwards amounting to 118 million euros in 2021. Furthermore, Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 116 Telefónica Germany recognized deferred tax liabilities disposals amounting to 110 million euros. The additions of deferred tax assets included tax credits recognized for 72 million euros by the German company Group 3G UMTS Holding GmbH. Furthermore, this company applied tax loss carryforwards in 2021 amounting to 66 million euros. In September 2021, the Social Investment Law (Law 2155 of 2021) was approved in Colombia, which establishes that as of 2022, the general income tax rate for legal entities is 35%. As a result of this amendment, the company recorded deferred tax assets additions of 71 million euros in 2021. The movements relating to deferred taxes recognized directly in equity in 2021 amounted to 27 million euros of additions (net position of higher deferred tax liabilities) and 196 million euros of disposals (net position of higher deferred tax assets).
The estimated realization of deferred tax assets and liabilities recognized in the consolidated statement of financial position in 2022 is as follows:
| Millions of euros | 12/31/2022 | Less than 1 year | More than 1 year |
|---|---|---|---|
| Deferred tax assets | 4,884 | 749 | 4,135 |
| Deferred tax liabilities | 3,067 | 296 | 2,771 |
Deferred tax assets less than one year mainly come from the Tax Group in Spain (458 million euros at December 31, 2022).
Deferred tax assets in the accompanying consolidated statements of financial position include the tax loss carryforwards, unused tax credits recognized and deductible temporary differences recognized at the end of the reporting period.
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Tax credits for loss carryforwards | 2,011 | 2,639 |
| Unused tax deductions | 565 | 903 |
| Deferred tax assets for temporary differences | 2,308 | 2,074 |
| Total deferred tax assets | 4,884 | 5,616 |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 117
The movements in Tax credits for loss carryforwards in the Telefónica Group in 2022 and 2021 are as follows:
| Location of the company (Millions of euros) | Balance at 12/31/2021 | Additions | Reversals | Perimeter changes | Translation differences and other | Balance at 12/31/2022 |
|---|---|---|---|---|---|---|
| Spain | 999 | 58 | (600) | — | — | 457 |
| Germany | 778 | 153 | (122) | 1 | — | 810 |
| Latin America | 861 | 64 | (216) | — | 32 | 741 |
| Other | 1 | 3 | (1) | — | — | 3 |
| Total tax credits for loss carryforwards | 2,639 | 278 | (939) | 1 | 32 | 2,011 |
| Location of the company (Millions of euros) | Balance at 12/31/2020 | Additions | Reversals | Perimeter changes | Translation differences and other | Balance at 12/31/2021 |
|---|---|---|---|---|---|---|
| Spain | 1,283 | — | (283) | — | (1) | 999 |
| Germany | 813 | 150 | (184) | — | (1) | 778 |
| Latin America | 645 | 285 | (41) | — | (28) | 861 |
| Other | — | — | — | 2 | (1) | 1 |
| Total tax credits for loss carryforwards | 2,741 | 435 | (508) | 2 | (31) | 2,639 |
The Spanish tax group considers that unused tax loss carryforwards in Spain, taking into account tax litigation in which the group is involved, amount to 3,825 million euros at December 31, 2022:
| Millions of euros | Total | Less than 1 year | More than 1 year |
|---|---|---|---|
| Tax loss carryforwards generated in the tax group | 1,755 | — | 1,755 |
| Tax loss carryforwards generated before consolidation in the tax group | 2,070 | 143 | 1,927 |
Total tax credits for loss carryforwards in Spain in the statement of financial position at December 31, 2022 amounted to 457 million euros (999 million euros at December 31, 2021). Total unrecognized tax credits for loss carryforwards of the Spanish tax group amounted to 498 million euros. These tax credits do not expire. The Group companies in Germany have recognized 810 million euros of tax credits for loss carryforwards at December 31, 2022. Total unrecognized tax credits for loss carryforwards of these companies amount to 5,452 million euros. These tax credits do not expire. Recognized tax credits in the consolidated statement of financial position arising from the Latin American subsidiaries at December 31, 2022 amounted to 741 million euros. Total unrecognized tax credits for tax loss carryforwards in Latin America amounted to 683 million euros.
The Group has recognized 565 million euros of tax credits from deductions at December 31, 2022, in Spain (903 millIon euros in 2021), generated primarily from export activity, R+D+i, double taxation and donations to non- profit organizations.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 118
The sources of deferred tax assets and liabilities from temporary differences recognized at December 31, 2022 and 2021 are as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Goodwill and intangible assets | 828 | 244 |
| Property, plant and equipment | 473 | 350 |
| Personnel commitments | 1,278 | 1,577 |
| Provisions | 935 | 817 |
| Inventories and receivables | 324 | 308 |
| Rights of use | 51 | 59 |
| Lease liabilities | 1,049 | 1,068 |
| Other concepts | 267 | 187 |
| Total deferred tax assets for temporary differences | 5,205 | 4,610 |
| Deferred tax assets and liabilities offset | (2,897) | (2,536) |
| Total deferred tax assets for temporary differences registered in the statement of financial position | 2,308 | 2,074 |
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Goodwill and intangible assets | 1,970 | 1,712 |
| Property, plant and equipment | 1,282 | 1,204 |
| Personnel commitments | 12 | 11 |
| Provisions | 447 | 403 |
| Investments in subsidiaries, associates and other shareholdings | 374 | 278 |
| Inventories and receivables | — | 6 |
| Rights of use | 1,046 | 1,093 |
| Other concepts | 833 | 431 |
| Total deferred tax liabilities for temporary differences | 5,964 | 5,138 |
| Deferred tax assets and liabilities offset | (2,897) | (2,536) |
| Total deferred tax liabilities for temporary differences registered in the statement of financial position | 3,067 | 2,602 |
Deferred tax assets and liabilities are offset if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. The heading "Other concepts” includes, among others, the difference between the accounting and tax values created by the value of financial derivatives at year end (see Note 19).Tax payables and receivables
Current tax payables and receivables at December 31, 2022 and 2021 are as follows:
| Millions of euros | Balance at 12/31/2022 | Balance at 12/31/2021 |
|---|---|---|
| Tax payables | ||
| Tax withholdings | 96 | 98 |
| Indirect taxes | 390 | 476 |
| Social security | 114 | 163 |
| Current income taxes payable | 957 | 1,120 |
| Other | 363 | 169 |
| Total | 1,920 | 2,026 |
| Millions of euros | Balance at 12/31/2022 | Balance at 12/31/2021 |
|---|---|---|
| Tax receivables | ||
| Indirect taxes | 569 | 705 |
| Current income taxes receivable | 1,549 | 1,310 |
| Other | 95 | 105 |
| Total | 2,213 | 2,120 |
The heading "Current income taxes receivable" as of December 31, 2022 includes a receivable from Telxius Telecom amounting to 876 million euros (875 as of December 31, 2021) corresponding to the income tax for the 2021 fiscal year, which was mainly generated by the second advance corporation tax paid for 2021 ("minimum instalment payment regime", regulated by RDL 2/2016 of 30 September, which is calculated on the positive result of the consolidated profit and loss account of its tax group whose parent company is Telxius Telecom). The profit obtained on the sale of its tower division subsidiaries, despite being tax exempt (at 95%) from corporate income tax, was nevertheless included in the basis for calculating the instalment payment. This credit was included into consideration for the annual corporate income tax return Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 119 for 2021, which was filed in July 2022. The effective recovery of this credit has taken place in January 2023.
On May 13, 2021 the Supreme Court of Brazil concluded the judgment of one of the most important tax disputes in Brazil, related to the exclusion of the ICMS tax (state tax on goods and services) in the PIS/COFINS (Contribuição para Financiamento da Seguridade Social) tax base. in 2021 2,269 million Brazilian reals (equivalent to 356 million euros at the average exchange rate of 2021) have been registered in "Current income taxes receivable". The impact in the consolidated income statement at 2021 amounted to 1,660 million Brazilian reals (261 million euros) reducing "Taxes other than income tax" within "Other expenses" (see Note 26), 573 million Brazilian reals (90 million euros) in "Finance income" (see Note 19) and 36 million Brazilian reals correspond to monetary updating (6 million euros).
Additionally, Telefónica Brazil has another legal proceeding that became final in 2018 for which it partially recognized the credit. The remaining portion of this process, relating to the period from April 1998 to June 2002 was not recognized at that time, as Telefónica Brazil considered it to be a contingent asset and, therefore, did not meet the parameters for its accounting recognition. In August 2022, based on the evolution of more recent decisions handed down by the STF that could impact the process in question, Telefónica Brazil, supported by the opinions of its legal advisors, concluded that the aforementioned process reached the status of net recoverability and therefore would be entitled to the accounting recognition of the remaining portion of the credit. Consequently, in 2022 1,146 million Brazilian reais (212 million euros at the average exchange rate of December, 2022) has been registered in "Current income taxes receivable". The impact in the consolidated income statement at 2022 amounted to 397 million Brazilian reals (73 million euros) reducing "Taxes other than income tax" within "Other expenses" (see Note 26), 749 million Brazilian reals (139 million euros) in "Finance income" (see Note 19) and 67 million Brazilian reals correspond to monetary updating (12 million euros). In 2022 the Company started the offset of said credit. At December 31, 2022 the credits pending compensation for the refund for the payments of PIS/COFINS amounting to 787 million Brazilian reals, equivalent to 141 million euros at the closing exchange rate of December 31, 2022 (1,579 million Brazilian reais at December 31, 2021, 250 million euros at the closing exchange rate).
The reconciliation between book profit before tax and the income tax expense from continuing operations for 2022, 2021 and 2020 is as follows:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Accounting profit before tax | 2,960 | 12,095 | 2,583 |
| Tax expense at prevailing statutory rate | 797 | 2,768 | 532 |
| Permanent differences | (793) | (1,705) | 289 |
| Changes in deferred tax charge due to changes in tax rates | 1 | 51 | 14 |
| (Capitalization)/reversal of tax deduction and tax relief | 88 | 225 | (103) |
| (Capitalization)/reversal of loss carryforwards | 197 | (307) | (88) |
| Increase/(decrease) in tax expense arising from temporary differences | 43 | 84 | (8) |
| Other concepts | 308 | 262 | (10) |
| Corporate income tax | 641 | 1,378 | 626 |
Breakdown of current/deferred tax expense
Current tax expense | (218) | 831 | 462
Deferred tax expense | 859 | 547 | 164
Total Corporate income tax | 641 | 1,378 | 626
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 120
"Permanent differences" in 2022, mainly includes 651 million of income corresponding to the last corporate simplification implemented in Brazil due to the approval in 2021 of a new Telecommunications Law (Law 14.195 of 26 August 2021), the consequent repeal of Decree 2.617/1998, which abolishes the obligation to control a telecommunications company through a Brazilian company. Likewise, as a result of the closure of the tax inspection of Group 3G UMTS Holding GmbH for several years up to 2015 and once it was confirmed that no adjustment was proposed, the company has reversed the provision that had been recorded for this purpose, with an impact on Corporate income tax of 186 million euros and in Finance income of 69 million euros. This movement has not had any cash effect.
"(Capitalization)/reversal of tax deduction and tax relief" in 2022 mainly includes the reversal of deferred tax assets for tax credits of the Telefónica, S.A. tax group amounting to 112 million euros, with a balancing entry in deferred tax expense.
"(Capitalization)/reversal of loss carryforwards" in 2022 mainly includes the effect of unrecorded tax loss carryforwards generated in the year and the reversal of tax loss carryforwards generated in prior years of the Telefónica, S.A. tax group, amounting to 326 million euros and 85 million euros, respectively. On the other hand, the recognition of tax credits for tax loss carryforwards generated in previous years of Telefónica Germany and Group 3G UMTS Holding GmbH are included too in (Capitalization)/reversal of loss carryforwards in 2022, amounting to 152 million euros (see Main changes registered in 2022 above in this note).
"Other items" in 2022 mainly include an expense of 241 million euros as a result of the provision for tax contingencies recorded during the year by Telefónica del Perú (see Tax litigation at Telefónica del Perú later in this note).
"Permanent differences" in 2021 mainly included the effect of the corporate income tax exemption on capital gains generated on the constitution of VMED O2 UK and on the sale of Telxius' telecommunications tower division (see Note 2). It also included 387 million euros expense for the signing of the Settlement Agreement following the closure of the corporate income tax audit for the years 2014 to 2017 in Spain referred to in the section "Inspections of the tax group in Spain" of this note.
"Changes in deferred tax charge due to changes in tax rates" in 2021 included the impact of the change in the corporate income tax rate in Argentina, United Kingdom and Colombia. In Argentina the Law 27,630 of June 16, 2021 of the Corporation Tax established an increase in the nominal tax rate from 30% to 35% with retroactive effect from January 1st, 2021. In addition, on May 24, 2021 a change in the nominal tax rate from 19% to 25% was substantially enacted in the United Kingdom, which will begin to apply on April 1st, 2023. In September 2021, the so-called Social Investment Law (Law 2155 of 2021) was approved in Colombia, which established that as of 2022, the general income tax rate for legal entities is 35%. As a result of these changes in tax rates, a net deferred tax effect was recorded with a counterpart in Corporate income tax, amounting to 51 million euros.
"(Capitalization)/reversal of loss carryforwards" in 2021 included the recognition of tax credits in Telefónica Germany and Group 3G UMTS amounting to 77 million euros and 72 million euros, respectively, the recognition of tax credits in Brazil amounting to 221 million euros as a result of the decision of the Supreme Federal Court of 24 September 2021 referred to in the section "Main changes registered in 2021" of this note, partially compensated by the reversal of the tax group in Spain amounting to 65 million euros.
"Increase/(decrease) in tax expense arising from temporary differences" in 2021 mainly included the effect of deductible temporary differences not recognized in Telefónica México, amounting to 83 million euros.
The heading "Other concepts" in 2021 included an expense of 97 million euros as a result of the provision for tax contingencies recorded by Telefónica del Perú in the year (see "Tax litigation in Telefónica del Perú" later in this note) and 97 million euros for the taxation of dividend income from Spanish companies.
"Permanent differences" in 2020 included the effect of the non-deductible charge for the impairment losses on goodwill and other assets of Telefónica Argentina (see Note 7).
"(Capitalization)/reversal of loss carryforwards" in 2020 included the recognition of tax credits in Telefónica Germany and Group 3G UMTS amounting to 159 million euros and 24 million euros, respectively, partially compensated by the reversal of the tax group in Spain amounting to 101 million euros."Increase/(decrease) in tax expense arising from temporary differences" in 2020 mainly included the recognition of deferred tax assets amounting to 184 million euros corresponding to deductible temporary differences of assets of Telxius Towers Germany, partially compensated by the effect of deductible temporary differences not recognized in Telefónica México, amounting to 152 million euros.
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 ColTel (prior to December 21, 2007) and Vivo (acquired in 2010). The positive accumulated effect of the corresponding settlements of corporate income tax from 2004 to the closing of December 31, 2022, was 2,042 million euros.
In relation to this tax incentive, the European Commission (EC) has in recent years commenced three proceedings against the Spanish State, as it deems that this tax benefit could constitute an example of state aid. Although the EC itself acknowledged the validity of the tax incentive for those investors that invested in European companies for operations carried out before December 21, 2007 in the first decision, and before May 21, 2011 for investments in other countries in the second decision, in its third decision issued on 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.
There are also doubts in the Spanish Courts about the classification of the incentive as a deduction and its maintenance in the case of 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 the Fondo de Comercio as State aid incompatible 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, suspended until the resolution of the 1st and 2nd Decisions, were reactivated in October 2021, and are still pending first instance judgment.
Notwithstanding the above, the "Tax and Customs Control Unit of the Spanish Tax Authority" (Dependencia de Control Tributario y Aduanero de la Agencia Tributaria), in compliance with the obligation set out in the EC Decision (EU) 2015/314, recovered in March 2019 and February 2021, the amounts that had been deducted in connection with the amortization of goodwill for the indirect acquisition of non-resident companies from 2005 to 2015 and 2016 to 2018 respectively, and has notified in December 2022 the recovery of the relevant amounts for the years 2019 to 2020.The recovery of such amounts is provisional, pending the final rulings on the appeals brought against the three decisions. The amount paid by Telefónica after offsetting outstanding tax credits (tax losses carryforward and deductions) amounted to 12 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 has released in 2021 the provision for the recovered part, 143 million euros, and has decided to continue provisioning the amount of the goodwill amortized for tax purposes, and not recovered by the Administration which amounted to 406 million euros as of December 31, 2022 (343 million euros as of December 31, 2021).
In July 2019, new inspection procedure were initiated for several of the companies belonging to Tax Group 24/90, of which Telefónica, S.A. is the dominant company. The concepts and periods that have been audited are: Corporate Income Tax for the years 2014 to 2017 and Value Added Tax, Withholdings Income Tax for the second half of 2015 and from 2016 to 2018.
A Settlement Agreement was signed in October 2021, in which Telefónica manifested its agreement with certain of the tax assessments resulting from the inspection (specifically, with respect to the tax treatment of the exchange differences generated by assets denominated in Venezuelan bolivars), and its disagreement with others (mainly the consideration of exempt income of the “Juros sobre capital propio” since 2015), producing an impact on results (tax expense) of 387 million euros, with a deferred tax asset reduction as detailed in "Main changes registered in 2021" in Note 25 to the Consolidated Financial Statements. However, the tax assessments did not result in a significant cash outflow as the Telefónica Group had tax credits, which substantially offset their impact.
The closing of the inspection procedure took place in January 2022, with the Settlement Agreement being notified, and which the Company challenged in an economic-administrative procedure at the Central Economic-Administrative Court due to the adjustments with which it did not agree, mainly related to the "juros Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 122 sobre el capital propio". On 9 December 2022, the Company received a rejection resolution from the Central Economic-Administrative Court, which will be challenged on the National High Court.
In relation to the 2008-2011 inspection procedure, in July 2022 Telefónica was notified of the Supreme Court's decision rejecting the appeal for cassation filed by the State Attorney's Office against the judgment of the Audiencia Nacional (National High Court) of October 29, 2021. This confirmed the criteria used by Telefónica, S.A. for the use of tax losses carryforward and deductions in relation to the liquidation agreements derived from the Corporate Income Tax inspection of those years. On October 24, 2022, an Agreement for the Execution of the Judgment of the Audiencia Nacional (National High Court) was issued, which orders the refund to Telefónica of an amount of 790 million euros for taxes paid in those years, as well as an amount of 526 million euros as delayed interest. Said amounts were collected on October 28, 2022. As a consequence of the final outcome of the litigation above mentioned, no additional liabilities were recorded as of December 31, 2022.
The Telefónica Group is involved in a range of tax litigation in Brazil over direct and indirect taxes (including those relating to GVT). This includes a number of appeals relating to ICMS tax (a tax similar to VAT, levied on telecommunications services). There is a dispute with the Brazilian tax authorities over which services should be subject to this tax. To date the most significant issues have focused on the requirement to collect ICMS on penalties charged to customers for non-compliance, and complementary or additional services to the basic telecommunications services such as value-added services, modem rental, and the application of this tax on the basic fee (assinatura básica). In the case of the latter (assinatura básica), the Supreme Court has established that the tax is only payable in respect of assessments for periods after October 2016. All related procedures are being contested in all instances (administrative and court proceedings).
The aggregate amount of the relevant proceedings, updated to take into account interest, fines and other items, is approximately 21,712 million Brazilian reais as of December 31, 2022 (approximately 3,898 million euros at the exchange rate on that date, see Note 24 to the Consolidated Financial Statements), 19,164 million Brazilian reais as of December 31, 2021 (approximately 3,032 million euros at the exchange rate on that date). Telefónica Brazil has obtained independent expert reports supporting its position, i.e. that the aforesaid services are not subject to ICMS.
In addition, there are possible contingencies in relation to the income tax federal taxes for the total amount of 29,778 million Brazilian reais as of December 31, 2022 (approximately 5,346 million euros at the exchange rate on that date), 18,078 million Brazilian reais as of December 31, 2021 (approximately 2,860 million euros at the exchange rate on that date), mainly related to the tax amortization in Brazil in the years 2011 to 2020 of the goodwill originated in the acquisitions of Vivo and GVT and their subsequent merger with Telefónica Brasil. These proceedings are at the administrative and judicial stage and no provisions have been made since the potential risk associated with them has been classified as "not probable" and Telefónica Brazil has received independent expert reports that support this view.There are other probable contingencies in relation to the income tax federal taxes for the total amount of 104 million Brazilian reais as of December 31, 2022 (approximately 19 million euros at the exchange rate on that date), 98 million Brazilian reais as of December 31, 2021 (approximately 16 million euros at the exchange rate on that date). The Company has recognized a provision for this amount.
Tax litigation in Telefónica del Perú
In relation to tax claims in Peru, it should be noted that Telefónica del Perú is party to numerous legal proceedings (contentious administrative proceedings (ACAs) and appeals (amparos)) for tax matters relating to corporate income tax and VAT, mainly for the years 1998 to 2005, the most relevant being those corresponding to the years 1998 to 2001 (relating to corporate income tax, payments in advance, credit balances, associated VAT, interest and applicable penalties). The evolution of the appeals of the different cases from the period 1998 to 2001 has been uneven and complex over the last few years, but we can highlight the second instance Judgment of 2015, which was partially upheld; the Supreme Court Judgments of 2019; the January 2020 Supreme Court Ruling, annulling the previous rulings of 2000 and 2001 in relation to the provision for doubtful debts; the Constitutional Court Rulings in 2021 in relation to the settlement of late payment interest, partially upheld; and the Supreme Court Rulings of 2021 and 2022 on the credit balance from 1999 used in 2000.
On January 17 and 18, 2023, Telefónica del Perú received notifications of the judgments handed down by the Supreme Court that resolved, in the last instance and unfavorably to the Company (references to the “Company” in this section refer to Telefónica del Perú), the contentious administrative proceedings relating to income tax for the years 1998, 2000 and 2001.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022
Telefónica, S. A.
123
The rulings issued by the Fifth Chamber of Constitutional and Social Transitory of the Supreme Court do not contain any payment mandate to the Company, as the rulings issued in the administrative contentious proceedings were resolved on concepts derived from a pronouncement of the Tax Court. At the end of these proceedings - and any others that may be applicable - the Tax Administration, through an administrative act, will determine the amount of the corresponding payment obligations.
Because there were certain adjustments on which the rulings had been definitive since 2015 (positively for the Company in relation to the deductibility of the rental of public spaces and negatively in the case of the deductibility of certain financial charges), the Company previously recorded a provision with an impact on income tax, the amount of which has been updated periodically and constantly depending on the evolution of the various proceedings and the applicable interest rates.
In addition to the above, in June 2022 a new ruling was received from the Tax Court in relation to the corporate income tax of Telefónica Móviles del Perú for 2000. This ruling was favorable to the Company with respect to the recognition of the tax value of certain network assets and unfavorable with respect to the deductibility of the exchange rate tax.
In relation to all these proceedings, the Group considers that the initial amount claimed by the Peruvian government has been exponentially increased by the accrual of interest generated by the delay, not attributable to the Company, of almost 20 years in processing the lawsuits, meaning that almost 80% of the total amount claimed is due to interest and fines. And all this, despite the fact that in 2021 the Constitutional Court itself ruled in favor of Telefónica del Perú, recognizing that it had been charged interest for delays not attributable to the company. For this and other reasons, the Group has been in international arbitration before ICSID since March 2021 for various conducts of the Peruvian State in violation of the Agreement for the Promotion and Reciprocal Protection of Investments between Spain and Peru (see Note 29.a).
The Company has recorded the necessary provisions for the contingencies considered probable, leaving as possible contingencies an amount of 560 million Peruvian soles at December 31, 2022 (approximately 138 million euros). As of December 31, 2022, the total amount of tax contingencies related to Telefónica del Perú that the Group has recognized in its consolidated financial statements, including as the most relevant amount that related to the aforementioned judgements and rulings received since 2015, plus accrued interest and other above-mentioned impacts, amounts to 3,849 million Peruvian soles which is equivalent to 945 million euros at the exchange rate of December 31, 2022.
Years open for inspection in the Group companies
The years open for review by the tax inspection authorities for the main applicable taxes vary from one consolidated company to another, based on each country’s tax legislation, taking into account their respective statute of limitations periods.
In Spain the taxes from 2018 onwards are open to inspection.
In the other countries in which the Telefónica Group has a significant presence, the years open for inspection by the relevant authorities are generally as follows:
The tax inspection of the open years is not expected to give rise to additional material liabilities for the Group.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022
Telefónica, S. A.
124
The breakdown of Revenues for the years 2022, 2021 and 2020 is as follows:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Rendering of services | 34,854 | 34,117 | 37,394 |
| Sales | 5,139 | 5,160 | 5,682 |
| Total | 39,993 | 39,277 | 43,076 |
Sales mainly include the sale of mobile terminals.
The breakdown of “Other income” is as follows:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Own work capitalized | 783 | 771 | 873 |
| Gain on disposal of businesses | 205 | 11,008 | 67 |
| Gain on disposal of property, plant and equipment | 582 | 478 | 270 |
| Gain on disposal of intangible assets | 1 | 7 | 6 |
| Government grants | 16 | 13 | 17 |
| Other operating income | 478 | 396 | 354 |
| Total | 2,065 | 12,673 | 1,587 |
"Gain on disposal of businesses" in 2022 mainly includes the gain from the sale of fiber optics assets of Colombia Telecomunicaciones, amounting to 162 million euros.and the gain from the establishment of the joint company for the deployment of fiber in the United Kingdom amounting to 20 million euros (see Note 10).
"Gain on disposal of businesses in 2021 mainly included the gain from the sale of the towers division of Telxius (6,099 million euros, see Note 2), the gain generated in the constitution of the joint venture VMO2 (4,460 million euros, see Note 2), the gain from the sale of 60% of the shares of InfraCo, SpA (274 million euros, see Note 2) and the gain from the sale of Telefónica de Costa Rica (136 million euros, see Note 2).
"Gains on disposal of companies" in 2020 included the impact of the initial registration of Telefónica's joint venture with Allianz for the deployment of fiber (FTTH) in Germany (see Note 29.c).
"Gain on disposal of property, plant and equipment" includes the gains on sale and leaseback transactions, which amounted to 381 million euros, 263 million euros and 79 million euros in 2022, 2021 and 2020, respectively (Note 20).
The breakdown of “Other expenses” is as follows:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Leases included in "Other expenses"(1) | 86 | 80 | 89 |
| Other external services | 8,731 | 8,604 | 9,617 |
| Taxes other than income tax | 834 | 703 | 902 |
| Change in trade provisions | 693 | 660 | 860 |
| Losses on disposal of fixed assets and changes in provisions for fixed assets | 124 | 51 | 416 |
| Goodwill impairment (Note 7) | — | 416 | 519 |
| Other operating expenses | 273 | 462 | 468 |
| Total | 10,741 | 10,976 | 12,871 |
(1) Following the adoption of IFRS 16 (Leases) in 2019, only included short- term leases and leases of low-value or intangible assets (see Notes 9).
"Losses on disposal of fixed assets and changes in provisions for fixed assets" in 2022 includes impairment losses of intangible assets and property, plant and equipment of Telefónica Argentina, for a total amount of 77 million euros (see Notes 6 and 8).
"Losses on disposal of fixed assets and changes in provisions for fixed assets" in 2020 includes impairment losses of intangible assets and property, plant and equipment of Telefónica Argentina, for a total amount of 375 million euros.
“Taxes other than income tax” includes the outstanding credits related to the court decisions in favor of Telefónica Brasil which recognized the right to deduct the ICMS from the calculation base of the PIS and COFINS. The impact was 73 million euros reducing "Taxes other than income tax" in 2022 (261 million euros and 75 million euros in 2021 and 2020, respectively, see note 25).
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022
Telefónica, S. A.125 Purchases and other contractual commitments
The estimated payment schedule for purchases and other contractual commitments (non-cancelable without penalty cost) is as follows:
| Millions of euros | Less than 1 year | 1 to 3 years | 3 to 5 years | More than 5 years | Total |
|---|---|---|---|---|---|
| Purchases and other contractual commitments | 3,991 | 4,269 | 2,281 | 1,744 | 12,285 |
The purchases and other contractual commitments in the table above include 850 million euros corresponding to power purchase agreements (PPAs), mainly from Telefónica Spain for the period from 2023 to 2031 and Telefónica Germany from 2025 to 2035 (see Note 29.d). The Group uses these contracts to purchase energy from sustainable sources, such as wind and solar, at generally fixed prices (see Note 3.l).
Commitments for short-term leases and low value leases amounted to 33 million euros as of December 31, 2022. In addition, lease collection commitments amounted to 8 million euros as of December 31, 2022.
Headcount
The table below presents the breakdown of the Telefónica Group’s average number of employees by fully consolidated segment (see Note 4) in 2022, 2021 and 2020, together with total headcount at December 31 each year.
| 2022 | 2021 | 2020 | ||||
|---|---|---|---|---|---|---|
| Average | Year-end | Average | Year-end | Average | Year-end | |
| Telefónica Spain | 21,099 | 20,947 | 22,872 | 22,976 | 22,992 | 22,978 |
| Telefónica United Kingdom | — | — | 2,884 | — | 6,501 | 6,318 |
| Telefónica Germany | 7,029 | 7,099 | 7,375 | 7,056 | 7,770 | 7,701 |
| Telefónica Brazil | 34,275 | 34,846 | 33,987 | 34,343 | 33,938 | 33,828 |
| Telefónica Hispam | 30,232 | 29,994 | 31,806 | 30,717 | 33,872 | 33,506 |
| Other companies | 9,928 | 10,765 | 8,852 | 9,058 | 8,109 | 8,466 |
| Total | 102,563 | 103,651 | 107,776 | 104,150 | 113,182 | 112,797 |
At December 31, 2022, approximately 39% of the final headcount are women (approximately 38% at December 31, 2021).
At December 31, 2022, the number of employees with disabilities is 1,482 (1,128 employees at December 31, 2021), of which 314 employees are in Spain (267 employees in 2021).
In 2022, the average number of employees of Telefónica Tech UK & Ireland, Ltd. (acquired on July 29, 2021), Incremental (see Note 5) and BE-terna (see Note 5) amounted to 609, 330 and 954 people, respectively.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022
Telefónica, S. A. 126
Depreciation and amortization
The breakdown of “Depreciation and amortization” on the consolidated income statement is as follows:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Property, plant and equipment (Note 8) | 4,133 | 4,360 | 5,022 |
| Intangible assets (Note 6) | 2,599 | 2,388 | 2,735 |
| Rights of use (Note 9) | 2,064 | 1,649 | 1,602 |
| Total | 8,796 | 8,397 | 9,359 |
Earnings per share
Basic earnings per share amounts are calculated by dividing (a) the profit for the year attributable to equity holders of the parent, adjusted for the net coupon corresponding to the undated deeply subordinated securities (see Note 17.c) by (b) the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent, adjusted as described above, by the weighted average number of ordinary shares adjusted as described in the preceding paragraph, plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
Both basic and diluted earnings per share attributable to equity holders of the parent are calculated based on the following data:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Profit attributable to ordinary equity holders of the parent company | 2,011 | 8,137 | 1,582 |
| Adjustment for the coupon corresponding to perpetual subordinated obligations | (279) | (337) | (334) |
| Tax effect | 70 | 84 | 84 |
| Total profit attributable to ordinary equity holders of the parent for basic and diluted earnings per share | 1,802 | 7,884 | 1,332 |
| Number of shares (thousands) | 2022 | 2021 (*) | 2020 (*) |
|---|---|---|---|
| Weighted average number of ordinary shares for basic earnings per share (does not include treasury shares) | 5,740,105 | 5,864,070 | 5,952,695 |
| Telefónica, S.A. plans of rights over shares | 23,096 | 10,098 | 6,590 |
| Weighted average number of ordinary shares outstanding for diluted earnings per share (excluding treasury shares) | 5,763,201 | 5,874,168 | 5,959,285 |
(*) Revised data. For the purposes of calculating the earnings per share (basic and diluted) attributable to equity holders of the parent, the weighted average number of shares outstanding is retrospectively adjusted for transactions that have changed the number of shares outstanding without a corresponding change in resources, as if such transactions had occurred at the beginning of the earliest period presented. Such is the case of the bonus share issues carried out to meet the scrip dividend (see Note 17.b). Thus, basic and diluted earnings per share attributable to equity holders of the parent are as follows:
| Earnings per share (euros) | 2022 | 2021 | 2020 |
|---|---|---|---|
| Basic | 0.31 | 1.34 | 0.22 |
| Diluted | 0.31 | 1.34 | 0.22 |
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022
Telefónica, S. A. 127
Note 27. Share-based payment plans
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 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 Telefónica Group ("FCF").
The plan has a duration of five years and is divided into three cycles of three years each. The first cycle commenced in 2018 and finalized on December 31, 2020. The maximum number of shares assigned to this cycle of the plan was 8,466,996, assigned as of January 1, 2018 with a unit fair value of 6.4631 euros per share for FCF objective and 4.516 euros for TSR. As of December 31, 2020 the number of outstanding shares was 7,093,162. Once considered the target fulfillment levels for 2018, 2019, and 2020, 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. Nevertheless, on February 23, 2021, the Chairman & CEO declared in the Nominating, Retribution and Good Governance Committee that he considered appropriate to renounce to this incentive perception as a sign of responsibility with society, customers, shareholders and employees of Telefónica as well as a cautious measure after the economic impacts of the COVID-19 crisis. The COO made the same declaration. The renounce was accepted by the Board of Directors.
The second cycle commenced in 2019 and finalized on December 31, 2021 The maximum number of shares assigned to this cycle of the plan was 9,471,489 with a unit fair value of 6.1436 euros per share for FCF objective and 4.4394 euros for TSR. As of December 31, 2021 the number of outstanding shares was 7,494,896. Once considered the target fulfillment levels for 2019, 2020, and 2021, 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.
In 2020 the third and final cycle commenced, which finalized on December 31, 2022. The maximum number of shares assigned to this cycle of the plan was 5,346,508, assigned as of January 1, 2020 with a unit fair value of 3.2136 euros per share for FCF objective and 1.6444 euros for TSR. As of December 31, 2022 the number of outstanding shares was 4,595,621. Once considered the target fulfillment levels for 2020, 2021, and 2022, a weighted achievement ratio of 50% has been reached. Performance assessment has been carried out based on the evolution of the stock price and on the audited results of the Company.
Long-term incentive plan based on Telefónica, S.A. shares: Performance Share Plan 2021-2025
At the General Shareholders’ Meeting held on April 23, 2021, a long-term incentive plan was approved, consisting of the delivery of shares of Telefónica, S.A. aimed at senior executive officers of the Telefónica Group, including the Executive Directors of Telefónica, S.A. The plan consists of the delivery to the participants of a certain number of shares of Telefónica, S.A. based on compliance with the objectives established for each of the cycles into which the plan is divided. The number of shares to deliver depend (i) 50% on achievement of the total shareholder return ("TSR") objective for shares of Telefónica, S.A. with regard to the TSRs of a comparison group made up of companies of the telecommunication sector, weighted by its relevance for Telefónica, (ii) 40% on the generation of free cash flow of Telefónica Group ("FCF"), and (iii) 10% on CO2 Emission Neutralization, in line with the goal set by the Company.
The plan has a duration of five years and is divided into three cycles of three years each. The first cycle commenced in 2021, with delivery of the respective shares in 2024. The maximum number of shares assigned to this cycle of the plan was 19,425,499 and the outstanding shares at December 31, 2022 was 18,544,534, with the following breakdown:
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
Consolidated Annual Report 2022
Telefónica, S. A. 128
First cycle No.```markdown
At its meeting on March 17, 2021, the Telefónica, S.A.'s Board of Directors agreed to launch the long-term incentive plan "Performance Share Plan". The term of this plan is five years and it is divided into three cycles. The number of shares to deliver will depend (i) 50% on achievement of the total shareholder return ("TSR") objective for shares of Telefónica, S.A. with regard to the TSRs of a comparison group made up of companies of the telecommunication sector, weighted by its relevance for Telefónica, (ii) 40% on the generation of free cash flow of Telefónica Group ("FCF"), and (iii) 10% on CO2 Emission Neutralization, in line with the goal set by the Company.
The first cycle commenced in 2021, with delivery of the respective shares in 2024. The maximum number of shares assigned to this cycle of the plan was 15,069,650 and the outstanding shares at December 31, 2022 was 14,969,799, with the following breakdown:
| No. of shares assigned | Outstanding shares at 12/31/2022 | Unit fair value (euros) | |
|---|---|---|---|
| TSR Objective | 9,712,750 | 9,272,267 | 2.64 |
| FCF Objective | 7,770,200 | 7,417,814 | 3.15 |
| CO2 E.N. Objective | 1,942,550 | 1,854,453 | 3.15 |
The second cycle commenced in 2022, with delivery of the respective shares in 2025. The maximum number of shares assigned to this cycle of the plan was 15,069,650 and the outstanding shares at December 31, 2022 was 14,969,799, with the following breakdown:
| No. of shares assigned | Outstanding shares at 12/31/2022 | Unit fair value (euros) | |
|---|---|---|---|
| TSR Objective | 7,534,825 | 7,484,899 | 2.43 |
| FCF Objective | 6,027,860 | 5,987,920 | 2.95 |
| CO2 E.N. Objective | 1,506,965 | 1,496,980 | 2.95 |
At its meeting on June 8, 2018, the Telefónica, S.A.'s Board of Directors agreed to launch the long-term incentive plan "Talent for the Future Share Plan". The term of this plan is five years and it is divided into three cycles. As in the case of the Performance Share Plan 2018-2022 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. 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 maximum number of shares assigned to this cycle of the plan was 787,500, assigned as of January 1, 2018 with a unit fair value of 6.4631 euros per share for FCF objective and 4.516 euros for TSR. As of December 31, 2020 the number of outstanding shares was 691,750. Once considered the target fulfillment levels for 2018, 2019, and 2020, 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.
The second cycle commenced in 2019 and finalized on December 31, 2021. The maximum number of shares assigned to this cycle of the plan was 812,000, assigned as of January 1, 2019 with a unit fair value of 6.1436 euros per share for FCF objective and 4.4394 euros for TSR. As of December 31, 2021 the number of outstanding shares was 690,750. Once considered the target fulfillment levels for 2019, 2020, and 2021, 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.
In 2020 the third and final cycle commenced, which finalized on December 31, 2022. The maximum number of shares assigned to this cycle of the plan was 897,400, assigned as of January 1, 2020 with a unit fair value of 3.2136 euros per share for FCF objective and 1.6444 euros for TSR. As of December 31, 2022 the number of outstanding shares was 761,600. Once considered the target fulfillment levels for 2020, 2021, and 2022, a weighted achievement ratio of 50% has been reached. Performance assessment has been carried out based on the evolution of the stock price and on the audited results of the Company.
At its meeting on March 17, 2021, the Telefónica, S.A.'s Board of Directors agreed to launch a new installment of the long-term incentive plan "Talent for the Future Share Plan". The term of this plan is also five years and it is divided into three cycles. As in the case of the Performance Share Plan 2021-2025 described above, the number of shares to deliver will depend (i) 50% on achievement of the total shareholder return ("TSR") objective for shares of Telefónica, S.A. with regard to the TSRs of a comparison group made up of companies of the telecommunication sector, weighted by its relevance for Telefónica, (ii) 40% on the generation of free cash flow of Telefónica Group ("FCF"), and (iii) 10% on CO2 Emission Neutralization, in line with the goal set by the Company.
The first cycle commenced in 2021, with delivery of the respective shares in 2024. The maximum number of shares assigned to this cycle of the plan was 1,751,500 and the outstanding shares at December 31, 2022 was 1,659,500, with the following breakdown:
| No. of shares assigned | Outstanding shares at 12/31/2022 | Unit fair value (euros) | |
|---|---|---|---|
| TSR Objective | 875,750 | 829,750 | 2.64 |
| FCF Objective | 700,600 | 663,800 | 3.15 |
| CO2 E.N. Objective | 175,150 | 165,950 | 3.15 |
The second cycle commenced in 2022, with delivery of the respective shares in 2025. The maximum number of shares assigned to this cycle of the plan was 1,646,500 and the outstanding shares at December 31, 2022 was 1,611,000, with the following breakdown:
| No. of shares assigned | Outstanding shares at 12/31/2022 | Unit fair value (euros) | |
|---|---|---|---|
| TSR Objective | 823,250 | 805,500 | 2.43 |
| FCF Objective | 658,600 | 644,400 | 2.95 |
| CO2 E.N. Objective | 164,650 | 161,100 | 2.95 |
The Telefónica,S.A. 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 are 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. The total number of free shares to be delivered for the whole plan may never exceed 0.38% of the share capital of Telefónica,S.A. at the date of approval of the plan at the General Shareholders' Meeting. The purchase period commenced in October 2022 and will finalize in September 2023. In March 2024 the vesting period of the plan will end. At December 31, 2022, 27,518 employees had registered for the plan.
The detail of net cash flow provided by operating activities is the following:
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Cash received from operations | 46,925 | 46,415 | 51,353 |
| Cash paid from operations | (34,778) | (34,379) | (36,477) |
| Cash paid to suppliers | (29,509) | (29,236) | (31,080) |
| Cash paid to employees | (4,416) | (4,299) | (4,434) |
| Payments related to cancellation of commitments | (853) | (844) | (963) |
| Net payments of interest and other financial expenses net of dividends received | (292) | (1,309) | (1,171) |
| Net interest and other financial expenses paid | (1,236) | (1,519) | (1,193) |
| Dividends received | 944 | 210 | 22 |
| Taxes proceeds/ (payments) | (92) | (459) | (509) |
| Net cash flow provided by operating activities | 11,763 | 10,268 | 13,196 |
In 2022, dividends amounting to 800 million pounds were received from VMED O2 UK Ltd (see Note 10) equivalent to 909 million euros (161 million pounds, equivalent to 187 million euros in 2021).
The following is a detail of the items comprising the net cash flow used in investing activities.
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Proceeds from the sale in property, plant and equipment and intangible assets | 842 | 564 | 509 |
| Payments on investments in property, plant and equipment and intangible assets | (6,350) | (6,728) | (7,529) |
| (Payments on investments)/proceeds from the sale in property, plant and equipment and intangible assets | (5,508) | (6,164) | (7,020) |
| Payments for non-financed spectrum in 2022 totaled 27 million euros, mainly due to the payment of 11 million euros for Telefónica Móviles Argentina and 8 million euros for Telefónica de España. | |||
| Payments for non-financed spectrum in 2021 totaled 999 million euros, mainly due to the payment of 521 million euros for Telefónica United Kingdom, 343 million euros for Telefónica Spain and 131 million euros for Telefónica Chile. | |||
| Constitution of VMO2 (1) (Note 2) | (256) | 5,872 | — |
| Sale of Telecommunications towers divisions of Telxius (Note 2) | 2 | 7,434 | — |
| Tax associated with the sale of the tower division of Telxius (Note 25) | — | (917) | — |
| Sale of Telefónica de Costa Rica | (15) | 442 | — |
| Sale of InfraCo | — | 479 | — |
| Tax associated with the sale of InfraCo | (124) | — | — |
| Sale of Telefónica Móviles El Salvador | 116 | — | — |
| Sale of fiber assets of Colombia Telecomunicaciones | 55 | — | — |
| Deferred collection sale of T. Ireland | 35 | 35 | — |
| Tax associated with the sales of operating businesses in Guatemala, Nicaragua and Panama in Telefónica Centroamérica Inversiones, S.L. | — | — | 71 |
| Others | 72 | 24 | 10 |
| (Payments)/proceeds on disposals of companies, net of cash and cash equivalents disposed | (115) | 13,369 | 81 |
| Oi mobile assets acquisition (Note 2) | (986) | — | — |
| Incremental acquisition (Note 5) | (178) | — | — |
| BE-terna acquisition (Note 5) | (328) | — | — |
| Cancom acquisition (Note 5) | — | (374) | — |
| Capital increase of UGG TopCo (Note 10) | (50) | (27) | — |
| Others | (86) | (13) | (79) |
| Payments on investments in companies, net of cash and cash equivalents acquired | (1,628) | (414) | (79) |
(1) Cash received (see Note 2) less: (i) Cash and cash equivalents of Telefonica UK at the date of its exit from the scope of consolidation, and (ii) payments made in 2021 and 2022 to the O2 UK pension plan and other expenses (see Note 29.c).
```# Consolidated Financial Statements 2022
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Collateral guarantees on derivatives | 2,891 | 1,897 | 2,224 |
| Legal deposits | 3 | 125 | 63 |
| Others | 73 | 141 | 21 |
| Proceeds on financial investments not included under cash equivalents | 2,967 | 2,163 | 2,308 |
| Legal deposits | (4) | (7) | — |
| Collateral guarantees on derivatives | (2,195) | (1,228) | (3,251) |
| Investment in funds shares of Telefónica Brasil | — | (117) | — |
| Long-term financial instruments of Pegaso PCS (Note 12) | (260) | — | — |
| Others | (116) | (122) | (46) |
| Payments on financial investments not included under cash equivalents | (2,575) | (1,474) | (3,297) |
| Net proceeds/(payments) for temporary financial investments | 1,532 | (1,584) | 217 |
Net proceeds/(payments) for temporary financial investments mainly includes placements of treasury surpluses not included in cash equivalents.
The following is a detail of the items comprising the net cash flow used in financing activities.
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Dividends paid to the shareholders of Telefónica,S.A.(*) | (959) | (617) | (825) |
| Payments to non-controlling interests of Telefônica Brasil,S.A. | (268) | (198) | (227) |
| Payments to non-controlling interests of Telefónica Deutschland Holding, A.G. | (161) | (165) | (156) |
| Payments to non-controlling interests of Telefónica Centroamérica Inversiones, S.L. | — | — | (39) |
| Payments to non-controlling interests of Telxius for the sale of the telecommunications tower divisions (see Note 17.h) | — | (2,603) | — |
| Payments to non-controlling interests of Telxius Telecom, S.A. | — | (42) | (44) |
| Others | (9) | (5) | (5) |
| Dividends paid (see Note 17) | (1,397) | (3,630) | (1,296) |
| Share capital increase Pontel and Telxius (see Note 17.h) | — | — | 323 |
| Establishment of Bluevia Fibra (see notes 2 and 17.h) | 1,021 | — | — |
| Others | 1 | — | — |
| Proceeds from share capital increase with minority interests | 1,022 | — | 323 |
| Own shares purchase of Telefónica Brasil | (111) | (78) | — |
| Shares purchase of Telefónica Deutschland | (48) | (51) | — |
| Transactions carried out by Telefónica,S.A. (see Note 17) | (365) | (478) | (217) |
| Telefónica Centroamérica Inversiones, S.L. share premium (ECPN.) refund related to the sale of T. Guatemala, T. Nicaragua and T. Panama | (44) | — | — |
| Others | 13 | 3 | (6) |
| (Payments)/proceeds of treasury shares and other operations with shareholders and with minority interests | (555) | (604) | (223) |
| Issuance of undated deeply subordinated securities (Note 17) | 750 | 1,750 | 500 |
| Acquisition of undated deeply subordinated securities (Note 17) | (750) | (1,750) | (385) |
| Payment of undated deeply subordinated securities (Note 17) | — | — | (808) |
| Payment of the coupon related to the issuances of undated deeply subordinated securities issued (see Note 17) | (268) | (354) | (327) |
| Operations with other equity holders | (268) | (354) | (1,020) |
(*) This amount differs from that indicated in Note 17 because of withholding taxes deducted in the payment to certain major shareholders in accordance with current legislation.
| Millions of euros | 2022 | 2021 | 2020 |
|---|---|---|---|
| Issued under the EMTN program of Telefónica Emisiones, S.A.U. (see Appendix III) | 1,100 | — | 3,500 |
| Issuance of Telefónica Móviles Chile, S.A. | — | 535 | — |
| Issuance of Telefónica Brasil, S.A. (*) (see Appendix III) | 628 | — | — |
| Issuance of Colombia Telecomunicaciones S.A, ESP BIC | — | — | 408 |
| Others | 18 | 26 | 103 |
| Proceeds on issue of debentures and bonds, and other debts | 1,746 | 561 | 4,011 |
| Disposal bilateral loans of Telefónica,S.A. (see Note 18) | 150 | 200 | 350 |
| Syndicated provision of 750 million euros by Telefónica Germany GmbH | — | 750 | — |
| Syndicated provision of Telxius Telecom, S.A. (see Note 18) | 100 | — | — |
| Disposal bilateral loan of Telefónica Brasil,S.A. (*) (see Note 18) | 199 | — | — |
| Syndicated provision of Bluevia Fibra S.L. (see Note 18) | 245 | — | — |
| Settlement of nominal value of gross debt hedging derivatives | 89 | — | 1,119 |
| Disposal bilateral loans and syndicated loan of Colombia Telecomunicaciones, S.A, ESP BIC | — | — | 436 |
| Others | 56 | 2,135 | 2,611 |
| Proceeds on loans, borrowings and promissory notes (see Appendix V) | 839 | 3,085 | 4,516 |
| Repayments of debentures and bonds, and other debts | (3,541) | (5,847) | (6,728) |
| Syndicated amortization by Telefónica,S.A. | — | (750) | — |
| Syndicated amortization by Colombia Telecomunicaciones, S.A. ESP BIC | — | (200) | — |
| Amortization bilateral loans of Colombia Telecomunicaciones,S.A. ESP BIC (*) (see Note 18) | (117) | — | — |
| Syndicated amortization by Telxius Telecom, S.A. (see Note 18) | (70) | — | — |
| Settlement of nominal value of amortized debt hedging derivatives | (715) | (34) | (139) |
| Others | (2,175) | (3,162) | (2,713) |
| Repayments of loans, borrowings and promissory notes (see Appendix V) | (3,077) | (4,146) | (2,852) |
| Lease principal payments (Note 20) | (1,996) | (1,782) | (1,787) |
| Financed spectrum licenses payments (Note 21) | (549) | (57) | (60) |
| Payments for investments in spectrum use licenses financed without explicit interest (Notes 2 and 21) | (108) | (108) | (87) |
| Payments to suppliers with extended payment terms (Note 18) | (41) | (108) | (235) |
| Financed operating payments and investments in property, plant and equipment and intangible assets payments | (698) | (273) | (382) |
(*) Data converted at the exchange rate at the end of each of the corresponding periods. The impact of the exchange rate with respect to the date of the transaction is included in the "Others" line within the same sub-heading.
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 we are 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. The contingencies arising from the litigation and commitments described below were evaluated (see Note 3.n) when the consolidated financial statements for the year ended December 31, 2022 were prepared. The provisions recorded in respect of the commitments taken as a whole are not material. The following unresolved legal proceedings or those underway in 2022 are highlighted (see Note 25 for details of tax-related cases):
Appeal against the decision by Agencia Nacional de Telecomunicações (“ANATEL”) regarding the inclusion of interconnection and network usage revenues in the Fundo de Universalização de Serviços de Telecomunicações (“FUST”)
Vivo Group operators (currently "Telefónica Brasil"), together with other cellular operators, appealed ANATEL’s decision of December 16, 2005, to include interconnection and network usage revenues and expenses in the calculation of the amounts payable into the FUST (Fundo de Universalização de Serviços de Telecomunicações) –a fund which pays for the obligations to provide Universal Service– with retroactive application from 2000.
On March 13, 2006, Brasilia Federal Regional Court no. 1 granted a precautionary measure which stopped the application of ANATEL’s decision. On March 6, 2007, a ruling in favor of the wireless operators was issued, stating that it was not appropriate to include the revenues received by transfer from other operators in the taxable income for the FUST’s calculation and rejecting the retroactive application of ANATEL’s decision. On January 26, 2016, ANATEL filed an appeal to overturn this decision with Brasilia Federal Regional Court no. 1, which was also dismissed. On May 10, 2017 ANATEL appealed to the higher courts on the merits of the case.
At the same time, Telefónica Brasil and Telefónica Empresas, S.A., together with other wireline operators through ABRAFIX (Associação Brasileira de Concessionárias de Serviço Telefonico Fixo Comutado) appealed ANATEL’s decision of December 16, 2005, also obtaining the precautionary measures requested. On June 21, 2007, Brasilia Federal Regional Court no. 1 ruled that it was not appropriate to include the interconnection and network usage revenues in the FUST’s taxable income and rejected the retroactive application of ANATEL’s decision. ANATEL filed an appeal to overturn this ruling on April 29, 2008, before Brasilia Federal Regional Court no. 1, which was dismissed on May 10, 2016. ANATEL filed an appeal against this dismissal.
The fixed operators filed an appeal to clarify that revenues obtained through interconnection and dedicated line operation should not be included in the calculation of the amounts payable to the FUST. In addition, the court was also requested to rule on two grounds which had not been analyzed in the initial decision: (i) that the FUST has become obsolete, among other reasons, by the advance of mobile telephony; and (ii) that amounts collected are not applied to the purpose for which the FUST was created, since only a very low percentage of the revenues collected by the FUST is used to finance fixed telephony. Although the petition for clarification was dismissed on August 23, 2016, the court noted that the FUST should not be funded with revenues from interconnection and dedicated line operation. ABRAFIX appealed to the higher courts on these two elements that had not been analyzed. ANATEL appealed all the holdings of the ruling to the higher courts. The amount of the claim is quantified at 1% of the interconnection revenues.
Appeal against the Decision of the European Commission dated January 23, 2013, to sanction Telefónica for the infringement of Article 101 of the Treaty on the functioning of the European Union
On January 19, 2011, the European Commission initiated formal proceedings to investigate whether Telefónica, S.A. (Telefónica) and Portugal Telecom SGPS, S.A.# Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
(Portugal Telecom) had infringed European Union antitrust laws with respect to a clause contained in the sale and purchase agreement of Portugal Telecom’s ownership interest in Brasilcel, N.V., a joint venture in which both companies were venturers and which was the owner of the Brazilian company Vivo.
On January 23, 2013, the European Commission passed a ruling on the formal proceedings. The ruling imposed a fine on Telefónica in the amount of 67 million euros, as the European Commission ruled that Telefónica and Portugal Telecom committed an infraction of Article 101 of the Treaty on the Functioning of the European Union for having entered into the agreement set forth in Clause Nine of the sale and purchase agreement of Portugal Telecom’s ownership interest of Brasilcel, N.V. On April 9, 2013, Telefónica filed an appeal for annulment of this ruling with the European Union General Court. On August 6, 2013, the European Union General Court notified Telefónica of the response issued by the European Commission, in which the European Commission reaffirmed the main arguments of its ruling and, specifically, that Clause Nine includes a competition restriction. On September 30, 2013, Telefónica filed its reply. On December 18, 2013, the European Commission filed its appeal. A hearing was held on May 19, 2015, at the European Union General Court. On June 28, 2016, the European Union General Court ruled. Although it declared the existence of an infringement of competition law, it annulled Article 2 of the contested Decision and required the European Commission to reassess the amount of the fine imposed. The General Court considered that the European Commission has not neutralized the allegations and evidences provided by Telefónica on services in which there was not potential competition or were outside the scope of Clause Nine. Telefónica understands that there are grounds for believing that the ruling does not suit at law; consequently, it filed an appeal to the Court of Justice of the European Union, on September 11, 2016. On November 23, 2016, the European Commission filed its response against the Telefónica's appeal. On January 30, 2017, Telefónica filed its response. On March 9, 2017, the European Commission filed its rejoinder. On December 13, 2017, the General Court dismissed the appeal filed by Telefónica. The European Commission, which was urged to recalculate the amount of the fine in the judgment of the General Court of June 2016, issued a resolution on January 25, 2022, imposing a fine of 67 million euros on Telefónica. In April 2022, Telefónica paid the fine of 67 million euros imposed, bringing the procedure to an end.
Venten Management Limited ("Venten") and Lexburg Enterprises Limited ("Lexburg") were non-controlling shareholders of Český Telecom. In September 2005, both companies sold their shares to Telefónica in a mandatory tender offer. Subsequently, Venten and Lexburg, in 2006 and 2009, respectively, filed actions against Telefónica claiming a higher price than the price for which they sold their shares in the mandatory tender offer.
On August 5, 2016, the hearing before the High Court in Prague took place in order to decide the appeal against the second decision of the Municipal Court, which had been favorable to Telefónica's position (as was also the case with the first decision of the Municipal Court). At the end of the hearing, the High Court announced the Second Appellate Decision by which it reversed the second decision of the Municipal Court and ordered Telefónica to pay 644 million Czech korunas (approximately 23 million euros) to Venten and 227 million Czech korunas (approximately 8 million euros) to Lexburg, in each case plus interest. On December 28, 2016, the decision was notified to Telefónica. Telefónica filed an extraordinary appeal, requesting the suspension of the effects of the decision.
In March 2017, Telefónica was notified of the decision of the Supreme Court, which ordered the suspension of the effects of the unfavorable decision to Telefónica issued by the High Court. Venten and Lexburg filed with the Supreme Court a motion to partially abolish the suspension of enforceability of the Decision of the High Court in Prague. On January 17, 2018, Telefónica filed its response seeking dismissal of such motion for lack of legal basis. On February 14, 2019, notification was given to Telefónica of the resolution of the Supreme Court which, based on the extraordinary appeal filed by Telefónica, abolished the decision of the High Court in Prague dated August 5, 2016 and remanded the case back to the High Court.
In December 2021, the High Court of Prague confirmed its appointment of an expert in order to produce a new expert report to assess the reliability of market-based price criteria used in the mandatory tender offer and further technical issues discussed in this litigation, including a new discounted cashflow valuation of the shares of Český Telecom in 2005.
In May 2018, Telefónica filed a judicial action for annulment against a resolution issued by ANATEL (the National Telecommunications Agency of Brazil) in March 2018 concluding the administrative process for determination of non-compliance with obligations (Processo Administrativo para Apuração de Descumprimento de Obrigações or "PADO") investigating alleged infractions of the Fixed Telephony Regulation by Telefónica Brasil. This PADO investigation had been suspended during the negotiations of the conduct adjustment term (Termo de
Ajustamento de Conduta or "TAC") between Telefónica and ANATEL relating to this and certain other PADO investigations. Since the negotiations concluded without agreement, the suspended PADO sanctioning procedures were reactivated and finalized.
In its resolution of March 2018, ANATEL considered that Telefónica Brasil committed several infractions, specifically those related to the inadequate notice of suspension of services to defaulting users, the terms of reactivation of services after payment of outstanding amounts by defaulting users and the disagreement with the terms of refunds claimed by users of the services. The fine imposed by ANATEL and appealed by Telefónica Brasil is approximately 211 million Brazilian reals (approximately 38 million euros), which amounted to approximately 575 million Brazilian reals after currency value updates and accrued interest as of December 31, 2022 (approximately 103 million euros).
Telefónica Brasil has appealed the fine imposed by ANATEL based, fundamentally, on the following arguments: (i) ANATEL should have considered a smaller universe of users to determine the fine and (ii) the calculation of the fine is disproportionate and based on insufficient grounds. Telefónica Brasil has not yet paid the fine, although Telefónica Brasil has guaranteed its payment through a guarantee insurance submitted to the court. As of the date of these financial statements, there has been no conciliation and the proceeding is following its normal course.
In the local arbitration brought by Colombia against Colombia Telecomunicaciones (“ColTel”), on July 25, 2017, the local arbitration tribunal ordered ColTel to pay 470 million euros as economic compensation for the reversion of assets related to voice services in relation to the concession granted between 1994 and 2013. On August 29, 2017, ColTel’s share capital was increased in order to make the payment ordered by the local arbitral award; Telefónica, S.A. contributed and disbursed an amount equivalent to 67.5% of the award’s amount (317 million euros) and the Colombian Government contributed an amount equivalent to the remaining 32.5% (153 million euros).
On February 1, 2018, Telefónica, S.A. filed a Request for Arbitration against Colombia at the International Centre for Settlement of Investment Disputes ("ICSID"), which was formally registered on February 20, 2018. The ICSID Court was constituted on February 26, 2019, with José Emilio Nunes Pinto as President, Horacio A. Grigera Naón appointed by Telefónica, S.A., and Yves Derains appointed by Colombia. Colombia filed Preliminary Objections on Jurisdiction on August 5, 2019. Telefónica, S.A. responded to Colombia’s objections in its Claimant’s Memorial on September 23, 2019, in which it also requested that Colombia pay compensation for damages caused to Telefónica, S.A. On October 23, 2019, Colombia submitted its Complementary Objections on Jurisdiction as well as a request for Bifurcation, to which Telefónica, S.A. responded on November 29, 2019. 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.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.# Consolidated Financial Statements 2022
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 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.
In 2013, Telefónica Brasil filed a lawsuit against the resolution of ANATEL which sets forth the calculation of the amount to be paid by Telefónica Brasil for the renewal of radio frequencies associated with the provision of personal mobile services (which has been granted to Telefónica Brasil for a period of fifteen years). According to ANATEL the renewals, which must be carried out every two years, should be accompanied by a payment equivalent to 2% of all income derived from the provision of personal mobile services, while Telefónica Brasil believes that the calculation must be made with respect to the income derived from voice services only, which would exclude data services and interconnection revenues. In February 2020, Telefónica Brasil filed an appeal before the Regional Federal Court of Brasilia after obtaining an unfavorable ruling in the Court of First Instance, which considered that the criteria defended by ANATEL was the one to be followed. As of December 31, 2022, the amount under litigation was 774 million Brazilian reais (139 million euros based on the exchange rate of such date), resulting from the method of calculation of ANATEL that has been appealed.
In 2015, Telefónica Brasil filed a lawsuit against the resolution of ANATEL which sets forth the calculation of the amount to be paid by Telefónica Brasil for the renewal of radio frequencies associated with the provision of personal mobile services (which has been granted to Telefónica Brasil for a period of fifteen years). According to ANATEL the renewals, which must be carried out every two years, should be accompanied by a payment equivalent to 2% of all income derived from the provision of personal mobile services, while Telefónica Brasil believes that the calculation must be made with respect to the income derived from voice services only, which would exclude data services and interconnection revenues. In August 2016, Telefónica Brasil filed an appeal before the Regional Federal Court of Brasilia after obtaining an unfavorable ruling in the Court of First Instance, which considered that the criteria defended by ANATEL was the one to be followed. Pending judgment on appeal. As of December 31, 2022, the amount under litigation was 400 million Brazilian reais (72 million euros based on the exchange rate of such date), resulting from the method of calculation of ANATEL that has been appealed.
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.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 138
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. The parties are awaiting the issuance of the sentence.
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.
As a result of the sale agreement of Atento by Telefónica, announced on October 12, 2012, and ratified on December 12, 2012, both companies signed a Master Service Agreement which regulates Atento’s relationship with the Telefónica Group as a service provider for a period of nine years and which has been amended on May 16, 2014, November 8, 2016, May 11, 2018, November 28, 2019 and February 4, 2022. The term of the agreement was extended for Spain and Brazil in November 2016, for two additional years until the end of 2023, and for Latin America in February 2022, for one additional year until the end of 2022. By virtue of this agreement, Atento became Telefónica’s preferred Contact Center and Customer Relationship Management (“CRM”) service provider, stipulating annual commitments in terms of turnover which is updated based on inflation and deflation that vary from country to country, pursuant to the volume of services Atento has been providing to the entire Group. Effective January 1, 2017, the minimum volume commitments that Telefónica must comply with have significantly decreased for Brazil and Spain. Additionally, from January 1, 2019 a new reduction of the minimum commitment has been agreed, in this case only for Spain. Failure to meet the annual turnover commitments in principle results in the obligation to the counterparty, to pay additional amounts, which would be calculated based on the difference between the actual amount of turnover and the predetermined commitment, applying a percentage based on the Contact Center’s business margin to the final calculation. Notwithstanding the above, as a consequence of the amendment signed with the Atento Group on May 11, 2018, from January 1, 2018 the payment obligation for failure to meet the annual turnover commitment continues to be calculated every year but will only be liquidated upon termination of the agreement.Such payment will only be due if the balance is in favor of Atento after adding certain amounts agreed between the parties and deducting an annual percentage of the Atento Group’s sales to the Telefónica Group. The Master Agreement sets forth a reciprocal arrangement, whereby Atento assumes similar commitments to subscribe certain telecommunications services from Telefónica.
Pursuant to the Framework Investment Agreement entered into between the shareholders of Colombia Telecomunicaciones, S.A. ESP BIC (a) if Telefónica decides to dispose or transfer of all or part of its shareholding in Colombia Telecomunicaciones, S.A. ESP BIC to third parties, Telefónica commits that: (i) the acquirer or transferee will be obliged to adhere to the Framework Investment Agreement; and (ii) that the acquirer or transferee will be obliged to present an offer to purchase all of the shares in Colombia Telecomunicaciones, S.A. ESP BIC held by the Colombian Government (that amounts to 32.5% of the share capital) at the same price and under the same terms and conditions negotiated with Telefónica and through the procedure established by Law 226 of 1995 for the disposal of shares held by public entities and, (b) if the Colombian Government transfer its shares in Colombia Telecomunicaciones, S.A. ESP BIC under certain circumstances, the Strategic Partner shall subscribe with the acquirer of the shares a new shareholders agreement which will have to be then negotiated by the parties and which, as the case may be, will include some of the rights currently held by the Colombian Government under the Framework Investment Agreement currently in force.
On March 1, 2016, a share purchase agreement between, on one hand, Telefónica, S.A., Telefónica Servicios Globales, S.L.U. and Telefónica Gestión de Servicios Compartidos Perú, S.A.C. (as sellers), and, on the other hand, IBM Global Services España, S.A., IBM del Perú, S.A.C., IBM Canada Limited and IBM Americas Holding, LLC (as purchasers) for the sale of the companies Telefónica Gestión de Servicios Compartidos España, S.A.U., Telefónica Gestión de Servicios Compartidos Argentina, S.A. and T-Gestiona Servicios Contables y Capital Humano, S.A.C., for a total price of approximately 22 million euros, was ratified before Notary Public. This share purchase agreement was subscribed on December 31, 2015.
Following the aforementioned share purchase agreement and in connection with the latter transaction, also, on December 31, 2015, Telefónica subscribed a master services agreement with IBM for the outsourcing of economic-financial and HR activities and functions to be provided to the Telefónica Group during a period of ten years, for a total amount of approximately 450 million euros. Most of the Telefónica Group’s subsidiary companies have already adhered to that master services agreement.
On March 31, 2021 and March 31, 2022 the master services agreement with IBM for the outsourcing of economic-financial and HR activities and functions to be provided to the Telefónica Group was amended. By virtue of these amendments the term may be extended for those adhered companies that decide to extend their services beyond the initial term. In addition, on July 29, 2022 a new amendment was executed by virtue of which the term may be extended for those adhered companies in Latinoamerica that decide to extend some of their services.
On June 25, 2018, Telefónica was provisionally awarded with the broadcasting rights for all football (soccer) matches of the Spanish First Division Football League National Championship in the residential subscribers market for exploitation on pay television for the 2019-2022 cycle (packages 4 and 5 of the auction called by the Professional Football League). The definitive agreements were signed on July 5, 2018. The award was granted for a total amount of 2,940 million euros, at an identical price of 980 million euros for each of the three seasons, which represents a slight decrease compared to the last season of the previous cycle. Telefónica, as the operator of these broadcasting rights for the 2019-2022 cycle, has the right to decide, design and develop the broadcasting content, which carried the Movistar hallmark for the 2019-2020 season.
On December 21, 2018, Telefónica was provisionally awarded with the broadcasting rights for all football (soccer) matches of the Spanish Second Division Football League National Championship in the residential subscribers market for exploitation on pay television for the 2019-2022 cycle (package 6 of the auction called by the Professional Football League). No other bids were submitted for such package during the first round of the auction called by the Professional Football League. The award was granted for a total amount of 105 million euros (i.e., 35 million euros for each of the 3 seasons). On January 11, 2019 the definitive agreement on such broadcasting rights (package 6) was signed.
On July 2, 2020 Telefónica signed an agreement for acquiring the exclusive media rights in Spain of UEFA Champions League and UEFA Europa League, as well as the UEFA Europa Conference League (a new competition to be separated from the UEFA Europa League) and UEFA Youth League, for the next cycle comprising seasons 2021/22, 2022/23 and 2023/2024, after the expiration of the agreement with Mediapro of June 28, 2018 for previous cycle 2018/2019 to 2020/2021. The agreement guarantees Telefónica all media rights with respect to the main European football competitions for all its customers, both residential and horecas (hotels, restaurants, cafes, etc.). The direct acquisition from UEFA of this "premium" content will also allow Telefónica to continue designing and selling its own produced channels and content with the best European football that could be, likewise, accessible to other operators in the market interested in this content. The total award price for all competitions amounted to 975 million euros (i.e. 325 million euros for each of the seasons 2021/22, 2022/23 and 2023/2024) which is less than the license fees paid for the previous cycle and without any year-to-year increase.
On December 13, 2021, Telefónica was provisionally awarded the exclusive broadcasting rights of five matches per matchday of the Campeonato Nacional de Liga de Primera División (“LaLiga”), for pay television in the residential market, in Spain. Telefónica received the first pick in 18 matchdays of each season and second pick in 17 matchdays, including "El Clásico" of the second round (Option D bis, Lot D.1 bis). Likewise, Telefónica was awarded the exclusive broadcasting rights of three matchdays, which contain ten matches each matchday, including matches of Real Madrid C.F., F.C. Barcelona and Club Atlético de Madrid against the six first classified of the previous season; and Valencia C.F., Athletic Club de Bilbao or Real Betis Balompié, if they were not among the aforementioned first classified (Option D bis, Lot D.3 bis). The award includes the cycle 2022/2023 to 2026/2027 although the 2025/2026 and 2026/2027 seasons are subject to the CNMC lifting or modifying the resolution that limits the maximum duration of the contracts entered into by Telefónica for the acquisition of sports rights (Expte. VC/0612/14). The award has been made at a price of 520 million euros for each of the seasons. The award was subject to the execution of an agreement between Telefónica and LaLiga with the remaining terms and requirements established in the LaLiga tender, which was signed on January 19, 2022.
On March 28, 2022, Telefónica entered into an agreement with the company DAZN for the distribution of the so- called DAZN LaLiga Package. Such package includes the remaining five football matches per match-weekend of the Spanish First Division Football Championship, in 35 out of 38 match-weekends for exploitation on pay television for residential subscribers in Spain (Option D bis, Package D.2 bis). This is a non-exclusive agreement for five seasons, from 2022/2023 to 2026/2027. The agreed value amounts 280 million euros for each of the seasons.
In addition, on July 29, 2022, Telefónica signed a new contract with LaLiga for the non-exclusive broadcasting of the channel that broadcasts matches of Second Division of National Football Championship League for seasons 2022/2023, 2023/2024 and 2024/2025, with Telefónica’s unilateral option to extend for two additional seasons, with a variable cost that amounts to approximately 16 million euros per season. Similarly, on August 4, 2022, a contract was formalized with LaLiga for the non-exclusive broadcast of the LaLiga TV Bar Channel for non-residential subscribers for the 2022/2023 season with a minimum guarantee of 29 million euros, being the final price variable.
On November 2, 2022, Telefonica was also awarded by Real Federacion Española de fútbol (RFEF) exclusive pay television rights of Copa del Rey Competiton and Supercopa de España for seasons 2022/2023, 2023/2024 and 2024/2025.
On November 21, 2019, Pegaso PCS, S.A. de C.V.# Consolidated Financial Statements 2022
On December 21, 2021, Telefónica México, S.A.B. de C.V. (“Telefónica México”) and AT&T Comunicaciones Digitales, S. de R.L. de C.V. (“AT&T Mexico”) entered into a Wholesale Access Services Agreement (“Wholesale Agreement”), under which AT&T Mexico agreed to provide wholesale wireless access to Telefónica México on 3G, 4G and any other future technology available in Mexico. The Wholesale Agreement has a minimum duration of eight years, renewable for additional consecutive periods of three years. Such Wholesale Agreement establishes a gradual migration of Telefónica México’s traffic to AT&T Mexico's access network over the first three years of the agreement. As set forth in the Wholesale Agreement such migration was completed during the first half of 2022. As a result, Telefónica México’s wireless access infrastructure was turned off and Telefónica México no longer uses the licensed spectrum that it used in the past to operate its network.
On December 19, 2019 Telefônica Brasil S.A. and TIM S.A. executed two agreements for the share of 2G, 3G and 4G mobile network infrastructure. Both companies reiterate that they will preserve their commercial and customer management autonomy, regardless of any infrastructure sharing agreement. The agreements cover the following matters:
1. 2G network Sharing: to be implemented in areas where both operators are present, so that the operator reminiscent will provide 2G mobile connectivity services to the Vivo and TIM customer base, resulting in the disconnection of overlapping sites and therefore achieving cost reduction and the optimization of spectrum use.
2. 3G and 4G network Sharing: covering only cities with less than 30 thousand inhabitants with the aim of sharing 4G and 3G network in cities where only one operator is present (coverage expansion) and where both already provide services (network consolidation).
Both agreements were approved by the Telecommunications and Competition regulatory authorities ("Agência Nacional de Telecomunicações” - ANATEL and “Conselho Administrativo de Defesa Económica” - CADE).
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 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 (see Note 10). The agreement was complemented by the signing of a contract for the provision to Telefónica of housing services from those two data centers under terms and conditions equivalent to those established in the transaction executed in 2019, for an initial period ending in 2031.
On May 7, 2020, Telefónica agreed to enter into a joint venture with Liberty Global plc ("Liberty Global") pursuant to a contribution agreement (as amended, the "Contribution Agreement") between Telefónica, Telefonica O2 Holdings Limited, Liberty Global, Liberty Global Europe 2 Limited and a newly formed entity of which, after closing, each of Telefónica and Liberty Global would hold 50% of its share capital named VMED O2 UK Limited.
After having obtained the clearance from the Competition and Market Authority (the antitrust authority in the UK) to complete this transaction and having fulfilled all the other pre-closing conditions included in the Contribution Agreement, the transaction was completed on June 1, 2021. From such date, Telefónica and Liberty Global each hold an equal number of shares in VMED O2 UK Limited; after: (i) Telefónica having contributed to VMED O2 UK Limited its O2 mobile business in the United Kingdom and (ii) Liberty Global having contributed its Virgin Media business in the United Kingdom to VMED O2 UK Limited.
The corporate governance of VMED O2 UK Limited is regulated by a shareholders' agreement, which was entered into by the parties to the Contribution Agreement on June 1, 2021 (the "Shareholders' Agreement").
On the date of closing of the transaction, Telefónica, Liberty Global, and certain companies belonging to each shareholder’s corporate group entered into certain services, reverse services, licensing and data protection agreements with VMED O2 UK Limited and certain entities belonging to the VMED O2 UK Limited group. In particular, Telefónica and Liberty Global agreed that each shareholder’s group would provide certain services, either on a transitional or ongoing basis to VMED O2 UK Limited and its group and that, for a limited period of time, VMED O2 UK Limited would also provide certain reverse services to specific companies belonging to the corporate group of each of its shareholders.
Pursuant to the terms of the above referred services agreements, the transitional services that are to be provided by the Telefónica Group to VMED O2 UK Limited shall be provided for terms ranging from 7 to 24 months while the ongoing services that are to be provided by the Telefónica Group to VMED O2 UK Limited will be provided for periods of two to six years, depending on the service. The services provided by the Telefonica Group to VMED O2 UK Limited consist primarily of technology and telecommunication services that will be used by or will otherwise benefit VMED O2 UK Limited.
In addition to providing VMED O2 UK Limited with such services, the mobile operators of the Telefonica Group and VMED O2 UK Limited will maintain their roaming commercial relationships in order to reciprocally provide roaming services for their respective customers. Likewise, as of closing of the transaction Telefónica granted certain trademark license agreements to VMED O2 UK Limited (the “VMED O2 UK Limited Trademark Licenses”). Pursuant to the VMED O2 UK Limited Trademark Licenses, Telefonica Group licensed the use of Telefónica and O2 brand rights to VMED O2 UK Limited.
On January 28, 2021, Telefónica Brasil executed the Purchase and Sale Agreement of Shares and Other Covenants (the “Oi Agreement”), by and among Oi Móvel SA - In Judicial Recovery, as "Seller", Telefónica Brasil, Tim S.A. and Claro S.A., as “Buyers”, and Oi S.A. - In Judicial Recovery and Telemar Norte Leste S.A. - In Judicial Recovery, as intervening parties and guarantors of the seller’s obligations.
On April 20, 2022, the closing of the transaction related to the purchase agreement for the acquisition of the assets of Oi Group's mobile business operations (the "UPI Mobile Assets") took place, and Telefónica Brasil acquired, on such date, all the shares of Garliava RJ Infraestrutura e Redes de Telecomunicações S.A. (Garliava), a special purpose company, to which the mobile assets of Oi Group assigned to Telefónica Brasil had been contributed under the segregation plan stated in the Oi Agreement.
Telefónica Brasil thus acquired its share of mobile assets of the Oi Group for an amount of 5,373 million Brazilian reais (approximately 1,063 million euros at the exchange rate at such date), having paid, on such day, the amount of 4,885 million Brazilian reais (approximately 972 million euros). The remaining amount, equivalent to 10% of the payment made on that date, was withheld and its release is currently subject to certain ongoing discussions regarding price adjustments, as provided for in the Oi Agreement.Likewise, on such date, Telefónica Brasil: (i) committed to an additional payment of 110 million Brazilian reais (approximately 23 million euros) of which 40 million Brazilian reais were paid at that date (approximately 8 million euros), subject to the fulfilment of certain targets by Oi; (ii) made a payment of approximately 148 million Brazilian reais (approximately 29 million euros) for certain transition services to be provided by Oi to Garliava; and (iii) entered into a take-or-pay data transmission capacity agreement, with a net present value of 179 million Brazilian reais (approximately 35 million euros), to be paid in monthly installments during a period of 10 years. The mobile assets of Oi Group finally assigned to Telefónica Brasil were the following: a.Customers: approximately 12.5 million (equivalent to 30% of the total customer base of the mobile assets of Oi Group) – according to ANATEL’s February 2022 data; b.Spectrum: 43MHz as national population- weighted average (46% of the radiofrequency of the mobile assets of Oi Group); and c.Infrastructure: contracts for the use of approximately 2.7 thousand sites of mobile access (corresponding to 19% of the sites of the mobile assets of Oi Group). All commitments assumed were duly submitted to ANATEL and CADE during 2022. On October 3, 2022, Telefónica Brasil initiated an arbitration procedure against Oi S.A. – In Judicial Recovery (“Seller”), pursuant to the terms of the Oi Agreement, alleging manifest breach by Seller of certain terms of the Oi Agreement, after the exchange of notices about the post-closing price adjustment between Buyers and Seller, upon the competent request of arbitration filed with the Market Arbitration Chamber. On February 1, 2023, Telefónica Brasil's Extraordinary Shareholders' Meeting was held and Garliava’s merger into Telefónica Brasil was approved, subject to prior approval from ANATEL and the conclusion of certain systemic operations. Once such conditions are fulfilled, Telefónica Brasil’s Board of Directors will convene a new meeting to verify the accomplishment of such conditions and to give effects to said merger.
Investment Agreement with Allianz and Telefónica Germany
On October 29, 2020, Telefónica Infra Germany GmbH (“TEF Infra Germany”, a subsidiary indirectly wholly- owned by Telefónica through Telefónica Infra, S.L.U.) entered into an investment agreement (and related contracts, including a partners’ agreement which sets forth the principles of corporate governance of the joint venture) with several entities belonging to the Allianz Group ("Allianz") and Telefónica Germany 1. Beteiligungsgesellschaft mbH (a subsidiary wholly-owned by Telefónica Germany GmbH & Co. OHG) (“TEF Germany”) for the creation of a joint venture to deploy Fiber-to-the-Home (FTTH) in Germany, pursuant to which TEF Infra Germany and TEF Germany conditionally agreed to invest up to 500 million euros equity in total (400 million euros by TEF Infra Germany and 100 million euros by TEF Germany) and Allianz conditionally agreed to invest up to 1,000 million euros through different sources of funding over a six year period. The closing of the transaction and the acquisition of the joint control took place on December 18, 2020. The registration of Allianz and TEF Germany as limited partners of the joint venture in the German commercial registry occurred on January 21, 2021. After the closing of the transaction, the Allianz Group and the Telefónica Group each holds 50% in the joint venture under a co- control governance model. Telefónica Group’s ownership is held through TEF Infra Germany holding 40% and TEF Germany holding a 10% stake.
New long-term master services agreement in the United Kingdom
On January 7, 2021, each of Telefónica U.K. and Vodafone U.K. entered into new Master Services Agreements with Cornerstone Telecommunications Infrastructure Limited (“CTIL”), their passive tower network infrastructure partnership which is 50:50 jointly owned and operated by the two operators. The new agreements came into effect on January 1, 2021, with initial terms of 8 years, with three additional 8-year renewal periods. CTIL was formed in 2012 through the consolidation of both Telefónica U.K. and Vodafone U.K.’s existing basic network infrastructure, including towers and masts, which were transferred to the joint operation. CTIL currently operates c.14,200 macro sites with a 2.0x tenancy ratio (including active sharing) and c.1,400 micro sites. CTIL also provides management services for the anchor tenants for a further c.5,100 third party sites where their active equipment is deployed. Telefónica's stake in CTIL is currently held through VMED O2 UK Limited (see Note 10), the joint venture between Telefonica and Liberty Global plc in the United Kingdom. The new agreements do not materially impact existing network agreements and will continue to allow CTIL to primarily serve its shareholders as well as some third parties.
Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 143
Transaction between Colombia Telecomunicaciones S.A. ESP BIC and Kohlberg Kravis Roberts (“KKR”)
On July 16, 2021, Colombia Telecomunicaciones S.A. ESP BIC and KKR entered into an agreement to sign the following contracts: (i) An assets purchase agreement for the fiber optic assets owned by Colombia Telecomunicaciones S.A. ESP BIC with a Colombian company controlled by KKR (InfraCo, SpA), in consideration for an initial payment of 320 million U.S. dollars, which may be subject to post- closing adjustments under usual conditions for this type of operation. As well as a subsequent payment, consisting of the possibility of receiving a higher consideration from its result in network deployment activities, for an amount of up to an additional 100 million U.S. dollars. (ii) A contract through which Colombia Telecomunicaciones S.A. ESP BIC will acquire a 40% stake in a Spanish company controlled by KKR, which it holds the remaining 60%. The Colombia Telecomunicaciones S.A. ESP BIC´s contribution would be a portion of the consideration received from assets purchase agreement for the fiber optic assets. (iii) Several commercial contracts between Colombia Telecomunicaciones S.A. ESP BIC and InfraCo, SpA for the provision of wholesale connectivity services by InfraCo, SpA to Colombia Telecomunicaciones S.A. ESP BIC, deployment of fiber optic network and other related services. The signing of the contracts of numerals (i) and (iii), as well as the execution of the aforementioned operations contracts, was subject to the respective contractual provisions and to the obtaining of the necessary regulatory authorizations. On January 11, 2022, after obtaining the necessary regulatory authorizations and meeting certain agreed conditions, the transaction was executed. Therefore, Colombia Telecomunicaciones S.A. ESP BIC executed the sale of fiber optic assets to Onnet Fibra Colombia S.A.S. (“Onnet”), a company with which it also entered into a series of commercial contracts by virtue of which (i) Onnet will provide wholesale connectivity services to Colombia Telecomunicaciones S.A. ESP BIC, and (ii) Colombia Telecomunicaciones S.A. ESP BIC will provide to Onnet fiber optic network deployment services and other related services. Simultaneously, Colombia Telecomunicaciones S.A. ESP BIC acquired shares equivalent to a 40% in Alamo HoldCo S.L., a Spanish company that owns 100% of Onnet's shares (see Note 10).
Agreement for the purchase of 40% of the share capital of Telxius Telecom, S.A.
On February 1, 2022, Telefónica’s subsidiary, Pontel Participaciones, S.L. (“Pontel”), a company which is held 83.35% by Telefónica and 16.65% by Pontegadea Inversiones, S.L. (“Pontegadea”), reached an agreement with Taurus Bidco S.à r.l. (“Taurus”, a company managed by KKR) for the purchase of 40% of the share capital of Telxius Telecom, S.A. (“Telxius”), held by Taurus, for an estimated amount of 215.7 million euros, being the referred price subject to, among others, adjustments derived from the sale of the towers business to American Tower. On January 18, 2023, after obtaining the necessary regulatory and competition authorizations, the transaction was completed. (See Note 31). As a result of the transaction, Pontel, which prior to the closing of the transaction held the remaining 60% of the share capital of Telxius, has become the sole shareholder of this company. Pontegadea has increase its holding in Pontel to 30% and Telefónica holds a 70% stake. Thus, in terms of indirect holding in Telxius, Pontegadea has increased its holding from 9.99% to 30% and Telefónica from 50.01% to 70%.
Agreement reached between Telefónica España Filiales, S.A.U. (“Telefónica España Filiales”), T. Infra, Vauban and Crédit Agricole Assurances for the establishment of Bluevia Fibra
On July 25, 2022, Telefónica España Filiales S.A.U, Telefónica Infra S.L.U. (T. Infra) and the consortium formed by Vauban Infrastructure Partners ("Vauban") and Crédit Agricole Assurances ("CAA") reached an agreement for the establishment of a company, Bluevia Fibra, S.L. ("Bluevia"), whose corporate purpose is the deployment and commercialization of a fiber-to-the- home (FTTH) network mainly in rural areas in Spain. Once the relevant regulatory authorizations were obtained, the closing of the transaction took place on December 20, 2022. After closing, the Telefónica Group holds 55% of the capital of Bluevia (30% through Telefónica España Filiales and 25% through T. Infra), with Vauban/CAA holding the remaining 45%. At closing, Bluevia purchased from Telefónica España 3.9 million already passed real estate units, and agreed to deploy 1.1 million additional units over the next 2 years, reaching a total footprint of 5 million passed real estate units.# Consolidated Financial Statements 2022 l Notes to the consolidated financial statements
The 3.9 million already passed real estate units acquired by Bluevia represent 14% of Telefónica's FTTH network in Spain, with Telefónica España retaining ownership of the remainder of the network. In addition, as part of the transaction, the Telefónica Group has entered into a series of service provision agreements with Bluevia which entail the mutual provision and receipt of services by/to Telefonica Group and Bluevia. As part of the transaction Telefonica Group has contributed equity funds to Bluevia in the amount of approximately 1,247 million euros and the Vauban/CAA consortium has acquired 45% of Bluevia from Telefónica España for 1,021 million euros in cash (see Note 2).
On July 29, 2022, T. Infra, Liberty Global plc ("Liberty Global") and InfraVia Capital Partners ("InfraVia") reached an agreement for the establishment of a joint venture, "nexfibre", for the deployment of fiber-to-the-home (FTTH) to 5 million homes in the United Kingdom not reached by VMED O2 UK Limited's (VMO2) network, with potential for expansion to an additional 2 million homes. The fiber network will offer wholesale FTTH access to telecommunications service providers, with VMO2 acting as the lead customer, as well as providing a range of technical services. Once the relevant regulatory authorizations were obtained and the other conditions were fulfilled, the closing of the transaction took place on December 15, 2022. After closing, Liberty Global and T. Infra participate by halves in a joint vehicle that holds a 50% interest in nexfibre, with InfraVia owning the remaining 50%. The business plan for the initial rollout to 5 million homes envisages an investment of approximately 4,500 million pounds (approximately 5,072 million euros at the exchange rate at December 31, 2022). The three partners have funded their pro-rata share of equity funding for the construction, totaling up to 1,400 million pounds (approximately 1,578 million euros at the exchange rate at December 31, 2022). In addition, nexfibre has entered into a facilities agreement with a consortium of banks for an amount of up to 3,300 million pounds (approximately 3,719 million euros at the exchange rate at December 31, 2022). As part of the transaction, InfraVia has made and will continue to make certain payments to Liberty Global and T. Infra, a portion of which will be linked to the progress of the construction of the network.
Commitment to protect the environment is part of the Company's general strategy and is the responsibility of the Board of Directors. The performance in this area is regularly supervised by the Board's Sustainability Committee and the Responsible Business Office, made up of the global areas which execute that strategy alongside the business units. The Group has global environmental and energy management policies, and externally certified environmental management systems in accordance with ISO 14001 in all Group companies. The environment is a central issue throughout the Company, involving both operational and management areas as well as business and innovation areas. Managing environmental impact and energy consumption is a strategic priority and carbon reduction targets are part of the variable remuneration of all Company employees, including the Senior Management. In addition, Telefónica, S.A.'s long-term share-based incentive plans 2021-2025 (see Note 27) include CO2 Emission Neutralization targets, in line with the target set by the Company.
In managing climate change, Telefónica identifies adaptation and mitigation measures and new opportunities for growth and development. To analyse climate change risks, the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD) are followed, identifying short, medium and long-term risks. Specifically, physical and transition risks identify the importance of reducing GHG emissions and energy consumption, and are managed in accordance with Telefónica's decarbonization roadmap. Opportunities, meanwhile, identify different lines on which Telefónica seeks to develop its activity through the Energy Efficiency Plan and the Renewable Energy Plan, the Sustainable Finance Framework and the development of new products and services. All of this is contained in the Climate Action Plan, which defines Telefónica's decarbonization process to achieve net zero emissions by 2040, which involves minimising its own emissions (Scope 1 and 2) and those of the value chain (Scope 3).
For Telefónica, it is a priority to keep energy consumption stable despite the sharp increase in the digitalization of society and, therefore, in data traffic flowing through the networks. The Group's Energy Efficiency Plan therefore includes initiatives such as network modernization, for example, with investments in fibre optics (more efficient) replacing the copper network, or 5G, and specific projects such as climate modernization. The Company's decarbonization requires not only maximum efficiency in the use of energy, but also that it comes from renewable sources. Telefónica's Renewable Energy Plan contemplates different solutions such as self- generation, the purchase of renewable electricity with a guarantee of origin and long-term power purchase agreements (PPAs, see Note 26), and prioritizes non-conventional renewable electricity sources, defines the strategy that allows us to reduce operating costs and reduces exposure to fluctuations in electricity prices.
Most of the electricity consumption in own facilities come from renewable sources. In Brazil, it is worth highlighting the continuation of the distributed generation project. In Spain, the four long-term renewable power purchase agreements (PPAs) signed for the period 2022-2031 have come into operation, equivalent to 482 GWh per year for 10 years. These new agreements follow on from the one signed in 2020, enabling Telefónica to achieve a total of 582 GWh of renewable electricity covered by PPAs in Telefónica Spain. In October 2022, Telefonica Germany concluded a PPA with an energy supplier which provides long-term energy security and energy supply with renewable energies from an offshore wind farm over the period from 2025 to 2035. In February 2023 Telefonica Germany has concluded a further PPA for the period 2025 to 2040.
In terms of renewable self-generation, the Group has photovoltaic self-generation systems in several buildings in Spain, with solar production for self-consumption (without surplus to the grid) under two models: the first with its own CapEx and the second under a service model, where the electricity generated is paid for at a lower market value.
As part of its net zero objective, Telefónica supports projects that absorb or reduce carbon emissions in order to offset and neutralize emissions that are not reduced. To this end, it purchases carbon credits from projects under the highest standards in certain regions where Telefónica operates. 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.
Sustainable financing is a key tool for supporting the transformation of the business through investment in projects with a positive environmental and social impact. In 2018, the Company published its Sustainable Financing Framework. This was updated in January 2021 and, in both cases, was endorsed by a second party opinion from Sustainalytics. The framework is linked to the United Nations Sustainable Development Goals and aligned with the Green Bond, Social Bond and Sustainable Bond Principles of the International Capital Market Association (ICMA). Telefónica was the first issuer of senior green bonds and hybrid instruments (green and sustainable) in the telecommunications sector. The funds that were obtained have been allocated to projects focused on switching our network from copper to fiber, which is more efficient and suffers fewer faults; the rollout and improvement of mobile connectivity in rural areas; and the promotion of entrepreneurship and job creation through investments in start-ups.
In addition to senior green bonds and hybrid instruments, the Group use other sustainable bank financing tools, such as loans and credits linked to sustainability objectives that make it possible to progress steadily towards such important corporate targets as reducing emissions and gender equality. Also in this case, the main syndicated loan of the Telefónica Group is linked to sustainability criteria in line with the corporate Sustainability-linked Loan Framework, which was drawn up in late 2021 with a second opinion from Sustainalytics.
In 2022, the Company maintained an active presence in the capital market through several issuances. These included its first sustainable senior bond issuance for 1,000 million euros in May (see Appendix III) with a term of nine years. The funds obtained from this issuance will be allocated to projects related to transformation of the telecommunications network via the rollout of fiber optics and 5G technology, as well as social projects aimed at promoting inclusive connectivity, entrepreneurship and job creation.The Company’s second hybrid green instrument issuance took place in November for the value of 750 million euros (see Note 17.c), with the first redemption date at 6 years. In this case, the investment from funds will be used to switch off obsolete equipment and transform mobile infrastructures through energy efficiency projects. Despite the market instability, these two issues were well received by the market with a broadly international and diversified investor base. Already in January 2023, a new green hybrid instrument has been issued for an amount of 1,000 million euros has been carried out (see Note 31). Telefónica Brazil carried out its first issuance of sustainability-linked bonds, to an aggregated amount of 3,500 million reais (equivalent to 628 million euros at closing 2022 exchange rate, see Appendix III). Financing costs are linked to compliance with sustainability targets between now and 2027. In terms of bank financing, the Telefónica Group’s main syndicated loan was refinanced at a corporate level in early 2022 for the amount of 5,500 million euros (see Note 18 and Appendix V), the interest applied to which will be linked to compliance with sustainability targets. The deal was supported by nearly 30 entities. Committed lines and bilateral financing operations were also carried out during the year with numerous financial entities, obtaining a total volume of 3,864 million euros at the close of 2022, the interest applied to which is also linked to compliance with sustainability targets. Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 146 Overall, as at December 31, 2022, the Group's sustainable financing amounts to 15,956 million euros, broken down as follows:
| December 31, 2022 | Millions of euros |
|---|---|
| Sustainable financing | Financial liabilities |
| 2,842 | Senior green bond of Telefónica Emisiones (Appendix III) |
| 1,000 | Senior sustainable bond of Telefónica Emisiones (Appendix III) |
| 1,000 | Sustainability linked bonds of Telefónica Brazil (Appendix III) |
| 628 | Sustainability linked facilities of Colombia Telecomunicaciones |
| 214 | Undated deeply subordinated securities (hybrid instruments) (Note 17.c) |
| 3,000 | Undrawn facilities at December 31, 2022 (Note 18) |
| 10,114 | Sustainability linked facility of Telefónica, S.A. |
| 5,500 | Sustainability linked facility of Telefonica Germany |
| 750 | Sustainability linked bilateral facilities |
| 3,864 | Total |
| 15,956 |
e) Auditors’ fees
The services commissioned to the auditors 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 by the Group, in respect of the fees for services rendered to the various member firms of the PwC network, of which PricewaterhouseCoopers Auditores, S.L. ("PwC Auditores, S.L."), the auditors of Telefónica, S.A., forms part, amounted to 20.07 million euros and 19.99 million euros in 2022 and 2021, respectively. The detail of these amounts is as follows:
| 2022 | Millions of euros |
|---|---|
| PwC Auditores, S.L. | |
| --- | --- |
| Audit services | 7.73 |
| Audit-related services | 0.99 |
| Total | 8.72 |
| 2021 | Millions of euros |
|---|---|
| PwC Auditores, S.L. | |
| --- | --- |
| Audit services | 7.39 |
| Audit-related services | 0.82 |
| Total | 8.21 |
Audit services includes audit fees of Telefónica, S.A. individual and consolidated financial statements and its subsidiaries, 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 for those entities currently required including, therefore, the internal control audit over the financial information to comply with the requirements of the Sarbanes-Oxley 2002 Act (Section 404). Also includes audit work related with legal and regulatory requirements that the auditor must necessarily perform in their function and audit and reviews of financial statements in connection with financial transactions. Audit-related services: services related to the review of the information required by regulatory authorities, agreed financial reporting procedures not requested by legal or regulatory bodies, the issuance of comfort letters, the report on the information relating to the system of internal control over financial reporting (ICFR) and the verification of the non-financial information in the annual reports. During the years 2022 and 2021, the Principal Auditor has not performed other services than the Audit services or the Audit-related services in the Group. PwC Auditores, S.L., has provided the following services to the Group during the years 2022 and 2021: the individual and consolidated financial statements audit, reviews of interim financial statements, the integrated audit of the financial statements for the annual report Form 20-F to file with the US SEC, the internal control audit over the financial information to comply with the requirements of the Sarbanes-Oxley 2002 Act (Section 404), the issuance of comfort letters, agreed financial reporting procedures and the verification of the non- financial information in the annual reports. Consolidated Financial Statements 2022 l Notes to the consolidated financial statements Consolidated Annual Report 2022 Telefónica, S. A. 147 The expenses accrued to Other Audit Firms, other than those integrated in the international PwC network, that have provided audit services to companies included in the consolidation of the Group for the year 2022 have amounted to a total of 1.46 million euros (1.58 million euros in 2021), the detail of the audit services corresponds to 0.83 million euros (0.55 million euros in 2021).
f) Trade and other guarantees
The Company is required to issue trade guarantees and deposits for concession and spectrum tender bids (see Note 19) and in the ordinary course of its business. No significant additional liabilities in the accompanying consolidated financial statements are expected to arise from guarantees and deposits issued.
g) Directors’ and Senior Executives’ compensation 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 objective circumstances that it deems relevant. Furthermore, Executive Directors shall receive such compensation as the Board determines for the performance of executive duties delegated or entrusted to them by the Board of Directors. Such compensation shall conform to the Director compensation policy approved by the shareholders at the General Shareholders’ Meeting. In accordance with the foregoing, the shareholders acting at the Ordinary General Shareholders’ Meeting held on April 11, 2003 set at 6 million euros the maximum amount of annual gross compensation to be received by the Board of Directors as a fixed allotment and as attendance fees for attending the meetings of the Advisory or Control Committees of the Board of Directors. Thus, as regards fiscal year 2022, the total amount of compensation accrued by the Directors of Telefónica, in their capacity as such, was 2,851,801 euros for the fixed allocation and for attendance fees. The compensation of the Directors of Telefónica in their capacity as members of the Board of Directors, of the Executive Commission and/or of the Advisory or Control Committees consists of a fixed amount payable monthly and of attendance fees for attending the meetings of the Advisory or Control Committees. Set forth below are the amounts established in fiscal year 2022 as fixed amounts for belonging to the Board of Directors, the Executive Commission and the Advisory or Control Committees of Telefónica and the attendance fees for attending meetings of the Advisory or Control Committees of the Board of Directors:
| Compensation of the Board of Directors and of the Committees thereof | Amounts in euros |
|---|---|
| Position | Board of Directors |
| --- | --- |
| Chairman | 240,000 |
| Vice chairman | 200,000 |
| Executive Member | — |
| Proprietary Member | 120,000 |
| Independent Member | 120,000 |
| Other external | 120,000 |
(*) In addition, the amount of the attendance fee for each of the meetings of the Advisory or Control Committees is 1,000 euros. In this regard, it is noted that the Executive Chairman, Mr. José María Álvarez-Pallete López, waived the receipt of the above amounts (i.e., 240,000 euros as Chairman of the Board of Directors and 80,000 euros as Chairman of the Executive Commission). Likewise, the fixed remuneration of 1,923,100 euros established for the 2023 financial year related to executive roles carried out by Executive Chairman, Mr. José María Álvarez-Pallete López is equal to that received in the previous seven years (i.e. 2022, 2021, 2020, 2019, 2018, 2017 and 2016), which was set in his capacity as Chief Operating Officer, remaining invariably after his appointment as Chairman in 2016. The fixed remuneration, for his executive roles, of 1,600,000 euros that the Chief Operating Officer (C.O.O.), Mr. Ángel Vilá Boix, has established for the 2023 financial year is equal to the one received in the years 2022, 2021, 2020 and 2019.# Consolidated Financial Statements 2022
The breakdown of non-current assets and disposal groups held for sale and liabilities associated at December 31, 2022 and December 31, 2021 is as follows:
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Telefónica Móviles El Salvador | — | 253 |
| Fiber optic assets in Colombia | — | 57 |
| Other assets | 7 | 48 |
| Non-current assets and disposal groups held for sale | 7 | 358 |
| Millions of euros | 12/31/2022 | 12/31/2021 |
|---|---|---|
| Telefónica Móviles El Salvador | — | 134 |
| Other liabilities | — | — |
| Liabilities associated with non- current assets and disposal groups held for sale | — | 134 |
On July 16, 2021, Colombia Telecomunicaciones S.A. ESP BIC (Telefónica Colombia) entered into a sale with a Colombian company controlled by Kohlber Kravis Roberts - KKR (Onnet Fibra Colombia S.A.S) for the sale and purchase of certain fiber assets owned by Telefónica Colombia and for the provision of wholesale connectivity services by Onnet Fibra Colombia S.A.S to Telefónica Colombia, the development of activities of deployment of fiber network, and other associated services. On January 11, 2022, once the corresponding authorizations from the regulatory authorities were obtained and after the fulfillment of certain agreed conditions, the transaction was completed (see Note 10).
On October 14, 2021, Telefónica Centroamérica Inversiones, S.L. (60% of which is held, directly and indirectly, by Telefónica and 40% by Corporación Multi Inversiones) reached an agreement with General International Telecom Limited for the sale of the entire share capital of Telefónica Móviles El Salvador, S.A. de C.V. On January 13, 2022, after the satisfaction of the closing conditions and once the relevant regulatory approvals were obtained, Telefónica Centroamérica Inversiones, S.L transferred its stake (99.3%) in Telefónica Móviles El Salvador to General International Telecom El Salvador, S.A. de C.V. for an amount of 139 million U.S. dollars (approximately 121 million euros at the exchange rate at such date).
The breakdown of assets and liabilities of Telefónica Móviles El Salvador classified as Non-current assets and disposal groups held for sale and associated liabilities in the consolidated statement of financial position at December 31, 2021 was as follows:
| 2021 | Millions of euros | T. Móviles El Salvador |
|---|---|---|
| Non-current assets | 211 | |
| Intangible assets | 39 | |
| Goodwill | 38 | |
| Property, plant and equipment | 79 | |
| Rights of use | 44 | |
| Financial assets and other non-current assets | 7 | |
| Deferred tax assets | 4 | |
| Current assets | 42 | |
| Inventories | 7 | |
| Receivables and other current assets | 25 | |
| Tax receivables | 3 | |
| Other current financial assets | 1 | |
| Cash and cash equivalents | 6 | |
| Non-current liabilities | 63 | |
| Non-current financial liabilities | 8 | |
| Non-current lease liabilities | 37 | |
| Payable and other non-current liabilities | 1 | |
| Deferred tax liabilities | 10 | |
| Non-current provisions | 7 | |
| Current liabilities | 71 | |
| Current financial liabilities | 27 | |
| Current lease liabilities | 12 | |
| Payables and other current liabilities | 32 |
The following events regarding the Telefónica Group took place between December 31, 2022 and the date of authorization for issue of the accompanying consolidated financial statements:
These consolidated financial statements were originally prepared in Spanish. In the event of a discrepancy, the Spanish-language version prevails.
The table below lists the main companies comprising the Telefónica Group at December 31, 2022 and the main investments consolidated using the equity method. Included for each company are the company name, corporate purpose, country, functional currency, share capital (in millions of functional currency units), the Telefónica Group’s effective shareholding and the company or companies through which the Group holds a stake.
| Parent Company: Telefónica, S.A. | %Telefónica Group Holding | Company | ||||
|---|---|---|---|---|---|---|
| Name and corporate purpose | Country | Currency | Capital | |||
| Telefónica Spain | ||||||
| Telefónica de España, S.A.U. Telecommunications service provider | Spain | EUR | 1,024 | 100% | Telefónica, S.A. | |
| Telefónica Móviles España, S.A.U. Wireless communications services provider | Spain | EUR | 209 | 100% | Telefónica, S.A. | |
| Teleinformática y Comunicaciones, S.A.U. (Telyco) Promotion, marketing and distribution of telephone and telematic equipment and services | Spain | EUR | 8 | 100% | Telefónica España Filiales, S.A. | |
| Telefónica Soluciones de Informática y Com. de España S.A.U. Telecommunications systems, networks and infrastructure engineering | Spain | EUR | 2 | 100% | Telefónica de España, S.A.U. | |
| Telefónica Soluciones de Outsourcing, S.A. Promotion and networks management | Spain | EUR | 1 | 100% | Telefónica España Filiales, S.A. | |
| Telefónica Servicios Integrales de Distribución S.A.U. Logistic service provider | Spain | EUR | 2 | 100% | Telefónica de España, S.A.U. | |
| Telefónica España Filiales, S.A. | ||||||
| Organization and operation of multimedia service-related business | Spain | EUR | 226 | 100% | Telefónica, S.A. | |
| Telefónica Servicios Audiovisuales, S.A.U. Provision of all type of audiovisual telecommunications services | Spain | EUR | 6 | 100% | Telefónica España Filiales, S.A. | |
| Telefónica Broadcast Services, S.L.U. DSNG-based transmission and operation services | Spain | EUR | — | 100% | Telefónica España Filiales, S.A. | |
| TBSC Barcelona Producciones, S.L.U. Provision of audiovisual telecommunications services | Spain | EUR | — | 100% | Telefónica Broadcast Services, S.L.U. | |
| Telefónica Audiovisual Digital, S.L.U. Provision of all type of audiovisual telecommunications services | Spain | EUR | 46 | 100% | Telefónica España Filiales, S.A. | |
| Telefónica Global Technology, S.A.U. Global management and operation of IT systems | Spain | EUR | 16 | 100% | Telefónica España Filiales, S.A. | |
| Telefónica Educación Digital, S.L. Vertical e-learning portal | Spain | EUR | 1 | 100% | Telefónica España Filiales, S.A. |
| Name and corporate purpose | Country | Currency | Capital | %Telefónica Group Holding | Company |
|---|---|---|---|---|---|
| Telefónica Spain (cont.) | |||||
| Bluevia Fibra, S.L. Operations and exploitation of FTTH network and other connectivity services. | Spain | EUR | 68 | 55% | Telefónica España Filiales, S.A. (30%) Telefónica Infra, S.L. (25%) |
| Solar360 Soluciones de Instalacion y Mantenimiento S.L. Marketing and management in the installation, sale and maintenance of photovoltaic equipment | Spain | EUR | — | 51% | Telefónica de España, S.A.U. |
| Name and corporate purpose | Country | Currency | Capital | %Telefónica Group | Holding Company |
|---|---|---|---|---|---|
| Telefónica Germany | |||||
| Telefónica Deutschland Holding A.G Holding company | Germany | EUR | 2,975 | 70.58% | Telefónica Germany Holdings Limited (69.22%) Telefónica, S.A. (1.36%) |
| Telefónica Germany GmbH & Co. OHG Wireless communications services operator | Germany | EUR | 51 | 70.58% | Telefónica Deutschland Holding A.G (70.57%) T. Germany Management, GmbH (0.01%) |
| E-Plus Service GmbH Wireless communications services operator | Germany | EUR | — | 70.58% | Telefónica Germany GmbH & Co. OHG |
| Telefónica Germany Business Sales GmbH Technological and consulting services in Big Data provider | Germany | EUR | — | 70.58% | Telefónica Germany GmbH & Co. OHG |
| O2 Telefónica Deutschland Finanzierungs GmbH Integrated cash management, consulting and financial support for Group companies | Germany | EUR | — | 70.58% | Telefónica Germany GmbH & Co. OHG |
| Telefónica Brazil | |||||
| Telefônica Brasil, S.A. Wireline telephony operator | Brazil | BRL | 63,571 | 74.79% | Telefónica Latinoamérica Holding, S.L. (36.31%) Telefónica, S.A. (37.83%) Telefónica Chile, S.A. (0.06%) |
| Terra Networks Brasil, Ltda. ISP and portal | Brazil | BRL | 136 | 74.79% | Telefônica Brasil, S.A. |
| Telefônica Infraestrutura e Segurança Brasil Ltda. Security services and systems | Brazil | BRL | 289 | 74.79% | Terra Networks Brasil, Ltda. |
| Garliava RJ Infraestrutura e Redes de Telecomunicacoes S.A. Wireline telephony operator | Brazil | BRL | 1,121 | 74.79% | Telefônica Brasil, S.A. |
| Vivo ventures fundo de investimento em participacoes multiestrategia. Investment funds | Brazil | BRL | 21 | 75.29% | Telefônica Brasil, S.A. (73.29%) Telefonica Open Innovation S.L (2.00%) |
| Vita IT Comércio e Serviços de Soluções em TI Ltda. Technical support, maintenance and other IT services | Brazil | BRL | 2 | 74.79% | Telefônica Infraestrutura e Segurança Brasil Ltda. |
| Telefónica Hispam | |||||
| Telefónica Hispanoamérica, S.A. Holding company | Spain | EUR | 78 | 100% | Telefónica, S.A. |
| TLH Holdco, S.L. Holding company | Spain | EUR | 85 | 100% | Telefónica, S.A. |
| Name and corporate purpose | Country | Currency | Capital | %Telefónica Group | Holding Company |
|---|---|---|---|---|---|
| Telefónica Hispam (cont.) | |||||
| Telefónica Venezolana, C.A. Wireless communications operator | Venezuela | VED | 394 | 100% | Telefónica Hispanoamérica, S.A. (86.72%) Comtel Comunicaciones Telefónicas, S.A. (2.56%) |
| Colombia Telecomunicaciones S.A. ESP BIC Communications services operator | Colombia | COP | 3,410 | 67.5% | Telefónica Hispanoamérica, S.A. |
| Operaciones Tecnológicas y Comerciales S.A.S Communications services operator | Colombia | COP | 3,330 | 67.5% | Colombia Telecomunicaciones S.A. ESP BIC |
| Pegaso Pcs S.A. de C.V. Communications services operator | Mexico | MXN | 1,405 | 100% | Telefónica Hispanoamérica, S.A. (99.95%) Celular de Telefonía S.A. de CV. (0.05%) |
| Terra Networks México, S.A. de C.V. ISP, portal and real-time financial information services | Mexico | MXN | 305 | 100% | Telefónica Hispanoamérica, S.A. |
| Fisatel México, S.A. de C.V. SOFOM E.N.R. Integrated cash mangement, consulting and financial support for Group companies | Mexico | MXN | 3,505 | 100% | Telefónica Hispanoamérica, S.A. (99.99%) Pegaso Pcs S.A. de CV. (0.01%) |
| Otecel, S.A. Wireless communications services provider | Ecuador | USD | 183 | 100% | Telefónica Hispanoamérica, S.A. |
| Telefónica de Argentina, S.A. Telecommunications service provider | Argentina | ARS | 239,296 | 100% | Telefónica Móviles Argentina, S.A. (77.64%) TLH Holdco, S.L. (22.36%) |
| Telefónica Móviles Argentina, S.A. Telecommunications service provider | Argentina | ARS | 27,201 | 100% | TLH Holdco, S.L. |
| Telefónica Móviles Chile, S.A. Wireless communications services operator | Chile | CLP | 1,364,872 | 100% | Inversiones Telefónica Internacional Holding SpA. (98.96%) Telefónica Hispanoamérica, S.A. (1.04%) |
| Telefónica Chile, S.A. Local and international long distance telephony services provider | Chile | CLP | 809,773 | 99.34% | Telefónica Móviles Chile, S.A. |
| Telefónica Chile Holdings, S.L.U. Holding Company | Chile | CLP | — | 100% | Telefónica Hispanoamérica, S.A. |
| Telefónica del Perú, S.A.A. Local, domestic and international long distance telephone service provider | Peru | PEN | 2,107 | 98.94% | Telefónica Hispanoamérica, S.A. |
| Media Networks Latin America, S.A.C Telecommunications research activities and proyects | Peru | PEN | 158 | 100% | Telefónica Latinoamérica Holding, S.L. |
| Telefónica Móviles del Uruguay, S.A. Wireless communications and services operator | Uruguay | UYU | 1,107 | 100% | Telefónica Hispanoamérica, S.A. |
| Other companies | |||||
| Telefónica Infra, S.L. Holding company | Spain | EUR | 12 | 100% | Telefónica , S.A. |
| Telefónica Infra Germany GmbH Broadband telecommunications operator | Germany | EUR | — | 100% | Telefónica Infra, S.L. |
| Name and corporate purpose | Country | Currency | Capital | %Telefónica Group | Holding Company |
|---|---|---|---|---|---|
| Other companies (cont.) | |||||
| Telefónica O2 Holdings Ltd. Holding company | United Kingdom | GBP | 9 | 100% | Telefónica, S.A. (99.99%) Telefónica Capital S.A. (0.01%) |
| MmO2 Ltd. Holding company | United Kingdom | GBP | — | 100% | Telefónica O2 Holding Ltd. |
| O2 International Holdings Ltd. Holding company | United Kingdom | GBP | — | 100% | O2 (Europe) Ltd. |
| O2 (Netherlands ) Holdings BV. Holding company | Netherlands | EUR | — | 100% | O2 International Holdings Ltd. |
| Telefónica Germany Holdings Ltd. Holding company | United Kingdom | EUR | 3,463 | 100% | O2 (Europe) Ltd. |
| O2 (Europe) Ltd. Holding company | United Kingdom | EUR | 6,895 | 100% | Telefónica, S.A. |
| Telefónica International Holding, B.V Holding company | Netherlands | EUR | — | 100% | Telefónica Latinoamérica Holding, S.L. |
| Telefónica Latinoamérica Holding, S.L. Sociedad holding | Spain | EUR | 291 | 100% | Telefónica, S.A. |
| Telefónica Global Solutions, S.L.U. International service provider | Spain | EUR | 1 | 100% | Telefónica, S.A |
| Telefonica Global Solutions USA, Inc. Provision of telecommunications services | USA | USD | 202 | 100% | Telefónica Global Solutions, S.L.U. |
| Telefónica Global Solutions Germany GmbH. International service provider | Germany | EUR | — | 100% | Telefónica Global Solutions, S.L.U. |
| Telefónica Global Solutions México, S.A. de C.V. Carrying out research activities and projects in the field of telecommunications | Mexico | MXN | 31 | 100% | Telefónica Global Solutions, S.L.U. |
| Telefónica Digital España, S.L. Developer Telco Services Holding Company | Spain | EUR | 26 | 100% | Telefónica, S.A |
| Telefónica Digital Ltd. Developer Telco Services | United Kingdom | GBP | 45 | 100% | Telefónica Digital España, S.L. |
| Telefonica Open Innovation S.L. Talent identification and development in ICT. | Spain | EUR | 2 | 100% | Telefónica Digital España, S.L. |
| Wayra Chile Tecnología e Innovación Limitada Technological innovation based business project development | Chile | CLP | 29,899 | 100% | Telefonica Open Innovation S.L. |
| Wayra Brasil Desenvolvedora e Apoiadora de Projetos Ltda Technological innovation based business project development | Brazil | BRL | 52 | 100% | Telefonica Open Innovation S.L. |
| WY Telecom, S.A. de C.V. Talent identification and development in ICT | Mexico | MXN | 173 | 100% | Telefonica Open Innovation S.L. |
| Wayra Argentina, S.A. Talent identification and development in ICT | Argentina | ARS | 1,133 | 100% | Telefonica Open Innovation S.L. (95%) Telefónica, S.A. (5%) |
| Wayra Colombia, S.A.S. Technological innovation based business project development | Colombia | COP | 2,304 | 100% | Telefonica Open Innovation S.L. |
| Proyecto Wayra, C.A. Commercial, industrial and mercantile activities | Venezuela | VED | 2 | 100% | Telefónica Venezolana, C.A. |
| Wayra Perú Aceleradora de Proyectos, S.A.C. Technological innovation based business project development | Peru | PEN | 28 | 100% | Telefonica Open Innovation S.L. |
| Wayra UK Ltd. Technological innovation based business project development | United Kingdom | GBP | — | 100% | Telefonica Open Innovation S.L. |
| Terra Networks Perú, S.A. ISP and portal | Peru | PEN | 10 | 100% | Telefónica Latinoamérica Holding, S.L. |
| Terra Networks Argentina, S.A. ISP and portal | Argentina | ARS | 43 | 100% | Telefónica Latinoamérica Holding, S.L. (99.99%) Telefónica International Holding, B.V. (0.01%) |
| Telfisa Global, B.V. Integrated cash management, consulting and financial support for Group companies | Netherlands | EUR | — | 100% | Telefónica, S.A. |
| Telefónica Global Activities Holding, B.V. Holding Company | Netherlands | EUR | — | 100% | Telfisa Global, B.V. |
| Telefónica Global Services, GmbH Purchasing services | Germany | EUR | — | 100% | Group 3G UMTS Holding, GmbH |
| Telefónica Global Roaming, GmbH Optimization of network traffic | Germany | EUR | — | 100% | Telefónica Global Services, GmbH |
| Group 3G UMTS Holding GmbH Holding Company | Germany | EUR | 250 | 100% | Telefónica Global Activities Holdings, B.V |
| Telefónica Compras Electrónicas, S.L. Development and provision of information Society services | Spain | EUR | — | 100% | Telefónica Global Services, GmbH |
| Telefonica Iot & Big Data Tech S.A. Provision of telemarketing services | Spain | EUR | 1 | 100% | Telefónica Tech S.L. |
| Geprom Software Engineering S.L. Technical engineering services and other consultancy activities | Spain | EUR | — | 100% | Telefonica Iot & Big Data Tech S.A. |
| Geprom Software Engineering S.A. de C.V. Technical engineering services and other consultancy activities | Mexico | MXN | — | 100% | Geprom Software Engineering S.L. |
| Telfin Ireland DAC. Intragroup financing | Ireland | EUR | — | 100% | Telefónica, S.A. |
| Telefónica Ingeniería de Seguridad, S.A.U. Security services and systems | Spain | EUR | 8 | 100% | Telefónica, S.A. |
| TIS Hispanoamérica, S.L. Security services and systems | Spain | EUR | — | 100% | Telefónica, S.A. |
| Telefónica Capital, S.A.U. Finance company | Spain | EUR | 7 | 100% | Telefónica, S.A. |
| Lotca Servicios Integrales, S.L. Aircraft ownership and operation | Spain | EUR | 17 | 100% | Telefónica, S.A. |
| Fonditel Pensiones, Entidad Gestora de Fondos de Pensiones, S.A Administration of pension funds | Spain | EUR | 16 | 70% | Telefónica Capital, S.A. |
| Fonditel Gestión, Soc. Gestora de Instituciones de Inversión Colectiva, S.A. Administration and representation of collective investment schemes | Spain | EUR | 2 | 100% | Telefónica Capital, S.A. |
| Telefónica Investigación y Desarrollo, S.A.U. |
| Name and corporate purpose | Country | Currency | Capital | %Telefónica Group | Holding Company | Other companies (cont.) |
|---|---|---|---|---|---|---|
| Nova Casiopea RE S.A. | Reinsurance | Luxembourg | EUR | 15 | 100% | Telefónica Luxembourg Holding, S.à.r.L. |
| Telefónica Seguros y Reaseguros Compañía Aseguradora, S.A.U. | Realización de operaciones de seguros directos | Spain | EUR | 24 | 100% | Telefónica Luxembourg Holding, S.à.r.L. |
| Telefónica Finanzas, S.A.U. | Integrated cash management, consulting and financial support for Group companies | Spain | EUR | 3 | 100% | Telefónica, S.A. |
| Telefónica Correduría de Seguros y Reaseguros Compañía de Mediación, S.A. | Distribution, promotion or preparation of insurance contracts | Spain | EUR | — | 100% | Telefónica Finanzas, S.A.U. (TELFISA) (83.33%) Telefónica, S.A. (16.67%) |
| Telefónica Europe, B.V. | Fund raising in capital markets | Netherlands | EUR | — | 100% | Telefónica, S.A. |
| Telefónica Participaciones, S.A.U. | Financial debt instrument issuer | Spain | EUR | — | 100% | Telefónica, S.A. |
| Telefónica Emisiones, S.A.U. | Financial debt instrument issuer | Spain | EUR | — | 100% | Telefónica, S.A. |
| Aliança Atlântica Holding B.V. | Holding company | Netherlands | EUR | 150 | 87.4% | Telefónica, S.A. (50%) Telefônica Brasil, S.A. (37.40%) |
| Telefónica Serviços Empresariais do BRASIL, Ltda. | Management and administrative services rendered | Brazil | BRL | 63 | 100% | Telefónica Servicios Globales, S.L. |
| Telefónica Gestión Integral de Edificios y Servicios S.L. | Management and administrative services rendered | Spain | EUR | 29 | 100% | Telefónica Servicios Globales, S.L. |
| Tempotel, Empresa de Trabajo Temporal, S.A. | Temporary employment agency | Spain | EUR | — | 100% | Telefónica Servicios Globales, S.L. |
| O2 Worldwide Limited | Wireless telecommunications activities | United Kingdom | GBP | — | 100% | Telefónica, S.A. |
| Telefónica Servicios Globales, S.L. | Sociedad Holding | Spain | EUR | 1 | 100% | Telefónica, S.A. |
| Telefónica Holding Atticus, B.V. | Holding company | Netherlands | EUR | — | 100% | Telefónica Latinoamérica Holding, S.L. |
| Telefónica Soluciones de Criptografía, S.A. | Engineering, research and development | Spain | EUR | — | 100% | Telefónica, S.A. |
| Telefónica Centroamérica Inversiones ,S.L. | Communications services provider | Spain | EUR | 1 | 60% | Telefónica, S.A. |
| Telefónica Tech S.L. | Holding Company | Spain | EUR | 65 | 100% | Telefónica, S.A. |
| Telefónica Cybersecurity & Cloud Tech SL. | Ciberseguridad, seguridad de información electrónica y consultoría informática | Spain | EUR | 32 | 100% | Telefónica Tech S.L. |
| Telefónica Cybersecurity & Cloud Tech Chile SpA. | Cybersecurity, electronic information security and IT consulting | Chile | CLP | 25,301 | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| Telefónica Tech Inc. | Cybersecurity, electronic information security and IT consulting | USA | USD | 9 | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| iHackLabs Ltd. | Cybersecurity, electronic information security and IT consulting | United Kingdom | GBP | — | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| Audertis Audit Services S.L. | Provision of audit services in the areas of security, privacy and data protection | Spain | EUR | — | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| Name and corporate purpose | Country | Currency | Capital | %Telefónica Group | Holding Company | Other companies (cont.) |
|---|---|---|---|---|---|---|
| Govertis Advisory Services S.L. | Cybersecurity, electronic information security and IT consulting | Spain | EUR | — | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| Telefónica Cybersecurity & Cloud Tech Colombia SAS | Ciberseguridad, seguridad de información electrónica y consultoría informática | Colombia | COP | 406 | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| Telefonica Cybersecurity Tech Mexico, S.A de C.V. | Cybersecurity, electronic information security and IT consulting | Mexico | MXN | 48 | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| Telefônica Cibersegurança e Tecnología do Brasil Ltda | Cybersecurity, electronic information security and IT consulting | Brazil | BRL | 26 | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| Telefónica Cybersecurity & Cloud Tech Perú S.A.C | Cybersecurity, electronic information security and IT consulting | Peru | PEN | 30 | 100% | Telefónica Tech S.L. |
| Telefonica Cybersecurity Tech Ecuador Tctech S.A. | Cybersecurity, electronic information security and IT consulting | Ecuador | USD | — | 100% | Otecel, S.A. (99%) Telefónica Global Solutions Ecuador TGSE, S.A. (1%) |
| Telefónica Cybersecurity & Cloud Tech Deutschland GmbH | Cybersecurity, electronic information security and IT consulting | Germany | EUR | — | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| Acens Technologies, S.L. | Holding housing and telecommunications solutions Service provider | Spain | EUR | 2 | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| Altostratus Solutions, S.L. | Provision of IT services | Spain | EUR | — | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| Telefónica Tech UK & Ireland, Limited | Holding company | United Kingdom | GBP | 14 | 100% | Telefónica Cybersecurity & Cloud Tech S.L. |
| Telefónica Tech UK Holdings Limited | Holding company | United Kingdom | GBP | — | 100% | Telefónica Tech UK & Ireland, Limited |
| Telefónica Tech UK TOG Limited | Headquarters activities | United Kingdom | GBP | — | 100% | Telefónica Tech UK Holdings Limited |
| Telefónica Tech UK Managed Services Limited | Information technology, management and IT services consultancy | United Kingdom | GBP | — | 100% | Telefónica Tech UK TOG Limited |
| Telefónica Tech UK Limited | Information technology, management and IT services consultancy | United Kingdom | GBP | — | 100% | Telefónica Tech UK TOG Limited |
| Telefónica Tech Northern Ireland Holdings Limited | Other computer service activities | United Kingdom | GBP | 1 | 100% | Telefónica Tech UK & Ireland, Limited |
| Telefónica Tech Communication & Collaboration Limited | Other computer service activities | United Kingdom | GBP | — | 100% | Telefónica Tech Northern Ireland Holdings Limited |
| Telefónica Tech Northern Ireland Limited | Other computer service activities | United Kingdom | GBP | — | 100% | Telefónica Tech Northern Ireland Holdings Limited |
| Telefónica Tech Ireland Limited | Provision of IT services | Ireland | EUR | — | 100% | Telefónica Tech Northern Ireland Holdings Limited |
| Telefónica Tech Ocean Limited | Holding company | United Kingdom | GBP | — | 100% | Telefónica Tech UK & Ireland. |
| Perpetual Topco Limited | Holding company | United Kingdom | GBP | 4 | 100% | Telefónica Tech UK & Ireland Limited |
| Name and corporate purpose | Country | Currency | Capital | %Telefónica Group | Holding Company | Other companies (cont.) |
|---|---|---|---|---|---|---|
| Perpetual Midco Limited | Holding company | United Kingdom | GBP | 4 | 100% | Perpetual Topco Limited |
| Perpetual Bidco Limited | Holding company | United Kingdom | GBP | 3 | 100% | Perpetual Midco Limited |
| Incremental Group Holdings Limited | Holding company | United Kingdom | GBP | 1 | 100% | Perpetual Bidco Limited |
| Redspire Limited | Software development and information technology consultancy activities | United Kingdom | GBP | — | 100% | Incremental Group Holdings Limited |
| Incremental Group Limited | Information technology consultancy activities and other services activities | United Kingdom | GBP | — | 100% | Incremental Group Holdings Limited |
| Adatis Group Limited | Holding company | United Kingdom | GBP | — | 100% | Incremental Group Holdings Limited |
| Adatis Consulting Limited | Information technology consultancy activities | United Kingdom | GBP | — | 100% | Adatis Group Limited |
| Adatis BG LTD | Information technology consultancy activities | Bulgaria | BGN | — | 100% | Adatis Consulting Limited |
| Adatis India Private Limited | Information technology consultancy activities | India | INR | — | 100% | Adatis Group Limited (99%) Adatis Consulting Limited (1%) |
| Kumo Analytics Limited | Information technology consultancy activities | United Kingdom | GBP | — | 100% | Adatis Group Limited |
| Adatis Managed Services Limited | Information technology consultancy activities | United Kingdom | GBP | — | 100% | Adatis Group Limited |
| BE-terna Acceleration Holding GmbH | Holding company and provision of marketing, consultancy, implementation and commercialisation services for software and information technology | Germany | EUR | — | 100% | Telefónica Cybersecurity & Cloud Tech SL. |
| BE-terna Acceleration GmbH | Holding company | Germany | EUR | — | 100% | BE-terna Accelera Holding |
| BE-terna Enhancement GmbH | Holding company | Germany | EUR | — | 100% | BE-terna Acceleration |
| BE-terna Germany GmbH | Holding company | Germany | EUR | — | 100% | BE- terna Enhancement |
| BE-terna AB (Sweden) | Technology services | Sweden | SEK | — | 100% | BE- terna Enhancement |
| Boydak Automation AG | Technology services | Switzerland | CHF | — | 100% | BE- terna Enhancement |
| BE-terna ApS (Denmark) | Computer programming activities | Denmark | DKK | — | 100% | BE- terna Enhancement |
| BE-terna B.V. (Netherlands) | Technology services | Netherlands | EUR | — | 100% | BE-terna ApS (Denmark) |
| BE-terna GmbH (Leipzig) | Software production, electronic data processing, consultancy, services and project management | Germany | EUR | — | 100% | BE-terna Germany GmbH |
| BE-terna Austria GmbH | Holding company | Austria | EUR | — | 100% | BE- terna Enhancement |
| BE-terna GmbH (Innsbruck) | Services in automatic data processing and information technology | Austria | EUR | — | 100% | BE-terna Austria GmbH |
| Pipol A/S | Conduct business with international implementation of business-oriented software solutions | Denmark | DKK | 1 | 100% | BE- terna Enhancement |
Country
Currency
Capital
%Telefónica Group Holding Company
Other companies (cont.)
BE-terna A/S (Norway)
Computer programming activities
Norway
NOK
—
100%
BE-terna Enhancement
BE- terna Business Solutions GmbH
Software development and consulting, distribution of corresponding products, systems and processes
Germany
EUR
—
100%
BE-terna GmbH (Innsbruck)
BE-terna Industry Solutions GmbH
Sales, implementation and maintenance of international ERP products
Germany
EUR
—
100%
BE-terna GmbH (Innsbruck)
BE-terna AG (Switzerland)
Service provision, analysis and optimisation of business processes, selection of business software and implementation of ERP solutions
Switzerland
CHF
—
100%
BE-terna GmbH (Innsbruck)
BE-terna Adriatic d.o.o
Holding company
Slovenia
EUR
—
100%
BE-terna Austria GmbH
BE-terna d.o.o Belgrade (Serbia)
Technology services
Serbia
RSD
13
100%
BE-terna Adriatic
BE-terna d.o.o Ljubijana (Slovenia)
Technology services
Slovenia
EUR
—
100%
BE-terna Adriatic
BE-terna d.o.o Zagreb (Croatia)
Technology services
Croatia
HRK
2
100%
BE-terna Adriatic
Pontel Participaciones, S.L.
Holding company
Spain
EUR
—
83.35%
Telefónica, S.A.
Telxius Telecom, S.A.
Telecommunications service provider
Spain
EUR
260
50.01%
Pontel Participaciones, S.L.
Telxius Cable América, S.A.
Provision of high bandwidth communications services
Uruguay
USD
417
50.01%
Telxius Telecom, S.A.
Telxius Cable España, S.L.U.
Establishment and operation of any kind of communications infrastructure and/or network
Spain
EUR
5
50.01%
Telxius Telecom, S.A.
Telxius Cable República Dominicana, S.A.S.
Telecommunications service provider
Republica Dominicana
USD
6
50.01%
Telxius Cable América, S.A. (49.51%)
Telxius Cable España, S.L.U. (0.50%)
Telxius Cable Argentina, S.A.
Operation and deployment of telecommunications infraestructure
Argentina
USD
78
50.01%
Telxius Cable América, S.A. (49.98%)
Telxius Cable España, S.L.U. (0.03%)
Telxius Cable Panamá, S.A.
Installation and operation of telecommunications networks for wholesalers
Panama
USD
10
50.01%
Telxius Cable América, S.A.
Telxius Cable Puerto Rico, Inc.
High capacity optical fibre network communications services
Puerto Rico
USD
14
50.01%
Telxius Cable América, S.A.
Telxius Cable USA, Inc.
High bandwidth communications services
USA
USD
58
50.01%
Telxius Cable América, S.A.
Telxius Cable Ecuador, S.A.
Sale of usage of data transmission capacity via an underwater optical fibre network
Ecuador
USD
5
50.01%
Telxius Cable América, S.A.
Telxius Cable Chile, S.A.
Involvement in businesses related to public or private telecommunications services
Chile
USD
37
50.01%
Telxius Cable América, S.A.
Telxius Cable Guatemala, S.A.
Installation and operation of telecommunications networks for wholesalers
Guatemala
USD
20
50.01%
Telxius Cable América, S.A.
| Name and corporate purpose | Country | Currency | Capital | %Telefónica Group Holding Company |
|---|---|---|---|---|
| Telxius Cable Perú, S.A.C. | Peru | USD | 20 | 50.01% |
| Involvement in the operation and deployment of international telecommunications services via underwater cables and others means | ||||
| Telxius Cable Colombia, S.A. | Colombia | USD | 4 | 50.01% |
| Supply of data transmission capacity via underwater cable system | ||||
| Telxius Cable Brasil Participaçoes, Ltda. | Brazil | USD | 62 | 50.01% |
| Holding company | ||||
| Telxius Cable Brasil, Ltda. | Brazil | USD | 74 | 50.01% |
| Operation and deployment of telecommunications infrastructures | ||||
| Telxius Cable Bolivia, S.A. | Bolivia | USD | 4 | 50.01% |
| Establishment and operation of any kind of communications infrastructure and/or network |
| Name and corporate purpose | Country | Currency | Capital | %Telefónica Group Holding Company |
|---|---|---|---|---|
| VMED O2 UK Limited | United Kingdom | GBP | — | 50% |
| Integrated provider of fixed and mobile services | ||||
| FiBrasil Infraestrutura e Fibra Ótica S.A. | Brazil | BRL | 2 | 43.7% |
| Fibre wholesale supplier | Telefônica Brasil, S.A. (18.7%) Telefónica Infra S.L. (25%) | |||
| VivaE Educação Digital S.A. | Brazil | BRL | 1 | 37.40% |
| Training for professional and management development | Telefônica Brasil, S.A. | |||
| HoldCo InfraCo SpA | Chile | CLP | 25,067 | 39.74% |
| Investment in money and/or securities | Telefónica Chile, S.A. | |||
| Infraco SpA. | Chile | CLP | 25,067 | 39.74% |
| Operation of physical fibre optic infrastructure | HoldCo InfraCo SpA | |||
| Telefónica Factoring España, S.A. | Spain | EUR | 5 | 50% |
| Factoring services provider | Telefónica, S.A. | |||
| Telefónica Factoring Do Brasil, Ltda. | Brazil | BRL | 5 | 50% |
| Factoring services provider | Telefónica, S.A. (40%) Telefónica Factoring España, S.A. (10)% | |||
| Telefónica Factoring Mexico, S.A. de C.V. SOFOM ENR | Mexico | MXN | 34 | 50% |
| Factoring services provider | Telefónica, S.A. (40.5%) Telefónica Factoring España, S.A. (9.5)% | |||
| Telefónica Factoring Perú, S.A.C. | Peru | PEN | 6 | 50% |
| Factoring services provider | Telefónica, S.A. (40.5%) Telefónica Factoring España, S.A. (9.5%) | |||
| Telefónica Factoring Colombia, S.A. | Colombia | COP | 4,000 | 50% |
| Factoring services provider | Telefónica, S.A. (40.5%) Telefónica Factoring España, S.A. (9.5%) | |||
| Telefónica Factoring Chile, SpA. | Chile | CLP | 547 | 50% |
| Factoring services provider | Telefónica Factoring España, S.A. | |||
| Mobile Financial Services Holding SPRL | Belgium | USD | 198 | 50% |
| Financial services | Telefónica Internacional Holding, B.V (26.28%) Telefónica Holding Atticus, B.V (23.72%) | |||
| Telefónica Consumer Finance, Establecimiento Financiero de Crédito, S.A. | Spain | EUR | 5 | 50% |
| Specialised credit institution | Telefónica, S.A. | |||
| Movistar Consumer Finance Colombia SAS. | Colombia | COP | 6,000 | 50% |
| Specialised credit institution | Telefónica Digital España, S.L. | |||
| Alamo Holdco S.L. | Spain | EUR | — | 27% |
| Holding company | ||||
| BIC ONNET Fibra Colombia S.A.S. | Colombia | COP | 45,852 | 27% |
| Fibre wholesale supplier | Alamo Holdco S.L. | |||
| The Smart Steps Data Technology Company | China | CNY | — | 37.50% |
| Big data services in China | Telefonica Iot & Big Data Tech S.A. | |||
| Internet para todos S.A.C | Peru | PEN | 364 | 54.09% |
| Telecommunications service provider | Telefónica del Perú, S.A.A. | |||
| Movistar Prosegur Alarmas, S.L. | Spain | EUR | — | 50% |
| Private security services | Telefónica España Filiales, S.A. | |||
| Prosegur Soluciones S.A.U. | Spain | EUR | — | 50% |
| Private security services | Movistar Prosegur Alarmas, S.L. | |||
| Buendía Producción, S.L. | Spain | EUR | — | 50% |
| Service provision related to film and video production activities | Telefónica Audiovisual Digital, S.L.U. | |||
| Buendía Estudios, S.L. | Spain | EUR | — | 50% |
| Service provision related to film and video production activities | Telefónica Audiovisual Digital, S.L.U. | |||
| Buendía Estudios Uno, S.L.U. | Spain | EUR | — | 50% |
| Service provision related to film and video production activities | Buendía Estudios, S.L. | |||
| Buendía Estudios Dos, S.L.U. | Spain | EUR | — | 50% |
| Service provision related to film and video production activities | Buendía Estudios, S.L. | |||
| Buendía Estudios Canarias, S.L.U | Spain | EUR | — | 50% |
| Service provision related to film and video production activities | Buendía Estudios, S.L. | |||
| Buendía Estudios Bizkaia, S.L. | Spain | EUR | — | 50% |
| Service provision related to film and video production activities | Buendía Estudios, S.L. | |||
| Solar360 de Repsol y Movistar S.L. | Spain | EUR | — | 50% |
| Development and marketing of photovoltaic self-consumption products and/or services | Telefónica de España, S.A.U. | |||
| UGG TopCo/HoldCo General Partner GmbH. | Germany | EUR | — | 47.06% |
| Holding company | Telefónica Infra Germany GmbH. (40%) Telefónica Deutschland Holding A.G. (7.06%) | |||
| UGG TopCo GmbH & Co KG | Germany | EUR | — | 47.06% |
| Holding company | Telefónica Infra Germany GmbH. (40%) Telefónica Deutschland Holding A.G. (7.06%) | |||
| UGG HoldCo GmbH& Co KG | Germany | EUR | — | 47.06% |
| Holding company | UGG TopCo GmbH & Co KG | |||
| UGG General Partner GmbH | Germany | EUR | — | 47.06% |
| Holding company | UGG HoldCo GmbH& Co KG | |||
| Unsere Grüne Glasfaser GmbH & Co KG | Germany | EUR | — | 47.06% |
| Broadband telecommunications operator | UGG HoldCo GmbH& Co KG | |||
| Daytona Midco S.L. | Spain | EUR | 4 | 20% |
| Securities transactions | Telefónica Infra, S.L. | |||
| Digital Data Centre BidCo, S.L.U. | Spain | EUR | 4 | 20% |
| Management and administration of equity securities | Daytona Midco S.L. | |||
| Telefónica Renting, S.A. | Spain | EUR | — | 50% |
| Purchase, sale and leasing of all kinds of movable property and provision of services ancillary to the leasing thereof | Telefónica, S.A. | |||
| Opal Holdco Limited | United Kingdom | GBP | — | 50% |
| Holding company | Telefónica Infra, S.L. | |||
| Opal Jvco Limited | United Kingdom | GBP | — | 25% |
| Holding company | Opal Holdco Limited |
| Companies/Segment/Subsidiaries | Country | Date of inclusion | % Acquisition |
|---|---|---|---|
| Telefónica Brazil | |||
| VivaE Educação Digital S.A. | Brazil | 02/28/2022 | 74.79% |
| Training for professional and management development | |||
| Garliava RJ Infraestrutura e Redes de Telecomunicacoes S.A. | Brazil | 04/30/2022 | 74.79% |
| Wireline telephony operator | |||
| Vivo ventures fundo de investimento em participacoes multiestrategia. | Brazil | 04/30/2022 | 74.79% |
| Fondos de inversión | |||
| Vita IT Comércio e Serviços de Soluções em TI Ltda. | Brazil | 10/31/2022 | 74.79% |
| Technical support, maintenance and other IT services | |||
| Other companies | |||
| Geprom Software Engineering S.L. |
| Companies/Segment/Subsidiaries | Country | Date of inclusion | % Acquisition |
|---|---|---|---|
| Geprom Software Engineering S.A. de C.V. Technical engineering services and other consultancy activities | Spain | 01/30/2022 | 100% |
| Geprom Software Engineering S.A. de C.V. Technical engineering services and other consultancy activities | Mexico | 01/30/2022 | 100% |
| Perpetual Topco Limited Holding company | United Kingdom | 03/31/2022 | 100% |
| Perpetual Midco Limited Holding company | United Kingdom | 03/31/2022 | 100% |
| Perpetual Bidco Limited Holding company | United Kingdom | 03/31/2022 | 100% |
| Incremental Group Holdings Limited Holding company | United Kingdom | 03/31/2022 | 100% |
| Redspire Limited Software development and information technology consultancy activities | United Kingdom | 03/31/2022 | 100% |
| Incremental Group Limited Information technology consultancy activities and other services activities | United Kingdom | 03/31/2022 | 100% |
| Adatis Group Limited Holding company | United Kingdom | 03/31/2022 | 100% |
| Adatis Consulting Limited Information technology consultancy activities | United Kingdom | 03/31/2022 | 100% |
| Adatis BG LTD Information technology consultancy activities | Bulgaria | 03/31/2022 | 100% |
| Adatis India Private Limited Information technology consultancy activities | India | 03/31/2022 | 100% |
| Kumo Analytics Limited Information technology consultancy activities | United Kingdom | 03/31/2022 | 100% |
| Adatis Managed Services Limited Information technology consultancy activities | United Kingdom | 03/31/2022 | 100% |
| BE-terna Acceleration Holding GmbH Holding company and provision of marketing, consultancy, implementation and commercialisation services for software and information technology | Germany | 06/30/2022 | 100% |
| BE-terna Acceleration GmbH Holding company | Germany | 06/30/2022 | 100% |
| BE-terna Enhancement GmbH Holding company | Germany | 06/30/2022 | 100% |
| BE-terna Germany GmbH Holding company | Germany | 06/30/2022 | 100% |
| BE-terna AB (Sweden) Technology services | Sweden | 06/30/2022 | 100% |
| Boydak Automation AG Technology services | Switzerland | 06/30/2022 | 100% |
| Other companies (cont.) | Country | Date of inclusion | % Acquisition |
|---|---|---|---|
| BE-terna ApS (Denmark) Computer programming activities | Denmark | 06/30/2022 | 100% |
| BE-terna B.V. (Netherlands) Technology services | Netherlands | 06/30/2022 | 100% |
| BE-terna GmbH (Leipzig) Software production, electronic data processing, consultancy, services and project management | Germany | 06/30/2022 | 100% |
| BE-terna Austria GmbH Holding company | Austria | 06/30/2022 | 100% |
| BE-terna GmbH (Innsbruck) Services in automatic data processing and information technology | Austria | 06/30/2022 | 100% |
| Pipol A/S Conduct business with international implementation of business-oriented software solutions | Dinamarca | 06/30/2022 | 100% |
| BE-terna A/S (Norway) Computer programming activities | Norway | 06/30/2022 | 100% |
| BE-terna Business Solutions GmbH Software development and consulting, distribution of corresponding products, systems and processes | Germany | 06/30/2022 | 100% |
| BE-terna Industry Solutions GmbH Sales, implementation and maintenance of international ERP products | Germany | 06/30/2022 | 100% |
| BE-terna AG (Switzerland) Service provision, analysis and optimisation of business processes, selection of business software and implementation of ERP solutions | Switzerland | 06/30/2022 | 100% |
| BE-terna Adriatic d.o.o Holding company | Slovenia | 06/30/2022 | 100% |
| BE-terna d.o.o Belgrade (Serbia) Technology services | Serbia | 06/30/2022 | 100% |
| BE-terna d.o.o Ljubijana (Slovenia) Technology services | Slovenia | 06/30/2022 | 100% |
| BE-terna d.o.o Zagreb (Croatia) Technology services | Croatia | 06/30/2022 | 100% |
| Companies/Segment/Subsidiaries | Country | Date of inclusion | % Acquisition |
|---|---|---|---|
| Alamo Holdco S.L. Holding company | Spain | 01/31/2022 | 27% |
| ONNET Fibra Colombia S.A.S. Fibre wholesale supplier | Colombia | 01/31/2022 | 27% |
| Opal Holdco Limited Holding company | United Kingdom | 08/31/2022 | 50% |
| Liberty Global Investment Jvco Limited Holding company | United Kingdom | 08/31/2022 | 50% |
| Companies/Segment/Subsidiaries | Country | Date of incorporation | % Acquisition |
|---|---|---|---|
| Telefónica Spain Bluevia Fibra, S.L. Operations and exploitation of FTTH network and other connectivity services. | Spain | 06/30/2022 | 100% |
| Solar360 Soluciones de Instalacion y Mantenimiento S.L. Marketing and management in the installation, sale and maintenance of photovoltaic equipment | Spain | 06/30/2022 | 51% |
| Telefónica Hispam TLH Holdco, S.L. Holding company | Spain | 09/30/2022 | 100% |
| Other companies | Country | Date of inclusion | % Acquisition |
|---|---|---|---|
| TIS Hispanoamérica, S.L. Security services and systems | Spain | 10/31/2022 | 100% |
| Companies/Segment/Subsidiaries | Country | Date of incorporation | % Acquisition |
|---|---|---|---|
| Buendía Estudios Canarias, S.L.U Service provision related to film and video production activities | Spain | 01/01/2022 | 50% |
| Buendía Estudios Bizkaia, S.L. Service provision related to film and video production activities | Spain | 09/30/2022 | 50% |
| Solar360 de Repsol y Movistar S.L. Development and marketing of photovoltaic self-consumption products and/or services | Spain | 06/30/2022 | 50% |
| Telefónica Renting, S.A. Purchase, sale and leasing of all kinds of movable property and provision of services ancillary to the leasing thereof | Spain | 07/31/2022 | 50% |
| Companies/Segment/Subsidiaries | Country | Date | Surviving company |
|---|---|---|---|
| Telefónica Spain Compañía Independiente de Televisión, S.L. Provision of all type of audiovisual telecommunications services | Spain | 06/30/2022 | Telefónica Audiovisual Digital, S.L.U. |
| Companies/Segment/Subsidiaries | Country | Deconsolidation date | % Sold |
|---|---|---|---|
| Telefónica Spain Bluevia Fibra, S.L.U. Operations and exploitation of FTTH network and other connectivity services. | Spain | 12/31/2022 | 45% |
| Other companies | Country | Deconsolidation date | % Sold |
|---|---|---|---|
| Telefónica Móviles El Salvador, S.A. de C.V. Provision of wireless and international long distance communications services | El Salvador | 01/31/2022 | 59.58% |
| Companies/Segment/Subsidiaries | Country | Deconsolidation date | % Sold |
|---|---|---|---|
| VivaE Educação Digital S.A. Training for professional and management development | Brazil | 04/30/2022 | 50% |
| Opal Jvco Limited Holding company | United Kingdom | 12/31/2022 | 25% |
| Companies/Segment/Subsidiaries | Country | Deconsolidation date | % Shareholding |
|---|---|---|---|
| Telefónica Cybersecurity Tech Argentina S.A. Cybersecurity, electronic information security and IT consulting | Argentina | 08/31/2022 | 100% |
| Sao Paulo Telecomunicaçoes Participaçoes Ltda Holding company | Brazil | 10/31/2022 | 100% |
| Companies/Segment/Subsidiaries | Country | Date of inclusion | % Acquisition |
|---|---|---|---|
| Altostratus Solutions, S.L. Provision of IT services | Spain | 06/30/2021 | 100% |
| Telefónica Cybersecurity & Cloud Tech Deutschland GmbH Cybersecurity, electronic information security and IT consulting | Germany | 08/31/2021 | 100% |
| Telefónica Tech UK & Ireland, Limited Holding company | United Kingdom | 07/31/2021 | 100% |
| Telefónica Tech UK Holdings Limited Holding company | United Kingdom | 07/31/2021 | 100% |
| Telefónica Tech UK TOG Limited Headquarters activities | United Kingdom | 07/31/2021 | 100% |
| Telefónica Tech UK Managed Services Limited Information technology, management and IT services consultancy | United Kingdom | 07/31/2021 | 100% |
| Telefónica Tech UK Limited Information technology, management and IT services consultancy | United Kingdom | 07/31/2021 | 100% |
| Telefónica Tech Northern Ireland Holdings Limited Other computer service activities | United Kingdom | 07/31/2021 | 100% |
| Telefónica Tech Communication & Collaboration Limited Other computer service activities | United Kingdom | 07/31/2021 | 100% |
| Telefónica Tech Northern Ireland Limited Other computer service activities | United Kingdom | 07/31/2021 | 100% |
| Cancom Ireland Limited Provision of IT services | Ireland | 07/31/2021 | 100% |
| Telefónica Tech Ocean Limited Holding company | United Kingdom | 07/31/2021 | 100% |
| Companies accounted for using the equity method | Country | Date of inclusion | % Acquisition |
|---|---|---|---|
| Prosegur Soluciones S.A.U. Private security services | Spain | 07/31/2021 | 100% |
| Daytona Midco S.L. Securities transactions | Spain | 05/31/2021 | 13.94% |
| Companies/Segment/Subsidiaries | Country | Date of incorporation | % Acquisition |
|---|---|---|---|
| Telefónica Hispam HoldCo InfraCo SpA Investment in money and/or securities | Chile | 04/30/2021 | 100% |
| Other companies | Country | Date of inclusion | % Acquisition |
|---|---|---|---|
| Telefónica Global Solutions Germany GmbH. International service provider | Germany | 03/31/2021 | 100% |
| Companies accounted for using the equity method | Country | Date of incorporation | % Acquisition |
|---|---|---|---|
| Movistar Consumer Finance Colombia SAS. Specialised credit institution | Colombia | 01/31/2021 | 50% |
| Buendía Estudios Uno, S.L.U. Service provision related to film and video production activities | Spain | 03/31/2021 | 50% |
| Buendía Estudios Dos, S.L.U. Service provision related to film and video production activities | Spain | 03/31/2021 | 50% |
| Joint ventures | Country | Date of incorporation | % Acquisition |
|---|---|---|---|
| FiBrasil Infraestrutura e Fibra Ótica S.A. Fibre wholesale supplier | Brazil | 03/31/2021 | 43.55% |
| VMED O2 UK Limited Integrated provider of fixed and mobile services | United Kingdom | 06/30/2021 | 50% |
| Companies/Segment/Subsidiaries | Country | Date | Surviving company |
|---|---|---|---|
| Other companies Govertis Advisory Services Perú S.A.C. Cybersecurity, electronic information security and IT consulting | Peru | 06/30/2021 | Telefónica Cybersecurity & Cloud Tech Perú S.A.C |
| Cyberrange S.L. Cybersecurity, electronic information security and IT consulting | Spain | 10/31/2021 | Telefónica Cybersecurity & Cloud Tech SL. |
| Ace & Niu Consulting S.L. Cybersecurity, electronic information security and IT consulting | Spain | 10/31/2021 | Govertis Advisory Services S.L. |
| Telefónica Innovación Alpha, S.L. Electronic communications and audiovisual services provider | Spain | 09/30/2021 | Telefonica Open Innovation S.L. |
| Companies/Segment/Subsidiaries | Country | Deconsolidation date | % Sold |
|---|---|---|---|
| Other companies Inmosites, S.A.U. | |||
| Telxius Torres Latam, S.L.U. Establishment and operation of any kind of communications infrastructure and/or network Spain 06/30/2021 50.01% | |||
| Telxius Torres España, S.L.U. Establishment and operation of any kind of communications infrastructure and/or network Spain 06/30/2021 50.01% | |||
| Telxius Towers Germany, Gmbh. Telecommunications service provider Germany 06/30/2021 50.01% | |||
| Telxius Torres Perú S.A.C. Telecommunications service provider Peru 06/30/2021 50.01% | |||
| Telxius Torres Chile Holding, S.A. Holding company Chile 06/30/2021 50.01% | |||
| Telxius Torres Chile, S.A. Telecommunications service provider Chile 06/30/2021 50.01% | |||
| Telxius Torres Brasil, Ltda. Telecommunications service provider Brazil 06/30/2021 50.01% | |||
| Inmosites Brasil Participaçoes Imobiliarias Ltda Telecommunications service provider Brazil 06/30/2021 50.01% | |||
| Telxius Torres Argentina, S.A. Telecommunications service provider Argentina 06/30/2021 50.01% | |||
| Telefónica de Costa Rica TC, S.A. Wireless communications Costa Rica 08/31/2021 100% | |||
| Companies accounted for using the equity method | |||
| HoldCo InfraCo SpA Investment in money and/or securities Chile 07/31/2021 60% | |||
| Joint ventures | |||
| O2 Holdings Ltd Holding company United Kingdom 06/30/2021 50% | |||
| Telefónica United Kingdom Ltd. Wireless communications United Kingdom 06/30/2021 50% | |||
| Giffgaff Ltd Wireless communications services provider United Kingdom 06/30/2021 50% | |||
| O2 Networks Ltd. Holding company United Kingdom 06/30/2021 50% | |||
| Cornerstone Telecomunications Network sharing United Kingdom 06/30/2021 25% | |||
| Tesco Mobile Ltd. Wireless telephony services United Kingdom 06/30/2021 25% | |||
| Telefónica Cybersecurity Tech UK Limited Cybersecurity, electronic information security and IT consulting United Kingdom 06/30/2021 50% |
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022
Telefónica, S. A. 169
Appendix II: Board and Senior Management Compensation
TELEFÓNICA, S.A.
(Amounts in euros)
| Directors | Salary¹ | Fixed remuneration² | Allowances³ | Short-term variable remuneration⁴ | Remuneration for belonging to the Board Committees⁵ | Other items⁶ | Total |
|---|---|---|---|---|---|---|---|
| Mr. José María Álvarez-Pallete López | 1,923,100 | — | — | 4,198,897 | — | 6,085 | 6,128,082 |
| Mr. Isidro Fainé Casas | — | 200,000 | — | — | 80,000 | — | 280,000 |
| Mr. José María Abril Pérez | — | 200,000 | 9,000 | — | 91,200 | — | 300,200 |
| Mr. José Javier Echenique Landiríbar | — | 200,000 | 24,000 | — | 113,600 | — | 337,600 |
| Mr. Ángel Vilá Boix | 1,600,000 | — | — | 2,911,200 | — | 24,514 | 4,535,714 |
| Mr. Juan Ignacio Cirac Sasturain | — | 120,000 | 30,000 | — | 33,600 | — | 183,600 |
| Mr. Peter Erskine | — | 120,000 | 19,000 | — | 113,600 | — | 252,600 |
| Ms. Carmen García de Andrés | — | 120,000 | 32,000 | — | 33,600 | — | 185,600 |
| Ms. María Luisa García Blanco | — | 120,000 | 32,000 | — | 44,800 | — | 196,800 |
| Mr. Peter Löscher | — | 120,000 | 23,000 | — | 113,600 | — | 256,600 |
| Ms. Verónica Pascual Boé | — | 120,000 | 7,000 | — | 11,200 | — | 138,200 |
| Mr. Francisco Javier de Paz Mancho | — | 120,000 | 33,000 | — | 124,800 | — | 277,800 |
| Mr. Francisco José Riberas Mera | — | 120,000 | — | — | — | — | 120,000 |
| Ms. María Rotondo Urcola | — | 120,000 | 20,000 | — | 22,400 | — | 162,400 |
| Ms. Claudia Sender Ramírez | — | 120,000 | 18,000 | — | 22,400 | — | 160,400 |
¹Salary: Regarding Mr José María Álvarez-Pallete López and Mr Ángel Vilá Boix, the amount includes the non-variable remuneration earned from their executive functions.
²Fixed remuneration: Amount of the compensation in cash, with a pre-established payment periodicity, whether or not it can be consolidated over time, earned by the member for his/her position on the Board, regardless of the effective attendance of the member to board meetings.
³Allowances: Total amount of allowances for attending Advisory or Steering Committee meetings.
⁴Short-term variable remuneration (bonuses): Variable amount linked to the performance or achievement of a series of individual or group objectives (quantitative or qualitative) within a period of time equal to or less than a year, corresponding to the year 2022 and to be paid in the year 2023. In reference to the bonus corresponding to 2021, which was paid in 2022, Executive Board Member Mr José María Álvarez-Pallete López received 3,807,738 euros and Executive Board Member Mr Ángel Vilá Boix received 2,640,000 euros.
⁵Remuneration for belonging to the Board Committees: Amount of items other than allowances, which the directors are beneficiaries through their position on the Executive Commission and the Advisory or Steering Committees, regardless of the effective attendance of the board member to such Committee meetings.
⁶Other concepts: This includes, among others, the amounts received as remuneration in kind (general medical and dental coverage and vehicle insurance), paid by Telefónica, S.A.
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022
Telefónica, S. A. 170
The following table breaks down the amounts accrued and/or received from other companies of the Telefónica Group other than Telefónica, S.A. individually, by the Board Members of the Company, by the performance of executive functions or by their membership to the Board of Directors of such companies:
OTHER COMPANIES OF THE TELEFÓNICA GROUP
(Amounts in euros)
| Directors | Salary¹ | Fixed remuneration² | Allowances³ | Short-term variable remuneration⁴ | Remuneration for belonging to the Board Committees⁵ | Other items⁶ | Total |
|---|---|---|---|---|---|---|---|
| Mr. José María Álvarez-Pallete López | — | — | — | — | — | — | — |
| Mr. Isidro Fainé Casas | — | — | — | — | — | — | — |
| Mr. José María Abril Pérez | — | — | — | — | — | — | — |
| Mr. José Javier Echenique Landiríbar | — | 90,000 | — | — | — | 87,500 | 177,500 |
| Mr. Ángel Vilá Boix | — | — | — | — | — | — | — |
| Mr. Juan Ignacio Cirac Sasturain | — | — | — | — | — | 90,457 | 90,457 |
| Mr. Peter Erskine | — | 80,000 | — | — | — | — | 80,000 |
| Ms Carmen García de Andrés | — | — | — | — | — | — | — |
| Ms. María Luisa García Blanco | — | — | — | — | — | 87,500 | 87,500 |
| Mr. Peter Löscher | — | 119,000 | — | — | — | — | 119,000 |
| Ms. Verónica Pascual Boé | — | — | — | — | — | 60,457 | 60,457 |
| Mr. Francisco Javier de Paz Mancho | — | 170,727 | — | — | — | 155,000 | 325,727 |
| Mr. Francisco José Riberas Mera | — | — | — | — | — | — | — |
| Ms. María Rotondo Urcola | — | — | — | — | — | — | — |
| Ms. Claudia Sender Ramírez | — | — | — | — | — | 127,957 | 127,957 |
¹. Salary: Amount of non-variable remuneration earned by the Director from other companies of the Telefónica Group for his/her executive functions.
². Fixed remuneration: Amount of the compensation in cash, with a pre-established payment periodicity, subject to consolidation over time or not, earned by the member for his/her position on the boards of other companies of the Telefónica Group.
³. Allowances: Total amount of the allowances for attending the board meetings of other companies of the Telefónica Group.
⁴. Variable short-term remuneration (bonuses): Variable amount linked to the performance or achievement of a series of individual or group objectives (quantitative or qualitative) within a period of time equal to or less than a year, corresponding to the year 2022 and to be paid in the year 2023 by other companies of the Telefónica Group.
⁵. Remuneration for belonging to the Board Committees of other companies of the Telefónica Group: Amount of items other than allowances, which the directors are beneficiaries through their position on the Advisory or Steering Committees of other companies of the Telefónica Group, regardless of the effective attendance of the board member to such Committee meetings.
⁶. Other concepts: This includes, among others, the amounts received as remuneration in kind (general medical and dental coverage and vehicle insurance), paid by other companies of the Telefónica Group. Also included are the amounts received for membership of the Advisory Boards of Telefónica España, Telefónica Hispanoamérica, Telefónica Tech and Telefónica Ingeniería de Seguridad.
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022
Telefónica, S. A. 171
Additionally, as mentioned in the Remuneration Policy section, the Executive Board Members have a series of Assistance Services. Below, the contributions made during 2022 are detailed for the Company to long-term savings systems (Pension Plans and Social Welfare Plan):
LONG-TERM SAVINGS SYSTEMS
(Amounts in euros)
| Directors | Contributions for fiscal year 2022 |
|---|---|
| Mr. José María Álvarez-Pallete López | 673,085 |
| Mr. Ángel Vilá Boix | 560,000 |
The breakdown of the long-term saving systems includes contributions to Pension Plans, to the Benefit Plan and to the Unit link-type Insurance, as set out below:
(Amounts in euros)
| Directors | Contribution to Pension Plans | Contribution to Executive Social Welfare Plan¹ | Contributions to Unit link- type Insurance/ Pension Plan Surplus² |
|---|---|---|---|
| Mr. José María Álvarez- Pallete López | 7,574 | 540,968 | 124,543 |
| Mr. Ángel Vilá Boix | 6,721 | 487,840 | 65,439 |
¹. Contributions to the Executive Social Welfare Plan established in 2006, financed exclusively by the Company, to complement the current Pension Plan, which involves defined contributions equivalent to a certain percentage of the fixed remuneration of the Director, depending on the professional levels in the organization of the Telefónica Group.
². Contributions to Unit link-type Insurance/Pension Plan Surplus: In 2015 and 2021, applicable law reduced the financial and tax limits of the contributions to Pension Plans; for this reason, in order to compensate for the difference in favor of the Beneficiaries, a Unit-link type group insurance policy was arranged to channel such differences that occur during each fiscal year. This Unit-link type insurance is arranged with the entity Plus Ultra, Seguros Generales y Vida, S.A. de Seguros y Reaseguros (after the merger through absorption of Seguros de Vida y Pensiones Antares, S.A.U. by Plus Ultra), and covers the same contingencies as those of the “Pension Plan” and the same exceptional liquidity events in case of serious illness or long-term unemployment.
The 2022 amounts for life insurance premiums were as follows:
LIFE INSURANCE PREMIUMS
(Amounts in euros)
| Directors | Life insurance premiums |
|---|---|
| Mr. José María Álvarez-Pallete López | 74,699 |
As regards to remuneration plans based on shares (involving Executive Directors), the following long-term variable remuneration plans were in existence during the year 2022:
The so-called Performance Share Plan ("PSP"), made up of three cycles (2018-2021; 2019-2022; 2020-2023), approved by the General Shareholders' Meeting held on June 8, 2018. The maximum number of Telefónica shares to be delivered depends (i) 50% of the compliance with the targets set out for Total Shareholder Return ("TSR") on Telefónica, S.A. shares with respect to the TSRs of a comparison group of companies in the telecommunications sector weighted according to their relevance to Telefónica, and (ii) 50%, of the Free Cash Flow (the "FCF") of the Telefónica Group.
The target measurement period for the First Cycle started on January 1, 2018 and ended on December 31, 2020, resulting in a weighted payout ratio of 50%. Notwithstanding the foregoing, the Executive Chairman stated to the Nominating, Compensation and Corporate Governance Committee, at its meeting of February 23, 2021, that he considered it appropriate to propose his waiver of the incentive, as a gesture of responsibility towards the company, customers, shareholders and employees of Telefónica, as well as a measure of prudence following the economic effects derived from COVID-19. The CEO expressed the same view. The resignation was accepted by the Board of Directors.
The target measurement period for the Second Cycle started on January 1, 2019 and ended on December 31, 2021, resulting in a weighted payout ratio of 50%. The evaluation of the degree of compliance was carried out on the basis of the evolution of the share price, as well as the audited results of the Company. Thus, at the end of the Plan's Second Cycle, Executive Directors received 234,000 gross shares in the case of the Executive Chairman, Mr. José María Álvarez-Pallete López, and 173,500 gross shares in the case of the Chief Operating Officer (C.O.O.) Mr. Ángel Vilá Boix.
The target measurement period of the Third and last Cycle started on January 1, 2020 and ended on December 31, 2022. This Cycle had a maximum of 465,000 shares allocated on January 1, 2020, to the executive Directors, with a unit fair value of 3.2136 euros per share for FCF ("Free Cash Flow") and 1.6444 euros for TSR ("Total Shareholder Return").
At the end of the cycle date, Kepler has submitted the Nominating, Compensation and Good Governance Committee the calculation of Total Shareholder Return for Telefónica, S.A., which has concluded below the median according to the performance scale. Therefore, there is no right to perceive the number of shares linked to the relative TSR objective. With respect to Free Cash Flow objective, considering the partial fulfillment of 2020, 2021 and 2022, the average weighted payment coefficient is 50%. Performance assessment has been carried out based on the results audited both by independent and internal auditors of the Company, analyzed firstly by the Audit and Control Committee and subsequently submitted to the Nominating, Compensation and Corporate Governance Committee and approved by the Board of Directors. Thus, at the end of the Plan's Third and last Cycle, Executive Directors are entitled to receive 133,500 gross shares in the case of the Executive Chairman, Mr. José María Álvarez-Pallete López, and 99,000 gross shares in the case of the Chief Operating Officer (C.O.O.) Mr Ángel Vilá Boix.
On the other hand, the denominated Performance Share Plan (PSP), consisting of three cycles (2021-2024; 2022-2025; 2023-2026), approved by the Ordinary General Meeting of Shareholders held on April 23, 2021, was also in force during the financial year 2022. There were two Cycles of the Plan in force during the 2022 financial year.
The First Cycle, which started on January 1, 2021 and will end on December 31, 2023. If targets are met, the shares will be delivered in 2024. And the Second Cycle, which started on January 1, 2022 and will end on December 31, 2024. If targets are met, the shares will be delivered in 2025.
In both Cycles, the number of Telefónica, S.A. shares that, within the established maximum, could be delivered, as the case may be, to the Participants, is conditioned and is determined based on the compliance of the established targets: 50% of the compliance of the Total Shareholder Return objective (the TSR) of the Telefónica, S.A. share, 40% of the generation of Free Cash Flow of the Telefónica Group (the FCF), and 10% of the Neutralization of CO2 Emissions.
To determine compliance with the TSR target and calculate the specific number of shares to be delivered for this concept, the performance of the TSR on Telefónica, S.A.'s shares will be measured during the measurement period of each three-year cycle, in relation to the TSRs experienced by certain companies in the telecommunications sector, weighted according to their relevance to Telefónica, S.A., which for purposes of the Plan will constitute a comparison group (hereinafter the "Comparison Group").
The companies included in the Comparison Group are listed below: América Móvil, BT Group, Deutsche Telekom, Orange, Telecom Italia, Vodafone Group, Proximus, Koninklijke KPN, Millicom, Swisscom, Telenor, TeliaSonera, TIM Brasil, and Liberty Global.
With regard to complying with the TSR objective, the Plan will foresee that the number of shares to be delivered associated with meeting this objective will range from 15% of the number of theoretical shares assigned, assuming that the TSR performance of Telefónica, S.A. shares is at least the median of the comparison group, to 50% if the performance is in the third quartile or above in the Comparison Group, with the percentage calculated by linear interpolation for cases falling between the median and third quartile.
In order to determine the compliance with the FCF objective and calculate the specific number of shares to be delivered for this concept, the FCF level generated by the Telefónica Group during each year will be measured and compared to the value set in the budgets approved by the Board of Directors for each financial year. With regard to the FCF, for each of the two cycles in force during the fiscal year 2022, the Board of Directors, at the proposal of the Appointments, Remunerations and Corporate Governance Committee, determined a scale of achievement that includes a minimum threshold of 90% compliance, below which no incentive is paid and compliance with which will entail the delivery of 20% of the theoretical shares assigned, and a maximum level of 100% compliance, which will entail the delivery of 40% of the theoretical shares assigned.
To determine compliance with the CO2 Emissions Neutralization target and calculate the specific number of shares to be delivered for this item, the level of CO2 emissions neutralization achieved at the end of the cycle will be measured, with the incentive being paid upon reaching a certain level of scope 1 + 2 emissions reduction. The level of direct and indirect CO2 emissions from our daily activity shall be calculated according to the following: CO2 Emission = Activity x Emission Factor, where:
The emission factor provided by official sources (European Union, Ministries, CNMC, etc.) is used for electricity and the GHG Protocol emission factors are used for fuels.
At the beginning of both cycles, the Board of Directors, at the proposal of the Appointments, Remunerations and Corporate Governance Committee, determined a scale of achievement that includes a minimum threshold of 90% compliance, below which no incentive is paid and compliance with which will entail the delivery of 5% of the theoretical shares assigned, and a maximum level of 100% compliance, which will entail the delivery of 10% of the theoretical shares assigned. In addition, a minimum level of emission reductions of Scope 1 + 2 will need to be achieved for the incentive to be paid.
In any case, 100% of the shares delivered under the Plan to the Executive Directors and other Participants as determined by the Board of Directors shall be subject to a two-year holding period. In addition, in accordance with the provisions of the Remuneration Policy for Directors of Telefónica, SA, the Executive Directors must maintain (directly or indirectly) a number of shares (including those delivered as remuneration) equivalent to two years of their Gross Fixed Remuneration, as long as they continue to belong to the Board of Directors and perform executive functions. Until such time as this requirement is met, the holding period for any shares delivered under the Plan to Executive Directors will be three years.
The maximum number of allocated shares to be delivered in the event of maximum compliance with the TSR (Total Shareholder Return), FCF (Free Cash Flow) and CO2 Emission Neutralization targets set for the First and Second Cycle of the Plan is shown below.
| Directors | Maximum number of shares (*) |
|---|---|
| Mr. José María Álvarez-Pallete López | 1,094,000 |
| Mr. Ángel Vilá Boix | 819,000 |
(*) Maximum possible number of shares to be received in case of maximum completion of TSR, FCF and Neutralization of CO2 Emissions target. In any case, it is noted that no shares have been delivered to Executive Directors under the first cycle of the PSP and that the above table only reflects the number of potentially deliverable shares, without in any way implying that all or part of the shares will actually be delivered.# PSP - Second Cycle / 2022-2025
Maximum number of shares (*)
Mr. José María Álvarez-Pallete López 995,000
Mr. Ángel Vilá Boix 745,000
(*) Maximum possible number of shares to be received in case of maximum completion of TSR, FCF and Neutralization of CO2 Emissions target. In any case, it is noted that no shares have been delivered to Executive Directors under the second cycle of the PSP and that the above table only reflects the number of potentially deliverable shares, without in any way implying that all or part of the shares will actually be delivered.
On the other hand, Telefónica, S.A. General Meeting of Shareholders held on April 8, 2022, approved a new Global Telefónica, S.A. Incentive Share Purchase Plan for Telefónica Group Employees, in which the Executive Directors participate as a token of their commitment to the Company and in order to encourage other employees to participate in the Global Plan. The Plan will end in March 2024, and the maximum amount that each employee can allocate to it is 1,800 euros.
In addition, it should be noted that the external directors of the company do not perceive nor have perceived remuneration during the year 2022 in concept of pensions or life insurance, nor do they participate in compensation plans referenced to the value of the share price. Furthermore, the company does not grant nor has granted during the year 2022, an advance, loan or credit in favor of its Board Members or its Senior Management, complying with the requirements of the Sarbanes-Oxley Act published in the United States, which is applicable to Telefónica as a listed company in this market.
As for the Directors who made up the Senior Management¹ of the company in the year 2022, excluding those who form an integral part of the Board of Directors, have accrued a total amount of 9,381,900 euros during the 2022 fiscal year. In addition, and in terms of long-term savings systems, the contributions made by the Telefónica Group during the year 2022 to the Social Security Plan described in the "Income and expenditure" note with regard to these directors increased to 943,754 euros; the contributions corresponding to the Pension Plan increased to 214,600 euros; the contributions to the Seguro Unit link-Excess Pension Fund increased to 112,712 euros.
Furthermore, the amount related to the remuneration in kind (which includes the fees for life insurance and other insurance, such as the general medical and dental coverage, and vehicle insurance) was 185,657 euros.
On the other hand, regarding share-based remuneration plans, during the year 2022, there were in force the following long-term variable remuneration plans:
The so-called "Performance Share Plan" ("PSP"), made up of three cycles (2018-2021; 2019-2022; 2020-2023), approved by the General Shareholders' Meeting held on June 8, 2018. The target measurement period of the First Cycle started on January 1, 2018 and ended on December 31, 2020, Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 174 resulting in a weighted payment coefficient of 50%.Consequently, the number of shares corresponding to the First Cycle (2018-2021) of the Performance Share Plan that were delivered in the 2021 financial year to the Company's Senior Executives amounted to 220,085 gross shares.
The target measurement period of the Second Cycle started on January 1, 2019 and ended on December 31, 2021, resulting in a weighted payment coefficient of 50%. Consequently, the number of shares corresponding to the Second Cycle (2019-2022) of the Performance Share Plan that were delivered in the 2022 financial year to the Company's Senior Executives amounted to 256,246 gross shares.
The target measurement period of the Third and last Cycle started on January 1, 2020 and ended on December 31, 2022. This cycle had a maximum of 316,762 shares allocated on January 1, 2020 to the group of directors forming part of the Company's Senior Management, with a unit fair value of 3.2136 euros per share for FCF and 1.6444 euros for TSR. At the end of the cycle date, Kepler has submitted the Nominating, Compensation and Good Governance Committee the calculation of TSR for Telefónica, S.A., which has concluded below the median according to the performance scale. Therefore, there is no right to perceive the number of shares linked to the relative TSR objective. With respect to Free Cash Flow objective, considering the partial fulfillment of 2020, 2021 and 2022, the average weighted payment coefficient is 50%. Performance assessment has been carried out based on the results audited both by independent and internal auditors of the Company, analyzed firstly by the Audit and Control Committee and subsequently submitted to the Nominating, Compensation and Corporate Governance Committee and approved by the Board of Directors. Thus, at the end of the Third Cycle (2020-2023) of the Performance Share Plan, the Company's Senior Executives are entitled to receive 158,381 gross shares.
On the other hand, the Performance Share Plan (PSP), consisting of three cycles (2021-2024; 2022-2025; 2023- 2026), approved by the Ordinary General Meeting of Shareholders held on April 23, 2021, was also in force during the financial year 2022. The target measurement period of the First Cycle started on January 1, 2021 and will end on December 31, 2023. The maximum number of shares allocated to be delivered in 2023 in the event of maximum compliance with the TSR (Total Shareholder Return), FCF (Free Cash Flow) and CO2 Emission Neutralization targets set for the First Cycle (2021-2024) for all the Company's Senior Executives was 1,333,081. The target measurement period of the Second Cycle started on January 1, 2022 and will end on December 31, 2024. The maximum number of shares allocated to be delivered in 2025 in the event of maximum compliance with the TSR (Total Shareholder Return), FCF (Free Cash Flow) and CO2 Emission Neutralization targets set for the Second Cycle (2022-2025) for all the Company's Senior Executives was 1,241,015.
On the other hand, Telefónica, S.A. General Meeting of Shareholders held on April 8, 2022, approved a new Global Telefónica, S.A. Incentive Share Purchase Plan for Telefónica Group Employees, in which the Senior Management participate as a token of their commitment to the Company and in order to encourage other employees to participate in the Plan. The Plan will end in March 2024, and the maximum amount that each employee can allocate to it is 1,800 euros.
(1) For these purposes, Senior Management is understood to be those persons who perform, de jure or de facto, senior management functions reporting directly to the Board of Directors or Executive Committees or Managing Directors of the Company, including, in all cases, the person responsible for Internal Audit. Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 175
The detail and key features of outstanding debentures and bonds at December 31, 2022 are as follows (in millions of euros):
| Total Telefónica and its instrumental companies | Maturity (nominal) | Debentures and bonds | Currency | % Interest rate | 2023 | 2024 | 2025 | 2026 | 2027 | Subsequent years | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|
| T. EUROPE BV SEP_00 BOND GLOBAL D | USD | 8.250% | — | — | — | — | — | — | 1,148 | 1,148 | |
| TEBV FEB_03 EMTN FIXED TRANCHE B | EUR | 5.875% | — | — | — | — | — | — | 500 | 500 | |
| Telefónica Europe, B.V. | — | — | — | — | — | 1,648 | 1,648 | ||||
| TELEF. EMISIONES JANUARY 2013 | EUR | 3.987% | 1,277 | — | — | — | — | — | — | 1,277 | |
| TELEF. EMISIONES FEBRUARY 2019 (1) | EUR | 1.069% | — | 1,000 | — | — | — | — | — | 1,000 | |
| TELEF. EMISIONES JANUARY 2017 | EUR | 1.528% | — | — | 1,127 | — | — | — | — | 1,127 | |
| TELEF. EMISIONES SEPTEMBER 2018 | EUR | 1.495% | — | — | 892 | — | — | — | — | 892 | |
| EMTN O2 GBP | GBP | 5.375% | — | — | — | 564 | — | — | — | 564 | |
| TELEF. EMISIONES APRIL 2016 | EUR | 1.460% | — | — | — | 1,279 | — | — | — | 1,279 | |
| TELEF. EMISIONES JANUARY 2018 | EUR | 1.447% | — | — | — | — | 1,000 | — | — | 1,000 | |
| TELEF. EMISIONES MARCH 2017 | USD | 4.103% | — | — | — | — | — | 1,405 | — | 1,405 | |
| TELEF. EMISIONES MAY 2020 | EUR | 1.201% | — | — | — | — | 1,250 | — | — | 1,250 | |
| TELEF. EMISIONES JANUARY 2017 | EUR | 2.318% | — | — | — | — | — | — | 500 | 500 | |
| TELEF. EMISIONES SEPTEMBER 2017 | EUR | 1.715% | — | — | — | — | — | — | 1,250 | 1,250 | |
| TELEF. EMISIONES MARCH 2017 | EUR | 2.318% | — | — | — | — | — | — | 200 | 200 | |
| TELEF. EMISIONES MARCH 2019 | EUR | 1.788% | — | — | — | — | — | — | 1,000 | 1,000 | |
| EMTN GBP 10/08/2029 400 | GBP | 5.445% | — | — | — | — | — | — | 451 | 451 | |
| TELEF. EMISIONES OCTOBER 2014 | EUR | 2.932% | — | — | — | — | — | — | 800 | 800 | |
| TELEF. EMISIONESFEBRUARY 2020 | EUR | 0.664% | — | — | — | — | — | — | 1,000 | 1,000 | |
| TELEF. EMISIONES MAY 2022 (2) | EUR | 2.592% | — | — | — | — | — | — | 1,000 | 1,000 | |
| TELEF. EMISIONES OCTOBER 2016 | EUR | 1.930% | — | — | — | — | — | — | 750 | 750 | |
| TELEF. EMISIONES MAY 2020 | EUR | 1.807% | — | — | — | — | — | — | 750 | 750 | |
| TELEF. EMISIONES JUNE 06 TRANCHE D | USD | 7.045% | — | — | — | — | — | — | 1,874 | 1,874 | |
| TELEF. EMISIONES APRIL 2017 | USD | 4.900% | — | — | — | — | — | — | 187 | 187 | |
| TELEF. EMISIONES MARCH 2018 | USD | 4.665% | — | — | — | — | — | — | 703 | 703 | |
| TELEF. EMISIONES JULY 2019 | EUR | 1.957% | — | — | — | — | — | — | 500 | 500 | |
| TELEF. EMISIONES JULY 2020 | EUR | 1.864% | — | — | — | — | — | — | 500 | 500 | |
| TELEF. EMISIONES APRIL 2022 | EUR | 1.864% | — | — | — | — | — | — | 100 | 100 | |
| TELEF. EMISIONES MARCH 2017 | USD | 5.213% | — | — | — | — | — | — | 1,874 | 1,874 | |
| TELEF. EMISIONES APRIL 2017 | USD | 5.213% | — | — | — | — | — | — | 468 | 468 | |
| TELEF. EMISIONES MARCH 2018 | USD | 4.895% | — | — | — | — | — | — | 1,171 | 1,171 | |
| TELEF. EMISIONES MARCH 2019 | USD | 5.520% | — | — | — | — | — | — | 1,171 | 1,171 | |
| TELEF. EMISIONES DECEMBER 2016 | EUR | 4.000% | — | — | — | — | — | — | 150 | 150 | |
| Telefónica Emisiones, S.A.U. | 1,277 | 1,000 | 2,019 | 1,843 | 3,655 | 16,399 | 26,193 | ||||
| Total Telefónica, S.A. and its instrumental companies | 1,277 | 1,000 | 2,019 | 1,843 | 3,655 | 18,047 | 27,841 |
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 176
| Maturity | Debentures and bonds | Currency | % Interest rate | 2023 | 2024 | 2025 | 2026 | 2027 | Subsequent years | Total |
|---|---|---|---|---|---|---|---|---|---|---|
| Bond T | CLP | 4.900% | 21 | — | — | — | — | — | 21 | |
| Telefónica Chile, S.A. | 21 | — | — | — | — | — | 21 | |||
| Bond F | UFC | 3.600% | 115 | — | — | — | — | — | 115 | |
| Bond O | CLP | 3.500% | — | — | 77 | — | — | — | 77 | |
| Bond Q | CLP | 3.600% | — | — | — | 99 | — | — | 99 | |
| Bond 144 A | USD | 3.537% | — | — | — | — | — | 468 | 468 | |
| Telefónica Móviles Chile, S.A. | 115 | — | 77 | 99 | — | 468 | 759 | |||
| Bond T. Peru 4th Program (19th Serie A) N. |
The detail of the net financial debt arranged by the Group (notional amount) by currency and interest rates at December 31, 2022 is as follows:
| Fair value | Millions of euros | 2023 | 2024 | 2025 | 2026 | 2027 | Subsequent years | Notional Underlying debt(*) | Associated derivatives | TOTAL |
|---|---|---|---|---|---|---|---|---|---|---|
| Euro | ||||||||||
| Total | (8,499) | 1,066 | 2,500 | 3,707 | 4,020 | 17,344 | 20,138 | 12,461 | 8,254 | |
| Floating rate | 1,933 | 38 | (87) | 1,770 | 206 | 5,095 | 8,955 | 1,079 | 12,129 | |
| Spread | 0.04% | 0.73% | — | (0.12%) | (0.56%) | 0.05% | — | — | — | |
| Fixed rate | (10,432) | 1,028 | 2,587 | 1,937 | 3,814 | 12,249 | 11,183 | 11,382 | (3,875) | |
| Interest rate | 1.29% | 2.80% | 1.62% | 2.25% | 1.13% | 1.80% | 2.17% | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Other european currencies | ||||||||||
| Instruments in CZK | (87) | — | — | — | — | (87) | — | (86) | (86) | |
| Floating rate | — | — | — | — | — | — | — | — | — | |
| Spread | — | — | — | — | — | — | — | — | — | |
| Fixed rate | (87) | — | — | — | — | (87) | — | (86) | (86) | |
| Interest rate | 6.17% | — | — | — | — | 6.17% | — | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in GBP | 610 | — | — | (2) | (6) | (4) | 598 | 922 | (325) | |
| Floating rate | — | — | — | — | — | — | — | (1) | (1) | |
| Spread | — | — | — | — | — | — | — | — | — | |
| Fixed rate | 610 | — | — | (2) | (6) | (4) | 598 | 922 | (324) | |
| Interest rate | 3.49% | — | — | 0.70% | 0.70% | 0.70% | 3.54% | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in CHF | (1) | — | — | — | — | (1) | — | — | — | |
| Floating rate | — | — | — | — | — | — | — | — | — | |
| Spread | — | — | — | — | — | — | — | — | — | |
| Fixed rate | (1) | — | — | — | — | (1) | — | — | — | |
| Interest rate | — | — | — | — | — | — | — | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| America | ||||||||||
| Instruments in USD | (982) | 49 | — | (1,878) | — | 1,874 | (937) | 13,038 | (13,937) | |
| Floating rate | (7) | 141 | — | (1,874) | — | 1,874 | 134 | 329 | (154) | |
| Spread | — | 0.47% | — | — | — | — | 0.49% | — | — | |
| Fixed rate | (975) | (92) | — | (4) | — | — | (1,071) | 12,709 | (13,783) | |
| Interest rate | 2.18% | 3.23% | — | 1.55% | — | — | 2.27% | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in UYU | (15) | 97 | — | 29 | — | — | 111 | 119 | (4) | |
| Floating rate | — | — | — | — | — | — | — | — | — | |
| Spread | — | — | — | — | — | — | — | — | — | |
| Fixed rate | (15) | 97 | — | 29 | — | — | 111 | 119 | (4) | |
| Interest rate | 1.85% | 9.39% | — | 8.90% | — | — | 10.26% | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in ARS | (222) | (4) | — | — | — | (226) | (232) | — | (232) | |
| Floating rate | — | — | — | — | — | — | — | — | — | |
| Spread | — | — | — | — | — | — | — | — | — | |
| Fixed rate | (222) | (4) | — | — | — | (226) | (232) | — | (232) | |
| Interest rate | 61.15% | — | — | — | — | 60.06% | — | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in BRL | 2,125 | 17 | 796 | 8 | 367 | 99 | 3,412 | 868 | 2,610 | |
| Floating rate | (220) | 17 | 796 | 8 | 367 | 99 | 1,067 | 827 | 271 | |
| Spread | (0.57%) | — | 0.38% | — | 1.32% | — | 0.85% | — | — | |
| Fixed rate | 2,345 | — | — | — | — | — | 2,345 | 41 | 2,339 | |
| Interest rate | 10.86% | — | — | — | — | — | 10.86% | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in CLP | 428 | 116 | 184 | 99 | — | 460 | 1,287 | (234) | 1,523 | |
| Floating rate | (19) | — | — | — | — | 460 | 441 | (21) | 476 | |
| Spread | — | — | — | — | — | (0.50%) | (0.52%) | — | — | |
| Fixed rate | 447 | 116 | 184 | 99 | — | — | 846 | (213) | 1,047 | |
| Interest rate | 4.84% | 2.55% | 3.30% | 3.60% | — | — | 4.04% | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in UFC | — | — | — | — | — | — | — | 115 | (106) | |
| Floating rate | — | — | — | — | — | — | — | 115 | (106) | |
| Spread | — | — | — | — | — | — | — | — | — | |
| Fixed rate | — | — | — | — | — | — | — | — | — | |
| Interest rate | — | — | — | — | — | — | — | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in PEN | 294 | 63 | 165 | 159 | 139 | — | 820 | 474 | 349 | |
| Floating rate | 16 | — | — | — | — | — | 16 | 16 | — | |
| Spread | — | — | — | — | — | — | — | — | — | |
| Fixed rate | 278 | 63 | 165 | 159 | 139 | — | 804 | 458 | 349 | |
| Interest rate | 8.36% | 5.81% | 7.08% | 7.36% | 7.38% | — | 7.53% | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in VAC | — | — | — | — | 25 | 64 | 89 | 89 | — | |
| Floating rate | — | — | — | — | 25 | 64 | 89 | 89 | — | |
| Spread | — | — | — | — | 3.63% | 3.05% | 3.21% | — | — | |
| Fixed rate | — | — | — | — | — | — | — | — | — | |
| Interest rate | — | — | — | — | — | — | — | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in COP | (13) | 131 | 219 | 5 | 5 | 459 | 806 | 339 | 483 | |
| Floating rate | 9 | 63 | (248) | 5 | 5 | 429 | 263 | 335 | (62) | |
| Spread | — | 1.23% | (2.01%) | — | — | 0.30% | 2.66% | — | — | |
| Fixed rate | (22) | 68 | 467 | — | — | 30 | 543 | 4 | 545 | |
| Interest rate | 7.35% | 6.65% | 3.19% | — | — | 8.09% | 3.72% | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in VEB | (20) | — | — | — | — | (20) | (20) | — | (20) | |
| Floating rate | — | — | — | — | — | — | — | — | — | |
| Spread | — | — | — | — | — | — | — | — | — | |
| Fixed rate | (20) | — | — | — | — | (20) | (20) | — | (20) | |
| Interest rate | — | — | — | — | — | — | — | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| Instruments in MXN | 163 | (246) | — | 87 | — | — | 4 | (240) | 227 | |
| Floating rate | 24 | — | — | — | — | — | 24 | 15 | — | |
| Spread | 0.84% | — | — | — | — | — | 0.84% | — | — | |
| Fixed rate | 139 | (246) | — | 87 | — | — | (20) | (255) | 227 | |
| Interest rate | 10.66% | 9.70% | — | 8.80% | — | — | 6.88% | — | — | |
| Rate cap | — | — | — | — | — | — | — | — | — | |
| TOTAL | 25,994 | 27,699 | (1,012) | 26,687 | ||||||
| Floating rate | 10,989 | 2,784 | 12,553 | 15,337 | ||||||
| Fixed rate | 15,005 | 24,915 | (13,565) | 11,350 |
(*) Includes all net financial debt adjustments
The table below shows the sensitivity to interest rates originated by our position on interest rate swaps categorized into instruments entered into for trading purposes and instruments entered into for purposes other than trading at December 31, 2022:
| Millions of euros | Maturity | Non trading accountant purposes | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2024 | 2025 | 2026 | 2027 | Subsequent years | Total | Fair value | |||
| EUR | ||||||||||
| Fixed to floating | — | — | — | — | — | — | — | 595 | ||
| Receiving leg | (2,974) | (1,778) | (1,195) | (1,215) | (325) | (3,632) | (11,119) | (7,894) | ||
| Average Interest Rate | 1.50% | 1.54% | 1.07% | 1.29% | 0.86% | 1.16% | 1.31% | — | ||
| Paying leg | 2,974 | 1,778 | 1,195 | 1,215 | 325 | 3,632 | 11,119 | 8,489 | ||
| Average Spread | 0.46% | 0.29% | 0.45% | — | — | — | 0.22% | — | ||
| Floating to fixed | — | — | — | — | — | — | — | (113) | ||
| Receiving leg | (715) | (470) | (50) | (477) | (245) | (1,187) | (3,144) | (3,148) | ||
| Average Spread | — | — | — | — | — | — | — | — | ||
| Paying leg | 715 | 470 | 50 | 477 | 245 | 1,187 | 3,144 | 3,035 | ||
| Average Interest Rate | 0.10% | 1.26% | 0.65% | 0.71% | 1.22% | 2.75% | 1.46% | — | ||
| USD | ||||||||||
| Fixed to floating | — | — | — | — | — | — | — | 1 | ||
| Receiving leg | (319) | (159) | — | — | — | (478) | (161) | |||
| Average Interest Rate | 1.74% | 3.55% | — | — | — | — | 2.34% | — | ||
| Paying leg | 319 | 159 | — | — | — | — | 478 | 162 | ||
| Average Spread | 1.77% | — | — | — | — | — | 1.18% | — | ||
| Floating to fixed | — | — | — | — | — | — | — | (20) | ||
| Receiving leg | (703) | (159) | — | — | — | (862) | (869) | |||
| Average Spread | — | — | — | — | — | — | — | — | ||
| Paying leg | 703 | 159 | — | — | — | — | 862 | 849 | ||
| Average Interest Rate | 0.24% | 2.52% | — | — | — | — | 0.66% | — |
| Millions of euros | Maturity | Trading accountant purposes | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2024 | 2025 | 2026 | 2027 | Subsequent years | Total | Fair value | |||
| EUR | ||||||||||
| Fixed to floating | — | — | — | — | — | — | — | 175 | ||
| Receiving leg | (1,500) | — | (125) | — | (100) | (2,925) | (4,650) | (4,476) | ||
| Average Interest Rate | 1.54% | — | 0.32% | — | 0.76% | 2.18% | 1.89% | — | ||
| Paying leg | 1,500 | — | 125 | — | 100 | 2,925 | 4,650 | 4,651 | ||
| Average Spread | — | — | — | — | — | — | — | — | ||
| Floating to fixed | — | — | — | — | — | — | — | (1,467) | ||
| Receiving leg | — | — | (354) | — | (1,604) | (6,608) | (8,566) | (8,291) | ||
| Average Spread | — | — | 0.44% | — | — | — | 0.02% | — | ||
| Paying leg | — | — | 354 | — | 1,604 | 6,608 | 8,566 | 6,824 | ||
| Average Interest Rate | — | — | 0.44% | — | 0.88% | 1.23% | 1.13% | — | ||
| USD | ||||||||||
| Fixed to floating | — | — | — | — | — | — | — | 756 | ||
| Receiving leg | (822) | (83) | (423) | (3,757) | (4,590) | (9,532) | (19,207) | (11,396) | ||
| Average Interest Rate | 1.85% | 2.36% | 1.30% | 2.79% | 1.63% | 3.16% | 2.62% | — | ||
| Paying leg | 822 | 83 | 423 | 3,757 | 4,590 | 9,532 | 19,207 | 12,152 | ||
| Average Spread | — | — | 1.03% | 2.78% | 0.92% | — | 0.79% | — |
| Maturity | Trading accountant purposes | 2023 | 2024 | 2025 | 2026 | 2027 | Subsequent years | Total |
|---|---|---|---|---|---|---|---|---|
| GBP | ||||||||
| Fixed to floating | 16 | — | — | — | — | — | — | 16 |
| Receiving leg | — | — | — | — | — | — | (451) | (451) |
| Average Interest Rate | — | — | — | — | — | 3.42% | 3.42% | — |
| Paying leg | — | — | — | — | — | 451 | 451 | 450 |
| Average Spread | — | — | — | — | — | — | — | — |
| CLP | (9) | |||||||
| Fixed to floating | — | — | — | — | — | — | — | — |
| Receiving leg | (3) | — | — | — | — | — | (3) | (3) |
| Average Interest Rate | — | 4.90% | — | — | — | — | 4.90% | — |
| Paying leg | — | — | — | — | — | 3 | 3 | 3 |
| Average Spread | — | 1.27% | — | — | — | — | 1.27% | — |
| Floating to fixed | — | — | — | — | — | — | (9) | (9) |
| Receiving leg | (127) | — | — | — | — | — | (127) | (130) |
| Average Spread | — | — | — | — | — | — | — | — |
| Paying leg | — | — | — | — | — | 127 | 127 | 121 |
| Average Interest Rate | — | 1.54% | — | — | — | — | 1.54% | — |
| COP | (106) | |||||||
| Fixed to floating | — | — | — | — | — | — | — | — |
| Receiving leg | — | — | (58) | — | — | — | (58) | (50) |
| Average Interest Rate | — | — | 5.77% | — | — | — | 5.77% | — |
| Paying leg | — | — | 58 | — | — | — | 58 | 60 |
| Average Spread | — | — | 1.07% | — | — | — | 1.07% | — |
| Floating to fixed | — | — | — | — | — | — | (116) | (116) |
| Receiving leg | — | — | (467) | — | — | (30) | (497) | (507) |
| Average Spread | — | — | — | — | — | 3.39% | 0.20% | — |
| Paying leg | — | — | 467 | — | — | 30 | 497 | 391 |
| Average Interest Rate | — | — | 3.19% | — | — | 8.09% | 3.48% | — |
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022
Telefónica, S. A. 184
Cash flows receivable or payable on derivative financial instruments to be settled via the swap of nominals, categorized by currency of collection/payment, along with contractual maturities are as follows:
Millions of euros
| 2023 | 2024 | 2025 | 2026 | 2027 | Subsequent years | Total | |
|---|---|---|---|---|---|---|---|
| Currency swaps | |||||||
| Receive BRL | 30 | — | — | — | — | — | 30 |
| Pay BRL | (282) | — | — | — | — | — | (282) |
| Receive CLP | 76 | — | — | — | — | — | 76 |
| Pay CLP | (335) | — | — | — | — | (460) | (795) |
| Receive COP | — | — | 367 | — | — | — | 367 |
| Pay COP | — | — | (367) | — | — | — | (734) |
| Receive EUR | 1,536 | — | — | — | 2,542 | — | 4,078 |
| Pay EUR | (673) | (80) | (46) | (2,352) | (3,966) | (6,907) | (14,024) |
| Receive GBP | — | — | — | 564 | — | 451 | 1,015 |
| Pay GBP | — | — | — | — | — | — | — |
| Receive JPY | — | — | — | — | — | 107 | 107 |
| Pay JPY | — | — | — | — | — | — | — |
| Receive UFC | 231 | — | — | — | — | — | 231 |
| Pay UFC | (115) | — | — | — | — | — | (115) |
| Receive USD | 1,297 | 83 | 517 | 1,883 | 3,934 | 7,659 | 15,373 |
| Pay USD | (1,665) | — | (468) | — | (2,529) | — | (4,662) |
| TOTAL | 100 | 3 | 3 | 95 | (19) | 483 | 665 |
The largest volume of cash flows collected in this table falls into the following currency pairs. The average exchange rates to which the settlements have been closed are: EUR/GBP (0.83), EUR/USD (1.13) and USD/COP (3,742.44).
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022
Telefónica, S. A. 185
Millions of euros
| 2023 | 2024 | 2025 | 2026 | 2027 | Subsequent years | Total | |
|---|---|---|---|---|---|---|---|
| Forwards | |||||||
| Receive BRL | 213 | — | — | — | — | — | 213 |
| Pay BRL | (2,587) | — | — | — | — | — | (2,587) |
| Receive CLP | 25 | — | — | — | — | — | 25 |
| Pay CLP | (740) | (28) | — | — | — | — | (768) |
| Receive COP | 114 | — | — | — | — | — | 114 |
| Pay COP | (213) | — | — | — | — | — | (213) |
| Receive CZK | 87 | — | — | — | — | — | 87 |
| Pay CZK | — | — | — | — | — | — | — |
| Receive EUR | 4,583 | — | — | — | — | — | 4,583 |
| Pay EUR | (890) | — | — | — | — | — | (890) |
| Receive GBP | 24 | — | — | — | — | — | 24 |
| Pay GBP | (796) | — | — | — | — | — | (796) |
| Receive MXN | — | — | — | — | — | — | — |
| Pay MXN | (217) | (19) | — | — | — | — | (236) |
| Receive PEN | 32 | — | — | — | — | — | 32 |
| Pay PEN | (384) | — | — | — | — | — | (384) |
| Receive USD | 1,919 | 43 | — | — | — | — | 1,962 |
| Pay USD | (1,165) | — | — | — | — | — | (1,165) |
| Receive UYU | 21 | — | — | — | — | — | 21 |
| Pay UYU | (18) | — | — | — | — | — | (18) |
| TOTAL | 8 | (4) | — | — | — | — | 4 |
The largest volume of cash flows collected in this table falls into the following currency pairs. The average exchange rates to which the settlements have been closed are: EUR/GBP (0.87), EUR/USD (1.03), USD/COP (4,660.76) and EUR/BRL (5.58).
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022
Telefónica, S. A. 186
The main financing transactions at December 31, 2022 and 2021 and their nominal amounts are as follows:
| Descriptive name summary | Current limit (millions) | Currency | Outstanding principal balance (millions of euros) | Arrangement date | Maturity date |
|---|---|---|---|---|---|
| 12/31/2022 | 12/31/2021 | ||||
| Telefónica,S.A | |||||
| Structured Financing (*) | 12 | USD | 12 | 72 | 02/22/2013 |
| Structured Financing (*) | 27 | USD | 25 | 89 | 08/01/2013 |
| Structured Financing (*) | 238 | USD | 223 | 288 | 12/11/2015 |
| Structured Financing (*) | 161 | EUR | 161 | 221 | 12/11/2015 |
| Sustainable syndicated (1) | 5,500 | EUR | — | — | 03/15/2018 |
| Bilateral loan | — | EUR | 150 | — | 09/26/2022 |
| Bilateral loan | 125 | EUR | — | — | 12/23/2022 |
| T. Brasil, S.A. | |||||
| Bilateral loan | — | USD | 199 | — | 04/04/2022 |
| Telefónica Germany GmbH & Co. OHG | |||||
| EIB Financing | — | EUR | 183 | 258 | 06/13/2016 |
| Sustainable syndicated | 750 | EUR | — | — | 12/17/2019 |
| EIB Financing (Tranche 1) | — | EUR | 300 | 300 | 12/18/2019 |
| EIB Financing (Tranche 2) | — | EUR | 150 | 150 | 01/14/2020 |
| Colombia Telecomunicaciones, S.A. E.S.P. | |||||
| Bilateral loan (2) | — | USD | — | 117 | 03/24/2020 |
| Bilateral loan | — | COP | 97 | 111 | 07/06/2021 |
| Telxius Telecom, S.A. | |||||
| Syndicated | 300 | EUR | 201 | 162 | 12/01/2017 |
| Bluevia Fibra S.L.U. | |||||
| Syndicated | 360 | EUR | 245 | — | 11/16/2022 |
| Telefónica Móviles Chile, S.A. | |||||
| Bilateral loan | — | USD | 133 | 124 | 04/17/2020 |
(1) On January 13, 2022 there was maturity extension of the sustainability-linked syndicated loan facility for 5,500 million euros. The loan has two annual extension options at Telefónica, S.A. request with a maturity maximum up to 2029 (see Note 29.d).
(2) On January 26, 2022 there was an early repayment for 132 million dollars of the bilateral loan originally scheduled to mature in 2023.
(*) Facility with amortization schedule, showing in the column "Current limit" the undrawn amount.
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022
Telefónica, S. A. 187
As a digital telecommunications operator, the Telefónica Group is subject to sector-specific telecommunications regulations, general competition law and a variety of other regulations, including privacy and security, which can have a direct and material effect on the Group’s business areas. The extent to which telecommunications regulations apply to the Telefónica Group depends largely on the nature of its activities in a particular country, with traditional fixed telephony services and fixed broadband usually subject to stricter regulations. In order to provide services and operate its networks and to use spectrum, the Telefónica Group must obtain general authorizations, concessions and/or licenses from the pertinent authorities in each country in which the Group operates (hereinafter referred to as national regulatory authorities or NRAs). The Group is also required to obtain radio frequency licenses for its mobile operations. This section describes the legislative framework and the recent legislative key developments in the most relevant countries and regions in which the Group has significant interests. Many of the legislative changes and the adoption of regulatory measures by sector-specific regulators which are described in this section are in the process of being adopted and, therefore, have not yet concluded.
By Directive (EU) 2018/1972, of December 11, 2018, the European Code of Electronic Communications (EECC in its acronym in English) was approved by the European Parliament and the Council. The Member States had a period of 2 years (until December 21, 2020) to transpose it into their national legislation. The Code includes measures to stimulate investment on very high capacity network (VHCN), modernization of the provisions of the Universal Service and certain changes in the regulation of services with the aim of balancing the supply conditions (Level Playing Field) between telecom operators and OTTs. In addition, some improvements are included for the coordination of spectrum management processes throughout the EU as well as a harmonization of licenses duration up to at least 20 years. Due to a delay in the transposition of the EECC, the European Commission announced the second stage of infringements proceedings, in the form of a reasoned opinion, against 18 member states, including Spain, on September 21, 2021. On June 28, 2022, the new General Telecommunications Law 11/2022 was finally published in the BOE by which the EECC is transposed into Spanish law. The Relevant Market Recommendation (RMR) adopted in December 2020, identifies the relevant markets within the electronic communication sector that are susceptible of ex ante regulation by the NRAs. The NRAs should assess the competitive conditions of these markets and where appropriate, designate operators as having significant market power (SMP) and impose obligations. The markets susceptible to ex ante regulation were reduced from 4 to 2: wholesale local access provided at a fixed location market (m1) and wholesale dedicated capacity market (m2). Nevertheless, NRAs are still able to analyze any other market that according to national circumstances might deemed to be uncompetitive. In relation to the maximum cap at European level for both fixed and mobile termination rates (FTRs/MTRs), since the adoption of a Delegated Act, in April 2021 by the EC, the maximum rates applicable are those included in the correspondent glidepaths and aiming to reach 0.2 euro cents per minute in mobile by 2024 and to 0.07 euro cents per minute in the case of fixed rates. Additionally, the European Council has approved the Recovery and Resilience Mechanism (RRM), with European funds of 750 billion euros until 2025 as a central pillar of the European Digital Transformation (at least 20% of funds devoted to digitalization) initiatives which can receive support to advance connectivity and the digitalization of society. Telecom Single Market EU Regulation 2015/2120 of the EP and of the Council of November 25, 2015, lays down measures basically concerning open Internet access (Net Neutrality) and Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022
Telefónica, S. A. 188
roaming on public mobile communications networks within the Union.# Appendix
Among the most relevant regulatory initiatives we can find the following:
The Geo-Blocking Regulation tries to limit geographically-based restrictions which undermine online shopping and cross-border sales. As a follow- up to the revision of the Geo-Blocking Regulation, the European Commission published an Action Plan to support the recovery and transformation of the audiovisual sector on December 3, 2020. This Plan included a proposal for a dialogue between the European Commission and the audiovisual industry to facilitate access to and availability of audiovisual content across EU borders. Three meetings between the Commission and industry took place during 2021 while the last meeting took place in December 2022. Commissioner Breton might ask to engage further with industry to enhance cross-border access to and availability of audiovisual content across the EU. European Commission will issue a Recommendation on combating online piracy of live content in June 2023. In January the Commission launched a call for data inviting interested parties to submit comments based on their experience and will organize a workshop on February 28, 2023. Telefónica submitted comments to the consultation and will participate in the Workshop, insisting on the need for the European Commission to take specific action in relation to online piracy of live content, building on DSA and Copyright Directive as well as on European Parliament’s Resolution of May 2021 on challenges of sports events organizers in the digital environment.
Regulations on the Digital Services and the Digital Markets: The Digital Services Act 2022/2065 of October 19, 2022 and the Digital Markets Act 2022/1925 of September 14, 2022 were adopted and published in the Official Journal of the EU. In relation to the new Digital Services regulation, obligations will apply throughout the EU to all digital services that connect consumers to goods, services or content, such as:
With respect to the Digital Markets regulation, whose main goal is preventing the so called “gatekeepers” from imposing unfair conditions on end users and at ensuring the openness of important digital services, its main provisions are:
* It will only apply to the main platform providers more prone to incur in unfair practices and ensuring contestability in a set of core platform services.
* It establishes quantitative thresholds for the designation of "gate keepers".
* It requires "gate keepers" to take action in a proactive manner.
* The regulation foresees mechanisms for the Commission to designate new "gate-keepers" below the thresholds; to add new services and obligations; and to impose structural or behavioral remedies for systematic non-compliance through a market investigation.
* The EC can impose fines of up to 10%% of the company's total worldwide annual turnover or 20% in the event of repeated infringements. On July 5, 2022 the text was finally endorsed by European Parliament and entered into force as of November 1, 2022 (following its publication in the Official Journal on October 12, 2022). After entering application on May 2, 2023, the designation process might last until September and gatekeepers will have up to six months to comply with the requirements in the DMA, at the latest by March 6, 2024.
In relation with Data Protection & Privacy, the new General Data Protection Regulation (GDPR) of April 27, 2016, directly applicable in all member States in Europe from May 25, 2018, introduced administrative fines of up to 4% of an undertaking’s annual global turnover of the preceding financial year for breaching the new data protection rules. Spain, Germany and the United Kingdom have adopted implementing measures of this Regulation. On January 10, 2017, the EC put forward its proposal for a Regulation on ePrivacy, which will replace the current Directive 2002/58/EC on privacy in the electronic communications sector and will complement the GDPR. The EC proposal also introduces administrative fines of up to 4% of an undertaking’s annual global turnover of the preceding financial year for breaching new regulation. The Regulation could be adopted in first half of 2023 under the Swedish Presidency. On the other hand, on December 13, 2022 European Commission issued a draft Adequacy Decision on a new EU/US Data Privacy Framework. Since European Court of Justice (ECJ) struck down the Privacy Shield framework in July 2020, EU and US have been working on a new framework for transatlantic data flows, especially after Joe Biden’s new Administration entered into office. In March 2022, President of the European Commission Ursula von de Leyen and US President Joe Biden announced an agreement in principle for a renewed framework for transatlantic data flows “balancing security and the right to privacy and data protection”. This political announcement had to be translated into a legal text. For that, on October 7, 2022 President Biden signed an Executive Order addressing the main concerns raised by ECJ in its Judgement on Schrems II Case (namely, new safeguards to limit US LEAs’ and Intelligence Agencies’ powers to access personal data of EU citizens and new redress mechanism for non-US persons whose data has been accessed by US Authorities). Taking into account these concrete changes introduced by the Executive Order, European Commission published the draft Adequacy Decision. Commission expects to have the Adequacy Decision adopted by Summer 2023.
On December 14, 2016, the European institutions reached an agreement on how to coordinate the use of the 700 MHz band facilitating the introduction of 5G as of 2020. Duly justified exceptions on grounds defined in Decision 2017/899/CE were allowed until June 30, 2022. But, the assignment processes were finally completed during 2021, with Telefónica securing 2x10 MHz in each of our European markets’ footprint (Germany, Spain and UK).# European Union
European competition provisions have the force of law in Member States and, therefore, are applicable to our operations in those States. The Treaty on the Functioning of the European Union (TFEU) prohibits “concerted practices” and any agreement between companies that may affect trade between Member States and that restricts or has the objective of restricting competition in domestic market. The Treaty also prohibits any abuse of dominant position within the European Union or any considerable part thereof that may affect trade between Member States. The Community Merger Regulation requires that all mergers, acquisitions and joint ventures involving companies that meet certain volume thresholds are subject to review by the EC rather than the national competition authorities. In accordance with the amended Community Merger Regulation, market concentrations that significantly impede effective competition in the market will be prohibited. The European Commission has the authority to apply the EU framework for the defense of the competition. There are similar competition rules in the legislation of each Member State. Those responsible for ensuring compliance are the national competition authorities.
The European Electronic Communications Code grants the Radio Spectrum Committee (RSC) the powers to harmonize the use of spectrum bands for the provision of electronic communications services and lays down the rules governing the process through which Member States authorize those bands to specific users. It also mandates Member States to allow the use of sufficiently large blocks of the 3400-3800 MHz band, and at least 1 Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 190 GHz in the 24,25-27,5 GHz band, in order to facilitate the roll-out of 5G. Assignment processes have been completed across our European footprint in the 3400-3800 MHz band, with Telefónica securing at least 70 MHz in each market (see table at the end for details). Regarding the 24,25-27,5 GHz band, it is being assigned in Germany through local licences awarded on a first-come- first-served basis. In Spain, a competitive tender took place in December 2022 and Telefónica secured a national licence of 1 GHz. In the UK, Ofcom launched a public consultation in Q2 2022 on how to enable new uses, including 5G, in the 26 GHz band. Once the harmonization and assignment of the priority bands for 5G (700 MHz, 3500 MHz and 26 GHz) has been nearly completed, the European institutions are beginning the process to identify new bands that in a 2025-2030 horizon may be available for the provision of wireless broadband services. Among the most relevant bands for Telefónica are the 470-694 MHz and the 6425-7125 MHz bands, that will be discussed at the ITU world conference in 2023, and the 3800-4200 MHz band, for which the RSC approved in December 2021 a mandate to the CEPT with a view to its harmonization for local low and mid- power networks.
The legal framework for the regulation of the telecommunications sector in Spain is governed by the General Telecommunications Law (11/2022) of June 28, transposing the implementation of the "EECC" into national law. The Market and Competition National Commission, or CNMC, created by the Law 3/2013, assumed in 2013 its role as telecommunications and audiovisual service regulator in Spain. This organism is also the competition authority in Spain and the national regulatory authority for transport, postal services and energy. The main licenses and concessions held by Telefónica in Spain are listed at the end of this Appendix VI under the title “Main concessions and licenses held by the Telefónica Group”.
The obligations imposed by the national regulator in the most relevant markets in which Telefónica is deemed to have Significant Market Power (SMP) are detailed below. The EU Commission’s delegated act on termination rates entered into force on July 1, 2021 and the approved charges have been amended accordingly:
On January 17, 2017, the CNMC approved the definition and the analysis of the market for access and call origination on fixed networks. Considering that Telefónica has SMP, the CNMC imposed specific obligations to Telefónica regarding the provision of origination services, preselection and wholesale access service to the telephone line on a cost-oriented bases, and regarding the implementation of an accounting system. Telefónica was imposed, among others, the obligation of no discrimination, transparency and separation of accounts.
In July 2019, the CNMC carried out a new round of market analysis in terminated fixed networks, reaching the same conclusions as in the prior analysis and concluded that every single provider, including Telefónica de España, are dominants in terminating fixed networks and, accordingly are obliged to provide call termination service at cost-orientation and non-discrimination to the rest of operators, according to a purely incremental costs model. Relevant developments were the updating of terminating prices for the period 2019-2021, as well as the possibility of charging a surcharge for traffic originated outside the EU under the principle of reciprocity. The approved prices from January 1, 2021 are 0.0545 euro cents per minute.
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 191
On January 2018, the CNMC adopted the final decision where all mobile operators were considered SMP for the call termination in their networks. As established by the European Commission’s Delegated Act, from January 1, 2022 to December 31, 2022, tariffs amount to 0.55 euro cents per minute.
On January 18, 2017, the CNMC adopted a Resolution which approved the reference offer of the new wholesale unbundled virtual access service to Telefónica's new broadband Ethernet service (local NEBA). NEBA services allow alternative operators more flexibility to structure their retail offers over Telefónica's fiber network. In March 2018, the CNMC approved the methodology to be used to assess the maximum wholesale access price which Telefónica could charge to other operators for accessing the optical fiber network in regulated areas (NEBA Local and NEBA services), set at 16.68 euros per month. This price is reviewed once a year in order to assess whether Telefónica's retail offers (broadband flagship products) are economically replicable with such price. On November 12, 2020, by means of a resolution to the revision of the parameters of the Economic Replicability Test, CNMC has considered that one of Telefónica’s flagship products was not replicable with existing wholesale access price, encouraging Telefonica to reduce that price in order to restore the economic replicability of all its retail flagship products. The resolutions from March 2018, July 2018 and November 2020 have been appealed by Telefónica de España. In July 2018, the CNMC approved the methodology to analyze whether Telefónica’s business offers can be replicated by other operators. On October 7, 2021, CNMC has completed the the broadband market analysis (1/2020, 3b/2014 markets). The most remarkable aspects stated by CNMC are:
* To expand the competitive area in new generation networks, from 66 to 696 municipalities, which represent the 70.5% where the Spanish population lives. In these areas the obligation to offer a wholesale broadband access service (NEBA) will not be imposed on Telefónica’s fiber network.
* In the remaining municipalities, CNMC requires Telefónica to provide other operators with a virtual disaggregated access service (local NEBA) and a wholesale broadband access service (NEBA) on its fiber network.
* Throughout the whole territory, CNMC has decided to maintain the obligation by which Telefónica must provide wholesale access service to its civil infrastructure (ducts, conduits and poles).
On February 6, 2023, the Minister for Economic Affairs and Digital Transformation issued the Ministerial Order designating Telefónica de España, S.A.U. as the operator responsible for the provision of the services included in Article 37.1 of the General Telecommunications Law: adequate broadband internet access service at a fixed location with a minimum download speed of 10 Mbps as well as voice communications services at a fixed location. The territorial scope of the designation is the entire national territory and the designation is made for a period beginning at zero hours on February 10, 2023 and ending at zero hours on January 1, 2025.
On February 22, 2021, Telefónica España acquired a 10 MHz block in the 3.4-3.8 GHz band for 21 million euros. With this spectrum acquisition, Telefónica completes 100MHz which corresponds to the maximum carrier width in the 5G standard. In order for all the operators to have contiguous frequency blocks and ensure a more efficient use of the spectrum to deploy 5G technology and associated services, it is expected that the Ministry of Economic Affairs and Digital Transformation will adopt a resolution for the reorganization of the 3.4-3.8 GHz band, during March 2022. Following this resolution, operators will have 6 months to migrate their frequencies. Regarding the 700 MHz band, Telefónica España acquired 2x10 MHz for 310 million euros in the spectrum auction which took place in July 2021. Additionally, Telefónica has already extended its administrative concessions in the 3.4-3.6 GHz band (2x20 MHz) and the 2.1 GHz band (2x5 MHz+ 5 MHz) until 2030.Telefónica was awarded with 5 blocks of 20 MHz for an amount of 20 million euros in the auction of the 26 GHz band that took place on the December 21, 2022 which is expected to be formalized in the first quarter of 2023.
In August 2009, the Radio and Television Corporation Finance Law (Ley de Financiación de la Corporación de Radio y Television Española) was approved establishing that: (i) telecommunication operators which operate nationwide or at least in more than one region, have to pay a fixed annual contribution of 0.9% of the invoiced operating income of the year (excluding the revenues of the wholesale reference market), and (ii) the concessionaire companies and providers of TV services which operate nationwide or at least in more than one region have to pay an annual fixed contribution to the RTVE funding as follows: (a) 3% on the gross revenue of the year for open concessionaire companies or TV services providers; and (b) 1.5% on the gross revenue of the year for concessionaire companies to provide Pay TV services. Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 192
Contributions made to the funding of RTVE were appealed by Telefónica España and Telefónica Móviles España. The proceedings are currently on hold waiting for the ruling on (i) a prejudicial question submitted by the National High Court to the Court of Justice of the European Union; and (ii) also on an unconstitutionality question submitted to the Spanish Constitutional Court regarding compliance of the underlying law with the European legislation and the Spanish Constitution.
The draft Audiovisual Communications General Law includes a provision to withdraw the 0,9% of the invoiced operating income contribution to RTVE funding which would entry in force by January 1, 2023.
The Resolution of the CNMC of April 22, 2015 authorized the acquisition of the exclusive control of DTS (Distribuidor Oficial de Televisión, S.A.) by Telefónica de Contenidos, S.A.U. As a result of such authorization, the new entity assumed a set of commitments for a five-year period, which briefly are: i) the obligation to make available a wholesale offer of channels with premium content, that allows the replicability of Telefónica retail Pay TV offer; ii) the prohibition of including a period of permanence clause in contracts for Pay TV packages; iii) the prohibition of attract DTS customers for a period of two months; iv) the obligation to keep at least three international routes uncongested with three Internet Connectivity Providers; and v) the prohibition of formalizing exclusive contracts exceeding three years with content providers.
In July 2020, CNMC decided to extend the application of the commitments on the DTS merger for an additional period of three years. After analyzing the existence of relevant modifications in the markets affected by the operation, the CNMC considered that it was justified to maintain all the commitments except for the broadcasting rights in the video on-demand modality (SVOD), whose commitment to limit the exclusivity, validity period and exploitation period of the contracts that Telefónica could sign is eliminated. In the TV channel commercialization area, the commitment prohibiting Telefónica from early termination of contracts with third party TV channel owners whose term ends within the commitment extension period is softened, allowing the early termination through good faith negotiation, under reasonable and non-discriminatory conditions. The commitments related to the pay-TV market in Spain, expressly subject to a term that has already expired. Telefónica has appealed the decision.
The European Union legislative framework was implemented in Germany at the end of June 2004, by the approval of Telecommunications Act (Telekommunikationsgesetz). The Telecommunications Act has been repeatedly amended over the last years, most recently through the transposition of the European Code of Electronic Communications (EECC) into German law with effect from 1 December 2021. The national regulatory authority responsible for regulation of electronic communication networks and services is the Bundesnetzagentur, or BNetzA. The main licenses and concessions held by Telefónica in Germany are listed at the end of this Appendix VI under the title “Main concessions and licenses held by the Telefónica Group”.
With regard to provision of the 800 MHz, 1.8 GHz and 2.6 GHz spectrum expiring end of 2025, BNetzA published points of orientation for consultation by March 21, 2022. In conjunction with this, an initial demand survey was conducted to examine signs of a possible spectrum scarcity. The points of orientation essentially spoke only of an extension and/or an auction as the most probable provision mechanisms. The Telefónica Deutschland Group gave its opinion on the points of orientation by the prescribed deadline. After evaluating the comments submitted, BNetzA published a position paper at the end of September 2022 with an initial opinion on the next steps. BNetzA started from the assumption that there was an obvious spectrum scarcity, based on the results of the initial demand survey. This would be an argument in favor of awarding the spectrum in the form of an auction. To ease the demand situation in the 800 MHz band, the position paper proposes a frequency swap to the same extent with the 900 MHz band. The result would be that the 800 MHz frequencies would run until the end of 2033 and the 900 MHz frequencies until the end of 2025. The frequencies at 900, 1,800 and 2,600 MHz would be auctioned off. The Telefónica Deutschland Group commented in due time and advocated again for an extension of the frequencies to be made available through at least 2033. BNetzA intends to make a decision about frequency provision in 2023.
Regarding the coverage requirements resulting from the 2019 frequency auction, the Telefónica Deutschland Group notified the BNetzA at the beginning of January 2023 that it had fulfilled the obligations due at the end of 2022 to cover households and major routes, and to commission 1,000 5G base stations and base stations in 500 white spots, respectively, in line with the obligations.
Regarding the coverage requirements resulting from the 2019 frequency auction, the Telefónica Deutschland Group, the Deutsche Telekom Group and the Vodafone Group in July 2021 entered into a cooperation for the joint construction of additional radio towers and masts, as well as their technical support and use. The cooperation is designed to meet coverage obligations, especially for transport routes and in rural areas, where frequency Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 193 holders are allowed to enter into cooperation agreements to fulfil these obligations.
In November 2021, the Telefónica Deutschland Group concluded an agreement with the Deutsche Telekom Group on active shared network usage at “grey spots”, which are areas in which only one mobile network operator offers mobile network access to its customers. A similar agreement with the Vodafone Group has been concluded on 25 January 2022. In both cooperation agreements, live operations were launched in the third quarter of 2022 with reciprocal access to the first mobile network sites. On May 21, 2021, the Telefónica Deutschland Group entered into a National Roaming Agreement (NRA) with the 1&1 Group (formerly: 1&1 Drillisch Group). With this NRA, the Telefónica Deutschland Group fulfilled one of the EU requirement imposed by the EU Commission arising from the merger of the Telefónica Deutschland Group and E-Plus in 2014.
The EU Commission’s delegated act on termination rates entered into force on July 1, 2021 and the approved charges have been amended accordingly:
A glide path applies for the MTR, according to which a charge of 0.70 euro cents per minute will apply from July 1, 2021, decreasing to 0.55 euro cents per minute from January 1, 2022, to 0.40 euro cents per minute from January 1, 2023 and to 0.20 euro cents per minute from January 1, 2024. These charges will apply to all German providers of these services.
FTRs have been subject to a charge of 0.07 euro cents per minute since July 1, 2021. These charges will apply to all German providers of these services.
The BNetzA has identified the existence of significant Germany-wide market power of Telekom Deutschland GmbH on wholesale market 3a (= market for wholesale access provided locally at a fixed location) and still deems it to be in need of regulation. This applies to both the copper network of Telekom Deutschland GmbH and the newly constructed fibre-optic network for the implementation of FTTH. On July 21, 2022, after prior notification to the EU Commission, the BNetzA issued the framework conditions under which charges and other access conditions will be controlled by the BNetzA in future. This relates both to access to the local loop in the copper network, the “last mile”, and also to virtual unbundled local access (VULA) to the copper and fibre connections of Telekom Deutschland GmbH. In essence, the BNetzA is maintaining its first draft of October 2021. On October 26, 2022, the BNetzA published a draft decision for wholesale market 3b (= market for wholesale mass market products provided centrally at a fixed location). The draft also stipulates that the copper and fibre-optic infrastructure of Telekom Deutschland GmbH must be regulated, but that in future regulatory obligations will only apply to municipalities with a population of less than 60,000. The regulatory obligations will be lifted in larger municipalities.# Appendix VI
The EU Regulatory Framework was implemented in the United Kingdom by the Communications Act in 2003. The Office of Communications, or Ofcom, is designated as the NRA responsible for the regulation of electronic communications networks and services. Under the terms of the Withdrawal Agreement, the UK implemented the 2020 Electronic Communications and Wireless Telegraphy Regulation (Amendment) (European Electronic Communications Code and EU Exit) which made amendments to the Communications Act, with effect from December 21, 2020, in order to transpose the EECC into UK law. The main licenses and concessions held by Telefónica in the United Kingdom are listed at the end of this Appendix VI under the title “Main concessions and licenses held by the Telefónica Group”. These licenses are part now of the joint venture with Liberty Global plc (VMED O2 UK Limited) (see Note 2).
Following a market review, mobile termination rates for all mobile providers, including the four national mobile communications operators are subject to controls based on the pure long-run incremental cost approach ("pure LRIC"). In its 2021-2026 price control decisions, Ofcom set a charge control, with the prevailing rate as of April 1, 2022 set at 0.391ppm. However, termination rates for calls originating outside the UK to be no more than the reciprocal termination rate charged by the relevant international telecoms provider Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 194 for a call originating in the UK, or the MCT provider’s domestic rate, whichever is the higher. MTR caps will be updated annually on April 1, based on inflation (CPI measured for 12 months at December 31, each year) plus X, with X specified as +2.1% (2023); +2.4% (2024) and +1.5% (2025).
In the same decision, Ofcom decided to rise by 6.1% to 0.0292 ppm from April 2021. Annual indexation to CPI will apply, but with no “X” adjustment based on the same time period for CPI. VMO2’s current FTR is 0.031ppm from April 1, 2022.
Following an agreement between the Government and industry to provide for a “Shared Rural Network”, the mobile operators, including Telefonica United Kingdom, agreed to amend their 900 and 1800 MHz licences to provide for 88% geographic coverage by 2024 and 90% geographic coverage by 2026. Ofcom is currently consulting on a future award of 26GHz and 40GHz mmwave spectrum. This process is currently scheduled to take place in 2024.
The delivery of telecommunications services in Brazil is subject to regulation under the regulatory framework provided in the General Telecommunications Law enacted in July 1997. The National Agency for Telecommunications (Agência Nacional de Telecomunicações or ANATEL), is the principal regulatory authority for the Brazilian telecommunications sector. On October 4, 2019, Law 13.879/2019 was published, introducing significant changes to the telecommunications framework. Brazilian competition regulation is based on Law No. 12529 of November 30, 2011. The Administrative Council for Economic Defense, or CADE, is the agency in charge of enforcing the competition rules. The antitrust law establishes a pre-merger notification regime for concentration transactions, with turnover thresholds (one participant with gross revenue of 750 million Brazilian reals in Brazil and other participant with gross revenue of 75 million Brazilian reals in Brazil) and maximum time length for merger review procedure (240 days, extendable to 330 days).On October 18, 2016, CADE issued the Resolution No 17, which changed the rules concerning the mandatory notification of the so called ‘associative agreements’. The new regulation tends to reduce notifications of associative agreements that do not raise antitrust concerns.
The main licenses and concessions of spectrum held by Telefónica in Brazil are listed at the end of this Appendix VI. In the state of São Paulo, Telefónica Brasil provides fixed telephony services (STFC) under the so-called public regime, through a concession agreement which is expected to remain in force until December 31, 2025. On October 4, 2019, Law 13.879/2019 (resulting from PLC 79/2016) was published. This Law introduces changes to the telecommunications regulatory framework by allowing fixed-line concessions operators to migrate from a concession regime for limited time (in which the underlying assets reverts to the government at the end of the concession) to an authorization regime. On July 5, 2022, and according to the Law, ANATEL presented a methodology with an estimation of the economic value associated with the migration of the concession regime to authorization, to be validated by the Federal Court of Accounts. After the vote of the rapporteur minister supporting the legality of the methodology presented by ANATEL, it is under analysis by another minister, and should resume to the court's agenda in March. After the final decision by the Federal Court of Accounts about de methodology applied, ANATEL will indicate the final amount for migrating the concession instrument for authorization. This final amount, after confirmation and acceptance by Telefónica, will be converted into investment projects not yet defined by ANATEL. On April 4, 2021, the Ministry of Telecommunications and ANATEL approved the Resolution No. 744, which adopts the Regulation for the Continuity of the Provision of Fixed Commuted Telephony Service for Use by the General Public ("STFC") under the Public Regime - RCON. This Regulation established that at the end of Telefónica Brazil’s STFC concession, the assets belonging to its patrimony (which are used for the provision of multiple services including the STFC under the public regime) will be subject to a contract between the company and the new concessionaire or the Federal Government, to transfer their right of use under fair and reasonable economic conditions. On the other hand, the assets that are indispensable and exclusively used to ensure the continuity of the provision of STFC under the public regime, will have their possession reverted to the Federal Government through compensation and under the terms of the RCON. It should be noted that these assets constitute residual and decreasing assets of the company's assets. In this way, the Concessionaire's assets, at the end of the concession contract on December 31, 2025, will not be susceptible to the reversal of its ownership to the Union. The assignment of the use of shared assets and the possession of exclusive assets of the STFC is now defined by means of specific contracts already provided for in the operational manual of the RCON, approved by Decision No. 269/2021/COUN/SCO. After the adoption of Resolution No. 744, the obligation to submit a list of reversible assets ("RBR") to ANATEL is Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 195 merely informative with the objective of maintaining transparency of the assets used by the Concessionaire in the provision of STFC under the public regime. Nevertheless, it is important to emphasize that in the scope of administrative proceeding TC nº. 003.342/2022-0, in progress at the Federal Court of Accounts, a technical report stated that the RCON should be reviewed, such understanding shall still be submitted to the court’s ruling. In the other Brazilian states, Telefônica Brasil provides local, international and long-distance STFC, personal mobile service (SMP) and broadband multimedia communication services (which include the provision of fixed broadband connection) and pay TV services, all under the private regime. On June 17, 2020, the Decree that regulates Law 13,879/2019 was published. The Decree 10.402/2020 allows the renewal of existing licenses. Previously, only a single license renewal was allowed for the same period. Currently, the successive renewals will be made in a competitive process at market price. The renewal amount can be converted, totally or partially, into investment commitments. Regarding the extension of the 850 MHz band authorizations, if the legal and regulatory requirements are met, ANATEL agreed to extend the current authorizations for the use of radio frequencies in Bands A and B, proposing their approval, on a primary basis, until November 29, 2028. However, specific conditions for renewal, including those related to the economic valuation criteria and obligations, were challenged by the affected service providers (including Telefónica). After ANATEL dismissed the appeals filed by the providers, ANATEL referred the case to the federal court of accounts of Brazil (“TCU”), and in September 2022, TCU decided that the possibility of successive extensions brought by Law 13.879/19 should be considered as an exception, applicable only when certain requirements are met (art. 167 of Law 13.879/19 and article 12 of decree 10.402/20). Telefónica appealed that decision, defending the successive extension of licenses as a rule and not as an exception, in accordance to Law 13.879/19.In addition, on December 8, 2022, ANATEL revoked Telefónica´s 450 MHz spectrum authorization (451 - 458 MHz and 461- 468 MHz) covering the states of Alagoas, Ceará, Minas Gerais, Paraíba, Pernambuco Piauí, Rio Grande do Norte, Sergipe and part of São Paulo. The decision was motivated by the fact that Telefónica could not provide evidence of service activation in the 450 MHz band as a result of the unavailability of 450 MHz devices ecosystem and of the waiver clause contained in the tender notice, interpreted by ANATEL as meaning that the waiver would operate automatically in case of non- activation of the frequency within the contractual term. Previously, on September 2022, ANATEL revoked authorizations held by other providers. In November 2021, ANATEL held the greatest spectrum auction in its history, with 700 MHz, 2.3 GHz, 3.5 GHz and 26 GHz lots. On that occasion, Telefónica acquired 3.5 GHz and 26 GHz national licenses (100 MHz and 600 MHz bandwidths, respectively). The Company also won regional 2.3 GHz licenses, with 50 MHz bandwidth in Southeast Region (except Sao Paulo state and PGO Sector 3) and 40 MHz bandwidth in Sao Paulo state, North and Midwest Regions (except PGO Sectors 22 and 25). These licenses guarantee the necessary spectrum to provide 5G services and are valid for 20 years, renewable under existing legal conditions at the end of this time.
Interconnection among public networks is mandatory in Brazil. Generally, parties can freely negotiate the terms and conditions about technical points, economic discounts and rights/obligations, of the interconnection agreements. Interconnection rates for fixed network operators identified as operators with significant market power (SMP) (Resolution No. 588/2012) are defined by ANATEL; the interconnection rates for the use of mobile operators networks (Resolution No. 438/2006), may be agreed between the parties. However, if the parties fail to reach a consensus, particularly regarding charges to fixed operators (Resolution No. 576/2011), ANATEL imposes the rates to be used. The mobile termination market is based on the model of incremental costs and, pursuant to applicable laws, variations in VU-M must be reflected in VC1 (retail price paid by users for local fixed-mobile calls). Regarding VC2 and VC3 (retail price paid by users for national long distance fixed-mobile calls), variations in VU-M no longer need to impact these values, as is still the case of VC1. In March 2020, ANATEL approved Resolution No. 724, which established the Standard for the implementation and monitoring of tariff freedom in the Fixed Telephone Service (STFC) for use by the general public, in the National Long-Distance mode. Since then, the company has been free to determine domestic long-distance fees according to the market. The Telefónica Group, including VIVO, has been identified as an operator with SMP in the following markets: (i) fixed network infrastructure access for data transmission in copper pairs or coaxial cables at speeds up to 12 MBps in the region of São Paulo; (ii) wholesale fixed network infrastructure to transport local and long distance transmission at speeds up to 34 MBps in the region of São Paulo; (iii) passive ducts and trenches infrastructure throughout Brazil; (iv) call termination on mobile network in Brazil; (v) national roaming market throughout Brazil. ANATEL's Resolution no. 694/2018 in July 2018 changed the PGMC, which, besides others changes, recognized a new relevant wholesale market of high capacity data transport services with speeds higher than 34 Mbps, in which Telefónica is established as SMP throughout Brazil.
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 196
In addition, operators without SMP are no longer entitled to charge fixed termination fees up to 20% higher than the highest fee adopted by fixed operators with SMP in the same region, since the publication of the Resolution no. 694/2018 in July 2018. Further, ANATEL’s Resolution No. 694 of July 17, 2018, changed article 41 of the Appendix II of the General Plan of Competition Goals (PGMC), and established the Bill and Keep between SMP and the non-SMP operators as 50/50%, from February 24, 2018 for the next 4 years, when this might be revised by ANATEL. Accordingly, the VU-M values (in Brazilian reals) for 2022 applicable to Telefónica Brazil are the following: (i) Region I: 0,01422; (ii) Region 2: 0,01550; and (iii) Region 3: 0,02947, nevertheless Telefónica can reach an agreement for higher values.
Currently, only Fixed Switched Telephony Services are subject to universalization obligations. These obligations are established in the General Plan of Universalization Targets (PGMU) and can be reviewed every five years.
In Mexico, the provision of telecommunication services is governed by the Constitution and the Federal Telecommunication and Broadcasting Law (LFTy R), published on July 14, 2014. The Federal Law of Economic Competition published on May 23, 2014, its regulations and the Regulatory Provisions of the Federal Law of Economic Competition for telecommunications and broadcasting published by the Federal Telecommunications Institute on January 12, 2015. The Federal Telecommunications Institute (IFT) is the authority responsible for the regulation, promotion and supervision of the use, development and exploitation of radio spectrum, networks and the provision of broadcasting services and telecommunications, as well as the antitrust authority for broadcasting and telecommunications sectors. Furthermore, on August 26, 2015, a special division on Telecommunications affairs was established by the Consumers Affair Authority to monitor, coordinate, control, substantiate and resolve conciliation, arbitration and infringements, review, modification and grant the use of adhesion contracts in terms of Federal Consumer Act. The IFT, as the Mexican national authority in communications and broadcasting sectors, declared in 2014 the América Móvil Group a preponderant operator in the telecommunications market, imposing specific measures with asymmetric obligations to avoid damaging competition and free market participation. Within these measures are the imposition of a regulated framework interconnection agreement and a set of reference offers for: leasing of dedicated links, access and shared use of passive infrastructure in fixed and mobile networks, MVNOs, roaming and local loop unbundling. In this sense, on November 17, 2016, Telefónica México and América Móvil Group signed an agreement in order for América Móvil to provide the wholesale service of national roaming in the areas where Telefónica México might have an interest. Telefónica Mexico and Telcel engaged in successive extensions of this agreement and on June 1, 2018 entered into Telcel's current Reference Offer as well as and an amendment agreement whereby the Offer, the original agreement and the Pricing and Tariff Annex were replaced entirety, which is in force due to the successive agreements reached to date. On April 16, 2021, the decree that reforms the Federal Telecommunications and Broadcasting Law was published in Diario Oficial de la Federacion creating the National Register of Mobile Telephony Users (PANAUT), which sought to integrate a database with information on the natural person or legal entity who are holders of mobile lines; including biometric data in order to prevent and attack the crime of extortion. On April 26, 2022 the Supreme Court of Justice of the Nation declared the total invalidity of the regulatory system that integrates the decree mentioned in the previous paragraph (and therefore the PANAUT), as a result of several unconstitutional actions filed by both the INAI (National Institute of Transparency, Access to Information and Protection of Personal Data) and a group of senators.
Pegaso PCS, S.A. de C.V. (Pegaso PCS) has multiple concessions and licenses for installation and operation of a Public Telecommunications Network to provide telecommunications services and use spectrum for the provision of mobile wireless service nationwide. Telefónica México accepted the terms and conditions established by the IFT for the renewal of the 1900 MHz licenses nationwide, which expired in 2018. Notwithstanding the foregoing, on November 21, 2019, Pegaso PCS, S.A. de C.V. notified IFT of the waiver of the totality of its spectrum licenses in four different stages. On December 31, 2020 IFT was informed that the concessions for the 850 and 1900 MHz bands for regions 1, 3 and 4 were returned. Similarly, on December 31, 2021, the IFT was notified the same about the 1900 MHz concessions for regions 5, 6 and 9. Finally on June 30, 2022 the IFT was notified of the return of the remaining spectrum in the 850 and 1900 MHz bands for regions 2, 7 and 8.
Tariffs charged to customers are not regulated. They are set by companies and must be registered with the IFT, in order to be enforced.
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 197
On November 17, 2020, the IFT published the mobile termination rates (MTRs) applicable to solve any conflicts regarding MTR during 2021, 2022 and 2023. For 2021 MTRs were set, for the Preponderant Economic Agent (Radiomóvil Dipsa, S.A. de CV- Telcel-) at 0.018489 pesos per minute, while for the non-preponderant ones they were set at 0.073714 pesos per minute. These rates were calculated using was an LRIC cost model used in the past with new criteria and variables. Since 2018, Telefónica has been challenging the interconnection rate resolutions issued by the IFT based on the inoperability of the cost model authorized by the IFT; notwithstanding this, to date the established rates have been applied.At the end of 2022, the SCJN has not yet resolved the lawsuits filed by Telefónica México and other concessionaires during the years 2018 to 2022.
Since the amendments to the Constitution published in June 2013 foreign investment (FDI) up to one hundred percent in telecommunications is allowed.
The General Telecommunications Law No. 18168 of 1982, as amended, establishes the legal framework for the provision of telecommunications services in Chile. The main regulatory authority in Chile is SUBTEL (the Under- Secretary of Telecommunications).
On February 13, 2014, the Regulation on Telecommunications Services was published and came into force on June 14, 2014, regulating a number of new services as Internet, Pay TV, etc.
In May 2014, law No. 20750 allowing the introduction of Digital Terrestrial Television was published in the Official Journal. It set an extensible deadline of five years for the blackout analog. It also set forth that the concessions of free-to-air broadcasting could be nationwide, regional, local and with European coverage.
The principal regulation concerning competition in Chile is Decree No. 211 of 1973, whose current text was established in Law Decree No. 1 of 2005 (Ministerio of Economía, Fomento y Reconstrucción). The Competition Court deals with infringements of competition law.
Law Nº. 20.945 was published on August 30, 2016 increasing the administrative fines up to 30% of the sales relating to the product line or services associated with the infringement during the period in which the alleged infringement took place, or up to the double of the economic profit reached by the infringement.
Other relevant laws that have an impact on the operation are Law No. 20,808, published in the Official Gazette on January 28, 2015, which protects the free choice of users in cable, Internet or telephony services, Law No. 21,046 that establishes the obligation of a guaranteed minimum speed of Internet access, published in the Official Gazette of November 25, 2017 and Law No. 21,245, published in the Official Gazette on July 15, 2020 that establishes the obligation to provide the Automatic National Roaming service in certain areas and Law No. 19.496 concerning consumer data protection.
The main licenses and concessions to use spectrum are shown in the table at the end of this Annex. Additionally, Telefónica Chile has been granted licenses of public local phone services, Voice Over Internet Protocol services, concessions of long distance and concessions to install and exploit the national fiber optic network and mobile satellite.
2.6 GHz and 700 MHz concessions established an obligation for Telefónica Móviles Chile to provide a wholesale service to MVNOs, under a non-discriminatory and complete Reference Offer (including prices). This same obligation extends to the new 5G technology recently deployed in its first phase.
On December 5, 2019, the TDLC notified resolution 59 through which it modified the 60 MHz spectrum cap, establishing percentage caps by macrobands. Against this resolution, claims were filed by some operators and Conadecus, which were partially accepted by the Supreme Court on July 13, 2020, in the sense of: i) maintaining the percentage caps set by the TDLC, with the exception of the low macroband (up to 1 GHz) which went from 32% to 30%, and ii) establishing certain complementary measures to the Mobile Network Operators such as, national mandatory and temporary roaming; or keeping an offer of facilities and resale plans for MVNOs permanently available and updated, among others.
On February 16, 2021, the auction for the 3.5GHz band, initiated in 2020, was completed and Telefónica Móviles Chile has been awarded 50MHz.
On October 2, 2021, the decree granting the concession to Telefónica Móviles Chile in the 3.35-3.40 GHz band was published in the Chilean Official Gazette. From that date, the terms conferred started as follows: (i) 30-year period of the concession and (ii) implementation of the terms for the start of service of the 5G project (12 months for stage 1 and 24 months for stage 2). Telefónica Móviles Chile completed the deployment of all base stations corresponding to phase 1 of the 5G project.
Public telecommunication services prices and prices for intermediate telecommunication services are freely established by operators, unless there is an express resolution by Chile's Competition Court on existing conditions in the market confirming that there is not enough competition. Additionally, maximum prices for interconnection services (access charges for network use, mainly) are subject to tariff regulation for all operators, being set by stipulated procedures.
Consolidated Financial Statements 2022 l Appendix Consolidated Annual Report 2022 Telefónica, S. A. 198
The Ministries set maximum tariffs under efficient operator model basis. Maximum interconnection tariffs for telephony services are set every five years jointly by the Ministry of Transport and Telecommunications and the Ministry of Economy.
Interconnection is obligatory for all license holders with the same type of public telecommunications services and between telephony public services and intermediate services that provide international long distance services. Every five years, SUBTEL sets the applicable tariffs for services provided through the interconnected networks.
On May 9, 2019, a new Tariff Decree regarding fixed termination rate was adopted for the 2019-2024 period. The new tariff decree for the period 2019-2024, entered into force retroactively in May 2019 and represents a 65% drop from the previous value to reach a value of 1.3 CLP per minute during normal business hours.
Regarding mobile termination rates, in 2019 a new decree was issued, which will be applicable for the next 5 years, The average tariff which will apply until 2024 was 1.8 CLP per minute (0.0024 euros, without VAT, based on the exchange rate as of February 6, 2019, to be charged on a per second basis). The validity of the new tariff decree starts on January 26, 2019.
In January 2024, the current decree on interconnection tariffs for mobile services will expire, while in May of the same year the current decree on interconnection tariffs for fixed services will expire.
The basic legal framework for the provision of telecommunications services in Argentina is set forth in the Law “Argentina Digital” No. 27078 issued on January 7, 2015. This legal framework declared of public interest the development and regulation of information technology, communications and its associated resources (ICT's). Thus, this law became the specific regulatory regime for the free market, including rules on interconnection, universal service and radio spectrum, and setting out the principles of network neutrality and giving to the technological, informational and communicational companies the possibility of providing broadcasting services (except satellite infrastructure), and setting a single license system.
Additionally, the Government approved the Decree No. 267/2015, published in the Official Gazette on January 4, 2016, which amended the Argentina Digital Act creating the National Communication Agency (ENACOM), which is the continuation of the Federal Authority for ICTs (Autoridad Federal de Tecnologías de la Información y las Comunicaciones).
By the Decree of Need and Urgency No. 690/2020, it was resolved to amend Law 27078, establishing that Information and Communication Technology Services and Access to telecommunications networks for and among licensees are essential and strategic public services. At the same time, it determined that the prices of ICT essential and strategic public services will be regulated by the authority. Finally, it incorporated mobile communication services as public services.
In connection with DNU 690/2020, Telefónica de Argentina, S.A. and Telefónica Móviles Argentina, S.A. (collectively, “Telefónica”) were forced to file a lawsuit against the Argentine State, in connection with a series of contracts for licenses to provide services and spectrum use authorizations entered into between Telefónica and the Argentine State, including the licenses resulting from the 2014 spectrum auction. Such contracts and their regulatory framework provided that the services provided by Telefónica were private and prices would be freely set by Telefónica.
The lawsuit filed was dismissed in September 2021 and Telefónica appealed this decision. On December 17, 2021, the first instance ruling was overturned and the scope of articles 1, 2, 3, 5 and 6 of DNU 690/2020 and the resolutions of the National Telecommunications Agency that sought to control tariffs (Resolutions 1666/2020 and 204/2021) and provide for a Mandatory Universal Basic Provision (Resolution 1467/2020) were suspended for six months or until a final ruling is issued. During this period, Telefónica will not be subject to the provisions considered in the DNU 690/2020 in relation to price and public service regulations.
On June 10, 2022, the Federal Contentious Administrative Court No. 5 extended by six months the precautionary suspension of the effects of the DNU 690/2020 in favor of Telefónica.
On December 27, 2022, the Federal Contentious Administrative Court No. 5 extended for an additional six months the precautionary suspension of the effects of the DNU 690/2020 in favor of Telefónica.
Furthermore, “Law on Defense of Competition” No. 27442 prohibits any acts or behaviors contrary to such law and establishes an authority of competition that is pending to be constituted. In the meantime, the Secretary of Commerce continues to act, assisted by the National Commission for the Defense of Competition created by Law No. 22262.# Licenses
The main licenses and concessions to use spectrum are shown in the table at the end of this Annex. Additionally, Telefónica de Argentina has licenses for an indefinite period of time for the provision of communications services; local telephone services; long-distance national and international, telex, international communication and data transfer services; national and international value-added services, and other telecommunication services provided by the different license agreements entered into with the National State, and administrative acts entered into with the National State.
By means of Law 27.497 (BO 10/01/2019) the Economic Complementation Agreement No.35 between the States part of Mercosur and the Republic of Chile was approved, which includes the Commercial Agreement between the Republic of Chile and the Republic of Argentina by which these countries are obligated to implement the international roaming services in the territory of the other party with the same tariffs or prices they charge for the mobile services in their own country. Finally, by means of Resolution ENACOM 927/2020, the International Roaming Regime between the Republic of Argentina and the Republic of Chile was approved, establishing as from August 29, 2020, the price for international roaming service between the two countries as a local service.
Since the amendment of the Argentine Digital Act by Decree of Need and Urgency No. 690/2020, the licensees may set the prices, which must be fair and reasonable, must cover exploitation costs and aim to an efficient provision and a reasonable operation margin. The authority may regulate the prices for reason of public interest. On December 21, 2020, the BO published the ENACOM Resolution No. 1467/2020, which regulates the Mandatory Universal Basic Provision (PBU) for fixed and mobile telephone services, internet services and radio broadcasting by subscription through physical or radio links. Both the PBU benefits and the prices are established by the control authority. Only a certain group of persons who are covered by the cases set by the regulation (social plans beneficiaries, unemployed, etc.) may have access to the PBU.
The National Entity of Communications (ENACOM) has the power to control interconnection prices and tariffs, and also to set them in order to the general costs or other compensation mechanism. The Ministry of Modernization issued resolution 286/2018 establishing a new interconnection regulation. Based on this, ENACOM set a local origination or termination rate in the Fixed Telephony Service's networks equivalent to 0.0045 dollars per minute, for the local transit service an interim rate equivalent 0.0010 dollars per minute and for the service of long distance transport an interim rate equivalent to 0.0027 dollars per minute. A rate of 0.0108 dollars per minute applies to local origination or termination services in mobile networks. For all cases, the second was set as the appraisal unit of measurement.
In Colombia there are different agencies responsible for decision-making in the Information Technology and Communications sector (ICT), among them are the Ministry of Information and Communication Technologies (MinTIC), the Communications Regulation Commission (CRC), the National Spectrum Agency (ANE), the Superintendence of Industry and Commerce (SIC). Through Law 1341 of July 30, 2009, principles and concepts applicable to Information societies and the Organization of Information and Communications Technologies -ICT- are defined, the National Spectrum Agency is created and other provisions are issued and establishes the general framework for the formulation of public policies in the Information Technology and Communications sector. This Law was amended by Law 1978 of 2019, ICT sector is modernized, the competences are distributed and a single regulator is created, with the purpose of encouraging investment in the sector and focus on connectivity, creating more and better services, as well as unifying the regulatory framework and strengthening public television and radio. Likewise, article 10 of Law 1341 of 2009 establishes the general rating regime for the provision of telecommunications networks and services, this rating is understood to be formally assorted, when the interested party is registered in the ICT register, provided by Article 15 of the abovementioned Law, in the same way. With the reform of this Law carried out with the Law 1978 of 2019, the subscription television service is included as provision of telecommunications networks and services and by virtue of the provisions of the transition regime established by such last mentioned regulation, the operators that to date of its publication, had concession contracts for the provision of television can qualify for general authorization and provide services in an environment of technological neutrality. In addition, telecommunication services continue to be public services in charge of the State, and Internet access has been declared an essential public service by Law 2108 of 2021. Also, in accordance with the provisions of Article 11 of the Law 1341 of 2009, the use of the spectrum requires prior, express and granted permission by the MinTIC. As of 2019, with the amendment of Article 8 of the Law 1978, the validity of the use permit is extended of spectrum and its renewal from 10 to 20 years. The regulation provides that the granting or renewal of the permit to use a segment of the radio spectrum will result in payment, in favor of the Information and Communications Technology Fund and in charge of the permit holder. With the amendment of 2019, this consideration may be partially paid, up to 60% of the total amount, through the execution of obligations to do, to expand the quality, capacity and coverage of the service, which benefits the poor and vulnerable population, or in remote areas, in public schools located in rural areas and other official institutions such as health centers and public libraries, as well as providing emergency networks.
On the other hand, the Colombian competition law is included in Law No. 155/1959, Decree No. 2153/1992 and Law No. 1340/2009 on restrictive trade practices.
The main concessions and licenses for spectrum use are reflected in the table, at the end of the Annex. Telefonica applied in 2021 for the renewal of the permit for 15 MHz of spectrum in the 1900 MHz band, which was valid until October 18, 2021. For the renewal, on October 19, 2021 the MinTIC issued the resolution 2803 setting the price of renewal for 20 years. Telefónica appealed this resolution and the Ministry resolved, through Resolution 2143 of 2022, to decrease the renewal cost and eliminate the technological update obligations considered in the resolution of October 2021. Telefónica filed a request for direct revocation of the Resolution 2143, which was denied through Resolution 4454 of 2022. In Colombia, a Spectrum Auction Action Plan was published in December 2022 which announced that the conditions for the renewal of spectrum permits to expire in 2023 and 2024 will be defined and actions will be taken to carry out auctions of the remaining spectrum in the 700 MHz, 1900 MHz and 2500 MHz bands, and the 3.5 GHz and 26 GHz 5G bands, indicating that the assignment process would be carried out in the third quarter of 2023. In development of this, Min Tic published a resolution inviting parties to express interest in participating in the Auction Process for the granting of permits for the use of radio spectrum in the three aforementioned bands and adding to the process the 3.5GHz and 26GHz bands with the following amounts of spectrum available: 10MHz of 700 MHz and 1900MHz, 30 MHz in the 2500MHz band, 400 MHz in the 3500MHz band and 2.8 GHz in the 26 GHz band. An important change is that the ICT Ministry in 2022 modified the maximum spectrum caps for Telecommunications Networks and Services provider for use in terrestrial mobile services (IMT). The caps were set at 50 MHz for the low bands (below 1 GHz), 100 MHz for the medium bands (between 1 GHz and below 3GHz) and 100 MHz for the high medium bands (between 3 GHz and 6 GHz). In the expression of interest Telefónica stressed, among other points, the importance of an adequate spectrum pricing policy, transparency in valuation methodologies, an adequate framework to correct the problems of dominance in the mobile market and the elimination of barriers. Finally, although Telefónica is in favor of increasing the spectrum caps, has requested additional measures to avoid resource monopolization by the dominant operator.
Mobile and fixed operators in Colombia have the right to interconnect to other operators’ networks. Before the intervention of regulatory authorities, operators must attempt direct negotiations. Interconnection must assure compliance with the objectives of non-discriminatory treatment, transparency, prices based on costs plus a reasonable profit and promotion of competition.In February 2022 the CRC published Resolution 6522 of 2022 whereby some provisions related to the access, use and interconnection of telecommunications networks are modified, modifying the signaling conditions by introducing the mandatory use of the SIP protocol in at least one node of the network; access conditions on the part of content and application providers (PCA) or Technology Integrators for the provision of content, some articles were modified regarding user protection with regards to sending SMS and USSD for commercial and advertising purposes, and establishing new obligations for assignees of short codes, the content of the Basic Interconnection Offer (OBI) was also changed with regards to the guarantees, establishing the option of prepayment and the obligation to update them. In December 2022 the CRC issued Resolution 7007 which modifies the remuneration conditions for mobile services as of January 2023. The charges for termination in mobile networks, termination of text messages, and the remuneration of National Automatic Roaming and OMVs are reduced. Bill and Keep will apply on remuneration of termination in mobile networks and SMS from May 1, 2025; it does not apply to the use of mobile networks by technology integrators, PCAs and international long distance providers. Prices and tariffs The Technologies of Information and Communications Law provides for a free pricing system for communication services, unless there are market failures or quality problems. From 2016 retail tariffs for fix to mobile calls are no longer regulated except for TIGO (one of the commercial names under which Colombia Movil operates) which still holds concession for the provision of personal communication services (PCS's).
The provision of telecommunications services in Peru is governed by the Telecommunications Law, its General Regulation and related regulations. In July 2012, the Peruvian Congress approved the Law of Promotion of the Broad Band and Construction of the National Fiber Optic Backbone, Law No. 29904. This Law declared both (i) the construction of a National Fiber Optic Backbone available to the government to make possible the connectivity by the broad band; and (ii) the access and use of the infrastructure associated with the public services of energy and hydrocarbon to facilitate the display of the telecommunication network for the provision of the broad band of public necessity. In addition, Law No. 29904 implied that operators of electric, transport and hydrocarbon infrastructure projects would have to install fiber optic that would be available to the government and given in concession to telecommunication operators. Also, this law established that a percentage of the capacity of the National Fiber Optic Backbone would be reserved to the government to satisfy its necessities. Additionally, this Law incorporated the obligation of the Internet services providers to comply with the Net Neutrality regulations. In this sense, the NRA, the Organismo Supervisor de las Telecomunicaciones (OSIPTEL), adopted regulations aimed at providing clear guidelines on the implementation of the net neutrality regime adopted in Peru in 2012 that are in force since January 1, 2017. Law No. 30083 was approved in September 2013, which seeks to strengthen competition in the public mobile market service by introducing MVNOs and mobile rural infrastructure operators (MRIO). Regulations developing the Act were published in August 2015. The general competition framework in Peru is based on the Legislative Decree No. 1034. This Law it is applied, in the telecommunication sector, by OSIPTEL. In November 2019, the government approved the Prior Control of Business Concentration Operations, applicable for those mergers, acquisitions, constitution of joint ventures or the acquisition of productive assets of economic agents that produce effects that restrict competition in the National territory. This regulation shall enter into force in March 2021.
The main licenses and concessions to use spectrum are shown in the table at the end of this Annex. Telefónica del Perú S.A.A faces seven concession renewal processes which correspond to requests made between 2014 and 2020, all of them are pending of decisions on the part of the Ministry of Transportation and Communications (“MTC”). These concessions, according with Peruvian legislation, remain valid while the proceedings are still ongoing. One of these renewal processes corresponds to the fourth gradual renewal of the concessions for the provision of fixed telephony services, which must be reevaluated as Telefónica del Perú S.A.A won the arbitration process against the MTC´s decision to deny this renewal. The cable distribution broadcasting service concessions were renewed in May 2016 until March 2032 and 2033, respectively. On November 2020, the Ministry of Transportation and Communications granted Pangeaco, S.A.C. concession for the provision of telecommunications public services for a 20-year term, renewable. This Group company was created in March 2020 in order to provide all kind of telecommunications services, as well as to acquire, have and exploit telecommunications infrastructure. The company signed on January 15, 2021 the respective concession contract. Regarding to the auction on the 1,750 - 1,780 MHz, 2,150 - 2,180 MHz, and 2,300 - 2,330 MHz bands, Telefónica del Perú S.A.A. was preselected for the 2022 auction, which was suspended. The process was restarted at the beginning of January 2023, and it is expected that the spectrum will be awarded by the end of the first half of 2023. With regards to 5G, and the spectrum auction for the 3.5 GHz and 26 GHz band, no decision has been taken as of yet.
OSIPTEL reviews the markets identified as priority (fixed Internet, mobile, pay TV and circuits) every 3 years in order to determine the existence of major suppliers (companies with market power) in such markets and to impose obligations such as infrastructure sharing and services resale. On June 17, 2021, OSIPTEL resolved to declare Telefónica del Perú S.A.A. and its Economic Group in the country as an important provider in the wholesale Pay TV market in 10 regional markets. Telefónica del Perú S.A.A. won an appeal for reconsideration against this decision, eliminating the obligation of sharing/reselling content.
Tariffs for fixed local telephony and long distance services are adjusted every three months considering services baskets, pursuant to a price cap formulae from inflation and a productivity and must be approved by OSIPTEL in accordance with a price cap formula based on a productivity factor. Rates charged by mobile providers to their customers have been subject to a free tariff regime supervised by OSIPTEL. Tariffs must be reported to OSIPTEL prior to implementation. On 2011, OSIPTEL approved a new price cap system by which the operators of fixed services determine the rates of the local fixed- mobile calls. Such rate is adjusted every time there is an adjustment mobile interconnection rate. On June 17, 2022, OSIPTEL adjusted the rate applicable to local calls made from Telefónica del Perú S.A.A.’s fixed telephones to mobile networks in PEN 0.0006 per second without IGV. Said rate entered into force on June 19, 2022. In the 2022 adjustment, the level of the ceiling rate was maintained.
On May 3, 2022, OSIPTEL published the amendment of the MTR, at 0.00129 U.S. dollars per minute rated at the second, which is applicable as of May 4, 2022 and applies to all mobile service operators.
The following tables list the concessions and licenses as at December 31, 2022 to use spectrum for mobile services and selected other applications in each country.
| Frequency Bandwidth (MHz) | Year of Exp. | Date |
|---|---|---|
| Spain | ||
| 700 MHz | 20 | 2041 (1) |
| 800 MHz | 20 | 2031 |
| 900 MHz | 29.6 | 2030 |
| 1800 MHz | 40 | 2030 |
| 1900 MHz (TDD) | 5 | 2030 (2) |
| 2100 MHz | 29.6 | 2030 (2) |
| 2600 MHz | 40 | 2030 |
| 2600 MHz | 20 (3) | 2030 |
| 2600 MHz (TDD) | 10 (4) | 2030 |
| 3.5 GHz (TDD) | 40 | 2030 (2) |
| 3.5 GHz (TDD) | 10 | 2038 |
| 3.5 GHz (TDD) | 50 | 2038 |
| United Kingdom (5) | ||
| 700 MHz | 20 | Indefinite |
| 800 MHz | 20 | Indefinite |
| 900 MHz | 34.8 | Indefinite |
| 1800 MHz | 11.6 | Indefinite |
| 1900 MHz (TDD) | 5 | Indefinite |
| 2100 MHz | 20 | Indefinite |
| 2300 MHz (TDD) | 40 | Indefinite |
| 2600 MHz (TDD) | 25 | Indefinite |
| 3.5 GHz (TDD) | 40 | Indefinite |
| 3.5 GHz (TDD) | 40 | Indefinite |
| Germany | ||
| 700 MHz | 20 | 2033 |
| 800 MHz | 20 | 2025 |
| 900 MHz | 20 | 2033 |
| 1800 MHz | 20 | 2033 |
| 1800 MHz | 20 | 2025 |
| 2100 MHz (TDD) | 5 | 2025 |
| 2100 MHz (TDD) | 14.2 | 2025 |
| 2100 MHz | 10 | 2040 |
| 2100 MHz | 30 | 2025 |
| 2600 MHz | 60 | 2025 |
| 2600 MHz (TDD) | 20 | 2025 |
| 3.5 GHz (TDD) | 70 | 2040 |
(1) Initial term until 1 December 1, 2041, can be extended for 20 additional years.
(2) Initial term until 2020, extended concession until April 18, 2030.
(3) Regional licenses in Madrid and Melilla.
(4) National license excluding 2 regions (Madrid and Melilla).
(5) These licenses are part of the joint venture with Liberty Global plc (VMED O2 UK Limited).
| Frequency Bandwidth (MHz) | Year of Exp. | Date |
|---|---|---|
| 700 MHz | 20 | 2029 |
| 850 MHz | 25 (3) | 2028 (4) |
| 900 MHz | 5-10 (5) | 2023-2035 (6) |
| 1800 MHz | 30-65 (7) | 2023-2035 (6) |
| 2100 MHz | 30-60 (10) | 2023 |
| 2300 MHz (TDD) | 40-50 (11) | 2041 |
| 2500 MHz | 40-60 (8) | 2027-2031 (9) |
| 3.5 GHz (TDD) | 100 | 2041 |
| 26 GHz | 600 | 2041 |
(1) Expiration date accounts for initial term of 15 years for 450, 700, 2100 and 2500 MHz bands, another 15 years extension are contemplated in these licenses. In 2300 MHz, 3.5 and 26 GHz the initial term is 20 years, with additional 20 years extension.
(2) Regional codes are included in Annex 1.# HISPANOAMÉRICA
| Frequency Bandwidth (MHz) | Year of Exp. Date |
|---|---|
| Argentina | |
| 700 MHz | 20 |
| 850 MHz (AMBA) | 30 |
| 850 MHz (Sur) | 25 |
| 1900 MHz (AMBA) | 20 |
| 1900 MHz (Norte) | 50 |
| 1900 MHz (Sur) | 25 |
| 1700 MHz/2100 MHz | 20 |
| 2600 MHz | 30 |
| 3.5 GHz | 50 |
| Chile | |
| 700 MHz | 20 |
| 850 MHz | 25 |
| 1900 MHz | 20 |
| 2600 MHz | 40 |
| 2600 MHz (TDD) | 12 |
| 3.5 GHz (TDD) | 50 |
| Colombia | |
| 850 MHz | 25 |
| 1700 MHz/2100 MHz | 30 |
| 1900 MHz | 15 |
| 1900 MHz | 15 |
| Ecuador | |
| 850 MHz | 25 |
| 1900 MHz | 60 |
| Peru | |
| 450 MHz | 10 |
| 700 MHz | 30 |
| 850 MHz | 25 |
| 900 MHz (Lima and Callao) | 10 |
| 900 MHz (Rest of provinces) | 16 |
| 1700 MHz/2100 MHz | 40 |
| 1900 MHz (Lima and Callao) | 25 |
| 1900 MHz (Rest of provinces) | 25 |
| 3.5 GHz | 50 |
| Uruguay | |
| 700 MHz | 30 |
| 850 MHz | 25 |
| 1900 MHz | 20 |
| 1900 MHz | 40 |
| 2600 MHz | 40 |
| Venezuela | |
| 850 MHz | 25 |
| 1900 MHz | 50 |
| 1700 MHz/2100 MHz | 20 |
| 2600 MHz | 40 |
| 3.5 GHz | 50 |
(1) Covering 65% of the population.
(2) Fixed Wireless Access licenses 25+25 MHz in 23 localities with indefinite term (Res. SC 10160/1999, including AMBA region).
(3) 10MHz sold in 2021 as a result of the ‘Subtel’ (Chilean National Regulator) proposal to comply with the High Court resolution (June 2018) that mandates operators to return certain amount of spectrum they acquired in the 700MHz auction in 2014.
(4) Only in Metropolitan Region.
(5) Renewed for 20 years.
(6) Provinces of Lima and Callao: expiration date of March 2030; rest of provinces in December 2030.
(7) In process of renewal. Extension requested on May 30, 2016. According to the regulation, the license maintains its validity until the Ministry of Transport and Communications decides over the request presented
(8) 10 MHz expires in 2024; 10 MHz has been renewed for 25 years until in 2047.
(9) Renewed for 5 years.
(10) Available for Fixed Wireless Access licenses.
Telefónica seeks to use its spectrum in the most efficient way, implementing 5G and LTE-Advanced where possible. Besides the spectrum assets included in the above tables, Telefónica owns other assets of spectrum used for other services in higher frequency ranges (above 6 GHz), including access transport.
| Acronym | State |
|---|---|
| AC | Acre |
| AL | Alagoas |
| AP | Amapá |
| AM | Amazonas |
| BA | Bahia |
| CE | Ceará |
| DF | Distrito Federal |
| ES | Espírito Santo |
| GO | Goiás |
| MA | Maranhão |
| MT | Mato Grosso |
| MS | Mato Grosso do Sul |
| MG | Minas Gerais |
| PA | Pará |
| PB | Paraíba |
| PR | Paraná |
| PE | Pernambuco |
| PI | Piauí |
| RJ | Rio de Janeiro |
| RN | Rio Grande do Norte |
| RS | Rio Grande do Sul |
| RO | Rondônia |
| RR | Roraima |
| SC | Santa Catarina |
| SP | São Paulo |
| SE | Sergipe |
| TO | Tocantins |
| Regions | States & towns included in the regions |
|---|---|
| 1 | SP (City) |
| 2 | SP (Interior) |
| 2' | SP - towns of sector 33 of the GPLG |
| 3 | RJ and ES |
| 4 | MG |
| 4' | MG - towns of sector 3 of the GPLG |
| 5 | PR and SC |
| 5' | PR - towns of sector 20 of the GPLG |
| 6 | RS |
| 6' | RS - towns of sector 30 of the GPLG |
| 7 | AC, DF, GO, MS, MT, RO and TO |
| 7' | GO - towns of sector 25 of the GPLG |
| 7'' | MS - towns of sector 22 of the GPLG |
| 8 | AM, AP, MA, PA and RR |
| 9 | BA and SE |
| 10 | AL, CE, PB, PE, PI and RN |
GPLG - general plan of the licenses granted (geographic areas that correspond to the sectors)
| Sectors | Description # Consolidated management report 2022
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In an increasingly connected world, there is an urgent need to find a more sustainable economic model. In 2022, Telefónica contributed to these transitions by being:
More green: we continued to roll out fibre and 5G to offer digital solutions that help other companies decarbonise (54% of Telefónica's services have been verified as Eco Smart due to their environmental benefits) and we implemented the Eco Rating label across all of our operations to promote conscious consumption. This occurred in a year in which we were the first telco to have its net zero carbon emissions targets validated by the Science Based Targets initiative (SBTi) according to the new Net-Zero Standard. Since 2015, we have decreased our energy consumption by 87% per unit of traffic and now use 100% renewable electricity in Europe, Brazil, Chile and Peru. This has enabled us to reduce our emissions by 80% in seven years.
More inclusive: Telefónica has continued to promote social progress by connecting more and more people. This is why the World Benchmarking Alliance ranked us as leaders in digital inclusion in its latest analysis. We generated close to €46 billion in Gross Domestic Product (GDP) in our major markets and created almost 10 jobs for every new hire in 2022. Over the last years, we have demonstrated an annual positive impact of at least €95 billion against the SDGs.
More committed: we have an increasingly motivated team to thank for our progress: our Employee Net Promoter Score reached 69 points, two higher than in 2021. This result was due to aspects such as well-being, learning and diversity, among which our hybrid working model offering more work-life balance opportunities, our reskilling plans and our new target to double the number of employees with disabilities are particularly noteworthy examples. Our customers also saw the value of our services and support: according to the Net Promoter Score (NPS), their satisfaction level improved by 4 points compared to the previous year (a total score of 30, rising to 58 among our business customers).
People-centric digitalisation helps us to progress while respecting the limits of our planet
More exemplary: we recognise the importance of following good governance best practices and embedding ethics and privacy throughout our value chain. We were therefore proud to be placed first in the sector in Ranking Digital Rights) for the third year in the row.
Looking ahead, we will continue to increase our positive impact, which has now become more decisive than ever. Our ESG targets include achieving zero net emissions and zero waste, increasing rural connectivity and digital skills training, enhancing diversity and strengthening sustainability in our supply chain. For this purpose, we will harness our opportunities for sustainable financing – a strength area for us, as by the end of 2022 we were the leading telco in terms of the volume of bond and hybrid instrument issuances.
In short, Telefónica is poised to play a leading role in the new era. Connectivity and digitalisation are the cornerstones of the present and the future. Cooperation, values and innovation are the essential elements to enable us all, side by side, to build an era of peace and progress.
José María Álvarez-Pallete
Chairman of Telefónica
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Chaiman´s letter
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1.1. Context
1.2. Mission
1.3. Business Model
1.4. Materiality
1.5. Strategy
1.6. Organisation
1.7. Sustainable finance
1.8. European taxonomy for sustainable activities
1.9. Main indicators and footprint
1.10. Business overview
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1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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GRI 3-3
The world continues to face serious challenges. By the end of 2022, after the end of the COVID-19 crisis in most countries, geopolitical tensions and the macro situation signalled a change in the economic cycle, marked by supply constraints, energy shortages and a return to high levels of inflation. This said, behind the difficulties also lie new opportunities. Understanding the context is key:
Against this backdrop, governments and other regulators continue to put increased pressure on the corporate world. Over the last year, this regulatory pressure resulted in the following standards or draft standards:
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2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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Despite the uncertainty, there is still room for growth and it is up to market leaders like Telefónica to innovate, seize this opportunity and be more sustainable over the long term. Technology is not the only answer to the challenges of the future, but it must form an important part of solutions in a highly connected and digitalised world.
The world faces a number of major long term challenges. Global agreements, incorporating all stakeholders are vital to tackle these challenges. Companies playing their part, must coordinate their efforts with the rest of society in order to move forward.# Consolidated management report 2022
The ongoing crisis has brought the need for concrete plans for energy transition back to the forefront. The development of generation, storage and distribution infrastructures that reduce dependence on fossil fuels is a priority. It is important to provide the necessary resources to invest in this field on a continuous basis despite short-term pressures.
As geopolitical tensions grow, the gap widens between nations competing for access to resources necessary for economic growth, including basic goods such as water, agriculture, livestock and essential industries. Energy transition targets must take into account the right to development of these countries, enabling sustainable development through support for decarbonisation.
The transition to a greener economy goes hand in hand with a digital transformation of activities (twin transition). This requires the coordination of public and private policies, together with sufficient investment in new technologies for an increasingly digital economy. The digitalisation of infrastructure leads to better use of scarce resources. Investment in the basic infrastructure of the future requires new connected solutions, based on technologies such as the Internet of Things (IoT), big data, artificial intelligence (AI), etc.
Innovation is starting to be implemented in fields such as infrastructure management, agriculture, electricity, water, waste management, smart cities, etc. and is expected to grow strongly in the future. Technology is also at the core of the new infrastructure for sustainable energy generation. The opportunity for companies will come from the commitment to non-fossil fuel energy sources, which seek to guarantee supply and quality in the long term. This will generate cost savings and will mean that companies that transition their production models will be less vulnerable to price fluctuations and will be exposed to less regulatory risks (potential fines, limitations on activity, risk of supply rationing, etcetera.).
In the wake of the recent healthcare crisis, and given the new economic conditions, most companies have also accelerated their digital transformation. The digitalisation of company processes leads to increased productivity and better use of resources. The availability of 100% digital processes will speed up the move towards a circular economy.
Successive economic crises exacerbate economic and social inequality, leading to tensions both between countries and within individual societies. The UN Sustainable Development Goals (SDGs) aim to reduce inequalities and ensure that no one is left behind, as “we cannot achieve sustainable development and make the planet a better world for all if there are people who are deprived of opportunities, services and the possibility of a better life”.
Promoting equity amongst countries, the impact of interlinked crises (pandemic and geopolitical tensions) increases disparities in terms of access to basic supplies. The risk of humanitarian crises (famine and refugees) increases under the current macro economic conditions. The world economic order must take into account the needs of a very considerable part of the world's population in developing countries. After the birth of the world's eight billionth inhabitant, population pressure continues to rise. Accommodating the circumstances of two groups of countries with opposing problems is required in order to find solutions. In the first instance, the challenge is the gradual ageing of the population and the need to provide resources, mainly in health and care. In the second instance, it involves improving basic living conditions for populations that continue to grow. The need to address migratory flows is present between the two.
Promoting equity within individual societies, the inequality gap between different socio-economic groups continues unabated. The crisis has exacerbated economic disparities and threatens to put significant parts of the population at risk, even in the most developed societies. Similarly, in order to have a fairer society, we must encourage everybody to participate. Economic activity must harness all available talent through active inclusion policies. Access to employment, non-discrimination and a balance between personal and family life must be part of a new social pact.
Digital skills and access to networks are becoming essential in an increasingly technological society. Education and lifelong learning for workers are key tools to ensure social inclusion, reduce inequalities and enhance countries' competitiveness. Bridging the digital divide also requires the entire population to have access to communications networks. Telecommunications companies are instrumental in the deployment of the next generation infrastructures that make the new economy possible. The challenge lies in extending the coverage of these networks to include traditionally excluded populations (rural, remote and sparsely populated areas). First and foremost, digital inclusion requires access to basic education in digital skills for the population. Digital literacy enables equal access to the most in-demand professions for the future and improves people's chances of development.
The telecommunications sector is crucial for societies as it enables access to quality digital infrastructure and services and bridges the digital divide. This is demonstrated by the constantly growing demand for data. Fixed infrastructure continues to evolve towards fibre-to-the-home (FTTH), with higher speeds and better performance than copper. Telefónica has led this transition among European and Latin American operators, opting for direct investments or for vehicles with other partners. Fibre also allows the substantial reduction of energy consumption and hence the carbon footprint of our operations and customers.
In mobile connectivity, the transition to the next generation (5G) is gathering pace. 5G enables new business models based on a superior quality of service, in addition to providing higher performance in terms of speed and latency. Accelerating 5G Stand Alone (SA) deployments, based on native core networks, will enable new customer use cases, initially in the industrial field.
Among the emerging technologies, the main players in the ICT sector are committed to the shift from the current internet model towards Web3. Communications are an essential part of this new ecosystem. Telecommunications operators develop the infrastructure that provides the technical capabilities for the metaverse, with an excellent end-user experience that requires superior connectivity.
Alongside the rollout of 5G, telecommunications operators continue to modernise their computing capabilities and systems. The deployment, management and operation of next generation networks are more and more often carried out from a software platform. This allows operators to extend their capabilities to third parties via APIs. In this area, telecommunications companies can implement new business models to monetise their networks not only with end-customers, but also by offering network capabilities to external developers. Telefónica is leading the rest of the industry in developing these models, starting with the standardisation of platforms.
The telecommunications sector remains deflationary despite the growing importance of connectivity and cost pressures. In view of the strong investment needs required to achieve the connectivity targets, it is necessary to review the regulatory framework in order to adapt it to the sector's new circumstances.
In terms of competitive dynamics, the main markets have a high number of players, especially in Europe, with a strong impact on returns on investment. The current regulatory and competition model, originating from the era of the old monopolies and being price-driven, is not sustainable in the long term or compatible with infrastructure investment. The criteria for authorising mergers should be reviewed, where appropriate, without said criteria imposing conditions that are harmful to the sector. At the same time, the debate on the contribution of the largest traffic generators to network investment remains on the table. We believe that it would be beneficial for all parties if those over-the-top companies (streamers, hyperscalers, etc.), which account for a disproportionate share of traffic growth, were to contribute to deployments on a fair share basis.
GRI 2-22
“To make our world more human by connecting lives”.
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We want to be a company that is trusted by customers, employees, suppliers, shareholders and society in general. Our mission has two key elements:
* Making the world more human: corporate ethics are at the heart of everything we do, always placing technology at the service of people and protecting the planet through digitalisation. We take into account our various stakeholders' expectations and needs in order to build relationships of trust.
* Connecting people's lives: this means that we aim to digitalise society as a whole, leaving no one behind, and reduce the digital divide in terms of access, affordability, accessibility and training in digital skills. It also drives us to innovate so that we can offer products and services that add value and contribute to improving people's lives and leads us to leverage digital solutions to decarbonise the economy.
The pandemic crisis made our mission even more important: never before has being connected made such a big difference; it has changed the way we study, work, interact and do business. This new way of doing things, which is more online and digital, also offers environmental benefits. The most obvious example is how remote working reduces employee commuting, which leads to lower fuel consumption and office air conditioning, meaning lower CO2 emissions. The telecommunications sector is a pillar of our society and in the coming years the sector will continue to play a key role in an economic and social recovery and in building a greener and fairer economy for all.
Our corporate purpose combines naturally with the United Nations 2030 Agenda, which explicitly highlights the key role of technology, innovation and communications in addressing the great challenges facing humanity. For further information, see chapter 2.14. Contribution and impact on communities.
Deploying infrastructure is essential, but it is not sufficient on its own. Based on this infrastructure, we need to develop services that add value and allow us to get the full socio-economic benefit of technology. There is also a need to increase the digital skills of society and businesses. Telefónica is committed to making this happen. We want to be recognised as a key player in the sustainable development of society, as an enabler to help tackle emerging socio-economic and environmental challenges.
To make our mission a reality, we must have clear principles that consistently guide our decisions and actions inside and outside the Company. For further information, see chapter 2.16. Governance and a culture of sustainability. We have a code of ethics and conduct, our Responsible Business Principles and a Sustainability Policy, which help drive us to act with integrity, commitment and transparency.
Brand and culture alignment is also key. Our aim is for Telefónica's corporate purpose and values to be reflected in our conduct, processes and objectives, ensuring consistency between what we say and what we do, so that this shared vision spreads from employees to customers and from customers to society. This culture is strengthened when we are consistent in how we behave within the Company and how we present ourselves. This helps us clarify our raison d'être and how we can help make the world a better place.
Consolidated management report 2022 l 1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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GRI 2-6
Traditionally, the telecommunications business has been based on the investment and operation of a series of assets, mainly network assets, on which operators build services targeted at all their customer segments. Nowadays, networks are moving towards models more akin to software platforms. This enables the creation of new business models, based on making the main capabilities of our networks available to different players (not only end customers) through connectors or Application programming interface (APIs).
The traditional value chain of telecommunications operators includes the following elements:
Consolidated management report 2022 l 1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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In recent years, networks have been incorporating new technologies that allow innovative services to be developed and new business models to be built around them. The combination of cloud computing with the softwarisation of network elements and functions enables Network as a Service (NaaS) business models. NaaS facilitates the development of more flexible models for customers, with lower upfront investments and a higher degree of control over their communications.
With the advent of 5G and the modernisation of platforms, new network capabilities have been developed. Edge computing technologies allow services to be moved closer to the end customer, improving the customer experience. This capability is essential for reducing latency and developing many use cases. The new networks also include the possibility of developing network slicing, which allows the creation of multiple virtual networks (slices) on the same physical network. These slices can be tailored to provide different operating parameters (bandwidth, latency, availability, etc.), adapted to customer needs.
Meanwhile, telecommunication companies have been upgrading their information systems (IT) and the software platforms that operate the networks. These allow operators to provide certain functions securely through standardised interfaces (APIs). Other companies can develop services based on these APIs.
The combination of all these technologies will have a direct impact on traditional telco business models. There is an opportunity to refocus connectivity based on different network quality tiers. The transformation will be dictated by the possibility of monetising two elements simultaneously:
To seize the opportunity for these new businesses, operators will need to become orchestrators of all of the above elements (networks, platforms, developers, end customers). The transition to tiered connectivity, based on quality (speed, latency, security or other characteristics) requires a change in the current regulatory model. The current focus on price competition leads to the commoditisation of telcos' services. A forward-looking regulatory model must encourage innovation and fairly reward investment in the networks that underpin the economy of the future.
Consolidated management report 2022 l 1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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We have been reporting on double materiality since 2021 as a way to identify how sustainability issues impact Company value and how our activities affect society and the environment. In 2022 we updated the double materiality matrix with a focus on the identification and prioritization of key issues, in keeping with EFRAG recommendations, and following consultation with our stakeholders. Our double materiality matrix classifies material issues into three levels of impact based on their strategic relevance, urgency and/or required approach.
In 2022, following the approval of the European Corporate Sustainability Reporting Directive (CSRD) and in accordance with the guidance from the European Financial Reporting Advisory Group (EFRAG) technical expert group, we updated our materiality matrix to provide more detailed information based on the double materiality framework.# 1. Strategy and growth model
GRI 3-1, 3-3
We have followed a four-step process to analyse double materiality:
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2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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A. Identification and updating of material issues
The first step when analysing materiality is to identify a broad universe of sustainability issues that could potentially be significant for Telefónica. This is essential to minimise the risk of overlooking any emerging issues and to guarantee a thorough and credible analysis. We therefore used our 2021 materiality analysis as a starting point. The issues considered for that analysis have been updated through external and internal documentary research that considered the nature of our Company, its value chain, its stakeholder map and the impacted audiences. The following sources were used for that documentary analysis:
External
* Global ESG regulatory context: analysis of international environmental, social and corporate governance standards, as well as legal requirements, globally applied local standards, economic policies, self- regulation standards, etc.
* Benchmark: materiality matrices of the leaders in our sector.
* ESG criteria applied by the main ESG rating analysts: MSCI, S&P, Sustainalytics, Moody's Vigeo, and FTSE among others.
* Non-financial or sustainability reporting standards (GRI and SASB).
* Sustainable Development Goals and targets (SDGs): taking into account the goals to which we can make the most decisive contributions.
* Expectations from our stakeholders by identifying priority issues through the various engagement channels we have with them.
For further information, see our table of stakeholder engagement channels.
Internal
Besides analysing relevant internal documentation, we also consulted with cross-departmental areas from an ESG point of view, mainly Global Sustainability Management and Strategy Management. After identifying the issues, we defined and organised them into three levels, which is outlined in the appendix:
For further information, see Appendix 2.21.3. Material issues.
B. Evaluation and prioritisation through evidence which demonstrates the impact on society/ environment and on Company value.
The material issues we identified in step one were assessed and weighted from two perspectives: their impact on society and the environment; and their impact on Company value (financial materiality).
Impact on Society - Environment
In this regard, we considered the Company’s context, the identification of real and potential impacts, and the assessment of those impacts. The following studies were taken into account when identifying adverse impacts:
By combining the two assessments, we obtained the materiality linked to the impact from each issue. We set five impact levels (slight, low, moderate, high and critical) in both cases (positive and negative).
Financial materiality or impact on Telefónica’s value
To determine the impact on Company value and also based on the material issues identified in step one, we considered those risks and opportunities that affect or might affect the Group with regard to those issues and in the following way:
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2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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For further information, see chapter 3.1.4. Risk tolerance or appetite.
C. Commitment to stakeholders, including their perception of the issues identified and assessed
Telefónica’s strategy on engagement with and commitment to stakeholders is based on increasing transparency and effective dialogue to build relationships of trust. These relationships enable us to identify which aspects are considered most significant by our stakeholders (customers, employees, strategic partners and suppliers, shareholders and analysts, government bodies and regulators, opinion leaders, the media and communication services, and society) and to identify new trends in the field of sustainability. As a result, we consulted with various groups and took their responses into account when identifying and weighting the issues of relevance to each one. The main consultation processes are listed below:
D. Oversight and validation of the materiality process
At this stage, we presented and cross-checked the results we obtained. This is undertaken with the areas that took part in the process both globally and locally, as well as with various managers and internal bodies, such as the Sustainability and Quality Committee.
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1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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¹ RepRisk, an ESG data science company that combines automatic learning and human intelligence to identify ESG risks with a possible reputational impact.
The process we followed has produced a double materiality matrix from a global perspective based on the impact on Telefónica’s value and the impact on society and the environment. We understand that all the issues identified in the matrix are material. They have been classified according to their impact on each axis, so there are priority issues from the point of view of a financial impact or from both perspectives in such a way that the various users of the information can clearly understand both the process and the results
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2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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| Material issue | Impact on society and the environment | Impact on Company value | SDGs | Chapter of the Report | Main KPIs |
|---|---|---|---|---|---|
| LEVEL ONE | |||||
| Network and data security | l | l | 2.19 |
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| Material Issue | Impact on Society and the Environment | Impact on Company Value | SDGs | Chapter of the Report | Main KPIs |
|---|---|---|---|---|---|
| Sustainable offering and innovation | ll 2.12. Responsibility in our products and services 2.14. Sustainable innovation |
Percentage of products and services that meet health and safety standards | |||
| Labour practices and Health & Safety | ll 2.5. Human capital 2.6. Attraction, retention and skill development 2.8. New ways of working 2.9. Occupational health, safety and well-being |
eNPS Number of employees involved in the reskilling programme Percentage of employees with a hybrid work model Percentage of all employees covered by collective bargaining agreements Coverage by the occupational health and safety management system Total average remuneration |
|||
| Privacy and digital rights | ll 2.19. Privacy and security | Total number of confirmed fines for privacy / data protection issues Number of training hours on privacy / data protection courses |
|||
| Diversity, equality and non-discrimination | ll 2.7. Diversity and inclusion | Gross pay gap Percentage of women directors Number of employees with disabilities |
|||
| Responsibility towards the customer | ll 2.11. Customers | eNPS Digital channels - total customers |
|||
| Climate change and energy management | ll 2.2. Energy and climate change | Total energy consumption (MWh) Percentage of renewable energy Percentage of renewable electricity at owned installations |
|||
| Supply chain management | ll 2.20. Responsible supply chain management | Number of on-site human rights audits of suppliers (labour issues, child/forced labour, health and safety, privacy and security) Number of suppliers identified as suppliers with real and potential significant negative social impacts Number of audits on high-risk suppliers Number of electromagnetic field measurements |
|||
| Circular economy | ll 2.3. Circular economy | Waste recycled (%) Recovery rate of all devices Number of electronic equipment purchases based on circularity criteria |
|||
| Other environmental concerns | ll 2.1. Responsibility towards the environment 2.3. Circular economy |
Visual impact reduction measures (number) |
LEVEL TWO
Privacy and security
• Number of people attending training courses on information security / cybersecurity
• Security Operation Centres (SOCs)
• Number of security events monitored worldwide
Digital inclusion
• Mobile coverage percentage in rural areas within major markets
• Universal Service - financial resources
• Number of people benefiting from training programmes on digital skills
Contribution to economic decarbonisation
• Percentage of products and services developed under sustainability criteria (e.g. environmental, accessibility and ethics)
• Percentage of the B2B portfolio verified as sustainable
Ethical conduct and compliance
ll 2.16. Governance and a culture of sustainability
2.17. Ethics and compliance
2.18. Fiscal
• Number of operations assessed for corruption-related risks
• Number of fines paid in the year subject to the report for non-compliance with legislation and regulations
• Profit or loss before tax
LEVEL THREE
CRITICAL HIGH MODERATE LOW SLIGHT
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2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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GRI 2-12, 2-29
Telefónica’s stakeholder engagement strategy is based on increasing transparency and effective dialogue to build relationships of trust. These relations enable us to identify which aspects are considered most significant by our stakeholders and to identify new trends in the field of sustainability. In this way, we set our targets, define the strategic plan (the Responsible Business Plan) and also assess our ability to meet society’s expectations.
Our stakeholder management is based on:
At Telefónica, we have regulations that govern information to markets and other stakeholders in order to guarantee that the information released by the Company is known by the markets, investors and other stakeholders, maximising the communication and quality of this content.
Below are the main publications that report on our activities, which help ensure clear communication and foster transparency:
• Dialogue: we maintain ongoing conversations with our stakeholders through active listening, the promotion of two-way and effective communication, and direct, fluid, constructive, diverse, inclusive and inter-cultural dialogue that enables us to know their expectations, identify their priorities and build a relationship of trust. This ongoing dialogue forms part of our daily operations and is built on each one of the interactions that stakeholders have through the various channels set up for this purpose.
For further information, see Appendix 2.21.1.
Telefónica stakeholders
The constant monitoring of the main channels for dialogue with major stakeholders enables us to measure the impact of our relations with and commitment to them. In this way, it becomes possible to establish action plans that meet their needs, boosting positive impacts and mitigating any that might be negative.
Below is a list of the main communication channels:
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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| Stakeholder | Channel for dialogue | Impact | KPI | 2021 | 2022 |
|---|---|---|---|---|---|
| Customers | Movistar Spain Contact Centre (1004) | Unique customers served (annual average) | 805,126 | 729,348 | |
| Digital channels | Total customers 2 | 2,774,565 | 2,686,123 | ||
| Multi-channel relationship survey | Number of surveys conducted 3 | More than 36,000 | More than 36,000 | ||
| Employees | eNPS | Response rate | 78% | 83% | |
| Workplace | Percentage of monthly active users | 81% | 75% | ||
| Strategic partners / suppliers | Annual consultation with stakeholders | Declared level of trust | 87% | 87% | |
| Shareholders and institutional investors | General Shareholders’ Meeting | Number of shareholders attending | (Telematic) | 69 | 82 |
| Engagement activities | Meetings with minority shareholders | 254 | 1045 | ||
| Roadshows (institutional investors) | 13 | 11 | |||
| Conferences (institutional investors) | 18 | 12 | |||
| Minority shareholders | 7,000 | 14,000 | |||
| Institutional investors | 600 | 725 | |||
| Society | Reputation | Number of RepTrak interviews conducted | 22,166 | 49,270 | |
| Social media | Millions of followers of @Telefonica’s exclusive accounts (LinkedIn, Twitter, Facebook, Instagram, YouTube and TikTok) | 2.1 | 2.4 | ||
| Government entities and regulators | Meetings with EU institutions | Average number of meetings: OTTs | Telecoms | 14,4 | 14 |
| Average number of meetings: Telecoms | 10,8 | 11 | |||
| Opinion leaders, the media and communication services | Press releases, interviews, invitations and responses to the media | Communication management processes (vs. 2018) | 31,063 | 35,713 |
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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22
2 Telefónica Spain customers who contact us through the website and the APP after “logging in”.
3 Daily surveys conducted on our customers in Spain, Brazil and Germany, in which they are asked about their overall experience with Telefónica. Among other aspects, they are asked about the ease with which our customers can get things done via our contact channels (Customer Effort Score).
4 46 virtual meetings and 19 telematic communications (quarterly magazine, monthly newsletter, communications, Shareholders' Meeting and information call centre).
5 4 virtual meetings and 100 telematic communications to shareholders (quarterly magazine, monthly newsletter, communications, Shareholders' Meeting).
GRI 2-22
KEY POINTS
Telefónica continues to strengthen its strategy, building on the five strategic decisions made in November 2019. We continue to prioritise sustainability as a core part of our strategy, focusing on growth, efficiency and long-term value creation. Telefónica generates sustainable, long-term value for all the Company’s stakeholders, including our customers, suppliers and employees.
Commitment to strategic decisions developed in November 2019 Telefónica's strategy has helped accelerate the Group's transformation and has enabled us to build a stronger company. We are in a privileged position to meet the challenges posed by the environment, and increase our positive impact. After analysing our progress, the current situation and the expectations of our stakeholders, we reconfirmed the five decisions made in 2019, reinforcing the following commitments:
Telefónica integrates the main aspects of sustainability into its strategy, which is based on our Responsible Business Principles. These ESG commitments translate into growth, efficiency and long-term value creation for the Group.
a. Growth: In terms of social impact, we aim to ensure the universality of our connectivity services, extending their availability (mainly broadband) to new geographical locations and population segments that have traditionally been excluded (e.g. rural broadband).
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In addition, Telefónica remains committed to the safe and responsible use of technology by our customers, including access to cybersecurity solutions and ensuring privacy.
b. Efficiency: Long-term sustainability involves continuous improvement in our operations both internally and with customers. This helps us become an increasingly efficient operator, taking advantage of the digitalisation of all business processes to generate greater value:
The deployment of new state-of-the-art networks allows us to obtain much lower costs per unit of traffic. In addition, ultra-broadband networks (fibre, 5G, etc.) provide efficiencies in terms of energy consumption and therefore have a clear impact on the company's net zero emissions targets. At Telefónica, we also aim to optimise the use of our assets, generating a greater return on investment. This aspect includes reducing energy consumption, focusing on renewable sources of energy, and increasing the circularity of our processes and the reuse of customer equipment (routers, mobile devices, etc.).
c. Long-term value creation: Telefónica has integrated its sustainability commitments into the Group's long-term management. Putting ESG at the core of the strategy enhances external credibility, including:
Showing consistent progress with our targets
| Environment | 2021 | 2022 | Targets | Progress |
|---|---|---|---|---|
| Main target: Net Zero by 2040 (SBTi validated) | ||||
| Scope 1+2 % emissions reduced since 2015 | 70% | 80% | > 80% by 2030 | |
| Scope 3 % emissions reduced since 2016 | 27% | 32% | > 56% by 2030 | |
| Renewable electricity % in own facilities | 79% | 82% | > 100% renewables by 2030 |
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| Social | 2021 | 2022 | Targets | Progress |
|---|---|---|---|---|
| Rural connectivity % mobile broadband coverage | >77% | >80% | > >90% mobile rural connectivity in main markets by 2024¹ | |
| Women directors % women directors | 29.5% | 31.3%² | > 33% women directors by 2024 | |
| Pay gap % adjusted gender pay gap | 1.18% | 0.74% | > Zero (+/-1%) adjusted gender pay gap by 2024 |
| Governance | 2021 | 2022 | Targets | Progress |
|---|---|---|---|---|
| Potential high-risk suppliers % externally assessed on sustainability | 71% | 72% | > 100% of potential high-risk suppliers externally assessed on sustainability by 2024 | |
| Corruption Number of confirmed cases of corruption | 0 | 0 | > Zero tolerance of corruption | |
| Board diversity % female on the Board of Directors | 33.3% | 33.3% | > Moving towards parity in top governing bodies by 2030³ |
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1 Brazil, Germany and Spain.
2 In 2022, minor adjustments have been implemented in the formula for calculating the percentage of women directors. Maintaining the 2021 criteria, the figure would be 31.2%.
3 Parity defined as not less than 40% of each gender. Progress is associated with Telefónica SA´s Board.
Over the long term, at Telefónica we are committed to generating value for all our stakeholders. This concept is built on trust and commitment in areas such as customer relations, suppliers, diversity, business ethics, network security, responsible use of technology and, in general, sound corporate governance:
We benefit all our stakeholders
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GRI 2-6, 3-3
Telefónica's organisation
Telefónica Group's organisational structure reflects the needs of each of its businesses in order to best serve both our residential and business customers with traditional connectivity services and an increasing number of advanced digital services that the Group is developing. We outline our principle organisations below:
Telecommunications businesses operate relatively autonomously, deploying infrastructure and serving their customers within their given territories:
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.
| 2022 | |
|---|---|
| Total number of external audits on Product and Service Security (Telefónica Tech) | 13 |
| Number of Digital Operational Centres (DOCs) | 1 |
| Number of Security Operation Centres (SOCs) | 12 |
3,500 certifications in third-party technologies
300 partnerships with key industry leaders
300K devices monitored, supervised and secured
100 Products
We build trust: At Telefónica Tech, cybersecurity is present throughout our product and service creation process. We reinvent the digital workplace: Because being digital ensures that customers are more productive and hybrid models attract more talent. Adopting the cloud: This minimises costs and is a future safeguard for business due to its speed, flexibility and capacity for innovation. Cutting-edge networks: With which we get the most out of cloud and offer a comprehensive cloud networking and Secure Access Service Edge (SASE) service. Supporting SMEs: So SMEs can expand their digital business quickly with our comprehensive cloud and cybersecurity services.
AI, IoT, big data and blockchain – Data-driven decisions supported by advanced platforms and AI
Environmental benefits: Eco Smart services, which reduce energy consumption, water consumption and CO₂ emissions, and boost the circular economy.
For further information, see chapter 2.3. Circular Economy.
Following the adoption of the five strategic decisions in 2019, the activities of the corporate units have been realigned towards a more flexible operating model, focusing solely on the activities that add the most value to our businesses.
The need to shift towards a decarbonised and socially fair global economy is embodied today in greater regulatory pressures around ESG matters and an obligation to redirect capital flows in line with a sustainable growth model. Simply complying with the climate and energy targets set by the European Union requires an estimated annual investment of €275 billion between now and 2030. The investment community is therefore lending increased weight to ESG factors in investment decision-making processes. According to Bloomberg Intelligence, the volume of worldwide ESG assets under management could reach $50 trillion (USD) by 2025, a third of all managed assets worldwide. This trend is also being reflected in ESG financing trends in the capital markets. Despite market instability and a rise in interest rates across the board in the year, the total volume of sustainable issuances rose to $863 billion (USD) in 2022, according to Bloomberg. The entry into force of the Sustainable Finance Disclosure Regulation (SFDR) as part of the EU Action Plan on Sustainable Finance offers Telefónica an opportunity to highlight our Company’s leadership in such fields as decarbonisation and digital inclusion, among others.# Consolidated management report 2022
This regulation requires detailed information to be reported on various sustainability criteria adopted by investment funds when investing their capital and applies to those funds that promote environmental and social characteristics (Article 8, SFDR) as well as those aimed at sustainable investment (Article 9, SFDR). Telefónica is anticipating requirements by providing the information that these funds need, thereby positioning ourselves as a sustainable investment under the criteria imposed by the regulation. We have been working for many years on an internal business transformation at Telefónica, which combines environmental and social sustainability with financial sustainability. One of the results is that we maintain a leading position on sustainable financing in the telecommunications sector, in terms of both the volume and diversification of the instruments we use. Similarly, we continue to explore new ways to expand our financing model based on ESG criteria so that sustainable financing can be one of the main tools for achieving our targets. Regulation is also a fundamental lever in this context. Since the Taxonomy Regulation came into force, we have made progress in implementing its rules and analysing the technical criteria required to demonstrate the substantial contribution of our activities to the fight against global warming. For further information, see chapter 1.8. European taxonomy for sustainable activities. Authorities and supervisory bodies are also currently focusing their attention on the disclosure of climate change impacts in companies' financial statements. Therefore, in 2022, we worked to anticipate future regulatory changes by adapting our report to place a greater emphasis on the effects from global warming on Telefónica's activities. Furthermore, we have included, for the first time in our financial statements, information on the actions and commitments made by Telefónica linked to climate change, such as the power purchase agreements and our energy efficiency projects, among others. For further information, see Note 29 d) Environmental matters at Consolidated Financial Statements Nonetheless, our commitment goes beyond mere regulatory compliance, and an increasing number of our projects, agreements and daily operations combine the twin pillars of sustainability and finance. Environmental and social criteria are an integral part of all areas of our business. Our commitment translates into a series of initiatives that consider ESG issues in decision-making processes on internal or third-party investment projects. In this regard, we are defining mechanisms to implement an internal carbon price that will help us prioritise those investment projects that are better aligned with our path towards net-zero emissions. Furthermore, we are working with the Inter-American Development Bank on an initiative to promote inclusive digital transformation in Latin American and Caribbean countries; we are actively collaborating in the development of digitalisation and sustainability proposals to respond to the requirements of NextGenerationEU funds; and we are working on the holistic integration of ESG criteria into M&A operations. Telefónica also has an independent asset manager (Fonditel) that is responsible for the pension plan of Telefónica employees, as well as for the commercialisation of other pension plans and investment funds, based on sustainability criteria.
At Telefónica, we seek to strengthen our leadership in the field of sustainable finance so that we can meet our commitments to society and the planet. To achieve this, we have a strategy that enables us to:
Furthermore, sustainable finance offers us new opportunities for interaction with our partners and investors so:
Our ability to attract sustainable and responsible capital reflects the impact and positive perception from investors and analysts of Telefónica's activity. ESG criteria are an increasingly important factor in decision-making processes for investors, analysts, proxy advisers and financial markets participants. This issue has become even more relevant since the entry into force of Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector (SFDR). This regulation establishes reporting obligations for financial market participants and advisors regarding the disclosure of information on how they integrate sustainability-related risks in their investment policies. The regulation has some indirect sustainable management-related repercussions on the companies in which actors in the financial market choose to invest. This presents Telefónica with the opportunity to highlight its sustainability performance, as well as to assess the alignment of the Company’s priorities with those of investors.
The EU Taxonomy Regulation for sustainable activities came into force on 12 July 2020. It is an ambitious programme that seeks to prevent the risk of greenwashing on the one hand, and to increase investment in activities that contribute positively to priorities defined by the European Union from a sustainability perspective on the other, including climate change mitigation and adaptation. In this regard, we are working on three fronts:
Another fundamental pillar of the ESG investment strategy is our proactive communication with financial markets participants, such as institutional investors, analysts and ESG information providers. Our constant dialogue with these actors is aimed at aligning expectations on their need for sustainability- related information. This task is particularly relevant given their varied set of criteria and weightings used when assessing our performance. This proactive communication creates a virtuous circle of ongoing improvement while strengthening our leadership in sustainability and is ultimately reflected in the ratings obtained by our Company and our inclusion on benchmark ESG indices, such as the S&P Dow Jones Sustainability Index. For further information, see chapter 1.9 Main indicators and footprint
Fonditel is Telefonica Group's independent Asset Manager and has over 30 years of experience in managing pension funds and investment funds tailored to the risk profile of its clients. As a part of its commitment to a Sustainable and Responsible Investment (SRI) purpose, Fonditel became a signatory to the United Nations Principles for Responsible Investment (UNPRI) in 2022. This new milestone represents another step in Fonditel’s SRI strategy and completes the journey begun in 2018, when Telefónica Employees' Pension Plan joined the global network of UNPRI signatories. Since then, the six Principles have become, together with the Sustainable Development Goals (SDGs), the cornerstones of Fonditel’s SRI philosophy, thus contributing to the development of a more sustainable global financial system.# Consolidated management report 2022
Fonditel is convinced that the combination of financial and extra-financial criteria provides a more complete view of the assets in which it invests, mitigating the sources of risk in its portfolios and enhancing long-term returns. In short, helping to make better informed investment decisions. Over the past few years, Fonditel has made progress in defining the investment themes aligned with the SDGs that are priorities for its stakeholders. The objective is to find investments that combine long-term economic sense and commitment to the SDGs, seeking to ensure that its investments not only offer attractive financial returns, but also make a positive contribution to the environment and society. Fonditel has two products classified as art. 8 under SFDR (Fondo de Pensiones de Empleados de Telefónica de España and Fonditel Bolsa Mundial Sostenible FI).
Progress in 2022
Sustainable and Responsible Investment (SRI)
The presence of investors among the Telefónica shareholders, who, among other criteria, consider the Company's performance on environmental, social and good governance issues and take them into account for their investment strategies, is a highly useful indicator. It confirms the growing importance of ESG factors in investment processes and the alignment of our sustainability strategy and performance with the expectations of these investors. This indicator demonstrates the proportion of Telefónica shares included in two main categories of ESG investors: institutional investors with advanced ESG integration processes; and ESG thematic funds (investment funds focused on climate change solutions, ethical funds, etc.).
According to the latest analysis conducted by a third party, the percentage of Telefónica shares managed by institutional investors that follow ESG criteria has increased year after year since 2017.
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Percentage of shares that integrate ESG criteria
Of the total managed by institutional investors in Telefónica⁴
This study was completed using data at 31 December 2022 by analysing the ownership of managed shares in Telefónica by institutional investors under ESG criteria according to public information and the methodology developed by external consultants. This methodology is based on criteria focused on the effective integration of ESG issues in portfolio management by institutional investors according to established ESG principles and their policies on dialogue with investee companies in line with said criteria.
By the end of 2022, this percentage had reached 36.4%, measured on the publicly-disclosed total number of Telefónica shares managed by institutional investors.
The elevated financial market volatility during 2022 resulted in slower growth by sustainable investment funds invested in equities. This context reaffirms the importance of communicating our ESG strategy effectively given its increasing relevance for the financial markets. In addition, it enables us, as a Company, to differentiate ourselves from our peers based on the positive market perceptions of our sustainability progress and disclosures.
In the long term, this market is expected to continue burgeoning, and new European regulation is expected to stimulate a flourishing environment for sustainable investment funds. This highlights the importance of good sustainability performance and reporting, so that we can continue to harness the growth opportunity in this market and thereby increase the presence of ESG investors in Telefónica.
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⁴ Source of public information on the ownership of shares in Telefónica by institutional investors according to FactSet. Analysis by Leaders Arena of the percentage of investment based on ESG criteria.
Sustainable financing is a fundamental tool for supporting the transformation of our business through investment in projects with a positive environmental and social impact.
History of sustainable debt issuances
In 2018, our Company published its sustainable financing framework. This was updated in January 2021 and, in both cases, was endorsed by a second party opinion from Sustainalytics. The framework is linked to the United Nations Sustainable Development Goals and aligned with the International Capital Market Association (ICMA) Green Bond, Social Bond and Sustainable Bond Principles. For further information on sustainable financing, visit the website at Telefónica/shareholders-investors/rating/ Sustainable financing framework.
It should be pointed out that we were the industry’s first issuer of senior green bonds and hybrid instruments (green and sustainable). The funds that were obtained have been allocated to environmental projects focused on switching our network from copper to fibre, which is more efficient and suffers fewer faults; the rollout and improvement of mobile connectivity in rural areas; and the promotion of entrepreneurship and job creation through investments in start-ups. We intend to continue harnessing the opportunities offered to us by this financing model.
In addition to green senior bonds and hybrid instruments, we use other sustainable bank financing tools, such as loans and credits linked to sustainability objectives that make it possible for us to progress steadily towards such important corporate targets as reducing emissions or gender equality. Also in this case, the main syndicated loan of the Telefónica Group is linked to sustainability criteria in line with the corporate Sustainability-linked Loan Framework, which was drawn up in late 2021 with a second opinion from Sustainalytics.
These sustainable financing tools (bonds, hybrid instruments and bank financing) are becoming more and more important in the Group's financing structure and are set to become one of the main tools for financial instruments and private investment flows.
At Telefónica, we play an active role in the development of all necessary legislation by collaborating with sectoral associations and public bodies. We also provide a technical vision (thanks to our knowledge of the business) and a strategic vision (thanks to our experience in sustainable finance) to promote transparency and make the ESG impact of our business known to the investor world.
The new taxonomic reporting requirements are addressed in a specific chapter with the corresponding taxonomic eligibility data. For further information, see chapter 1.8. European taxonomy for sustainable activities.
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Progress in 2022
In 2022, Telefónica Group's sustainable financing activity (including balance-sheet debt, hybrid instruments and committed credit lines) exceeded 27% of the Company's total financing, positioning the Company as the market leader in the global telecommunications sector in terms of the volume of bond and hybrid instrument issuances.
Capital markets
In 2022, our Company maintained an active presence in the capital markets through numerous issuances. These included its first sustainable senior bond issuance for €1 billion in May with a term of nine years. The proceeds from this issuance will be allocated to environmental projects related to transformation of the telecommunications network via the rollout of fibre optics and 5G technology, as well as social projects aimed at promoting inclusive connectivity, entrepreneurship and job creation.
The Company’s second hybrid green instrument issuance took place in November for the value of €750 million, with the first redemption date at six years. In this case, the investment proceeds will aim at the shutdown of obsolete equipment and the transformation of network infrastructure through energy efficiency projects.
Despite the current market instability, both issuances were well received by the market with a broadly international and diversified investor base.
In Brazil, Vivo carried out its first issuance of Sustainability-linked Bonds (SLB), for the aggregated amount of R$3.5 billion (equivalent to €628 million at closing 2022 exchange rate). Financing costs are linked to meeting sustainability targets between now and 2027. From an environmental perspective, Vivo has committed to reducing direct greenhouse gas emissions (Scope 1) by 40% compared to 2021. In terms of social matters, Vivo has set a target to have at least 30% of leadership positions at the company held by Black persons. The transaction was carried out according to Vivo’s Sustainability-linked Financing Framework, drawn up in line with the 2021 Sustainability-linked Bond Principles (SLBP) of the International Capital Market Association (ICMA) and the 2021 Sustainability-linked Loan Principles (SLLP). The document was also endorsed by a second party opinion from Bureau Veritas.
In January 2023, a new green hybrid bond has been issued for an amount of 1,000 million euros.
Loans and lines linked to sustainability targets
In terms of bank financing, the Telefónica Group’s main syndicated loan was refinanced at a corporate level in 2022 for the amount of €5,500 million, the interest applied to which will be linked to compliance with sustainability targets. The deal was supported by nearly 30 entities, with an over-subscription of more than 30%.Committed lines and bilateral financing operations were also carried out during the year with numerous financial entities, obtaining a total volume of €3,864 million at the close of 2022, the interest applied to which is also linked to compliance with sustainability targets. The first target is linked to climate change mitigation and establishes a commitment to reduce absolute greenhouse gas emissions (Scopes 1 and 2) by 70% by 2025 and by 80% by 2030. These targets are in line with the global ambition to keep the temperature rise below 1.5ºC and have been validated by the Science Based Targets initiative (SBTi) within the framework of the net-zero emissions target set by Telefónica for the main markets by 2025 and by 2040 for the whole Group and value chain. The second target is linked to an increase in the number of women directors in the Company to 37% by 2027.
| KPI | Benchmark value 2022 | |
|---|---|---|
| Reduction of Scope 1 and 2 greenhouse gases (%) (Year 2015) | 1.811.155 | 80% |
| Women directors in the Group (%) (Year 2020) | 27,4% | 31.3 %5 |
In Colombia, Telefónica has a loan of $300 billion COP (equivalent to a €58 million at closing 2022 exchange rate) which we have made sustainable and will be linked to energy efficiency targets.
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5 In 2022, minor adjustments have been implemented in the formula for calculating the percentage of women directors. Maintaining the 2021 criteria, the figure would be 31.2%.
Sustainable issuances: use and impact of funds
Consolidated management report 2022
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3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
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The ICT sector is one of the six sectors listed in the taxonomy because of its contribution to climate mitigation and adaptation. In 2022, the alignment of the company's taxonomic activities is reported for the first time, along with eligibility, which was already reported in 2021 The European Commission's draft of frequently asked questions (FAQs) of 19 December 2022 almost completely limits the relevance of the telco sector in the EU Taxonomy as a facilitator of the decarbonisation of the economy
Regulation (EU) 2020/852 paved the way for establishing a regulatory framework for an economic activity to be categorised as sustainable: the EU Taxonomy. This framework arose in the context of the Action plan on financing sustainable growth and the European Green Deal with the objective of promoting the required investments to achieve a circular, competitive and climate-neutral economy by 2050. The EU Taxonomy aims to establish a common language to identify sustainable activities consistently throughout the European Union. The development of this regulatory framework is in process, having published three delegated regulations1 that complement Regulation (EU) 2020/852 in relation to climate change mitigation and adaptation. Another delegated regulation has yet to be published that will outline the technical screening criteria for the final four environmental objectives (the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; and the protection and restoration of biodiversity and ecosystems). Against this backdrop, the European Commission has also published several communications on the interpretation of the legal provisions included in those delegated regulations in a bid to reduce the uncertainty related to this complex and novel regulatory framework and its application.
In 2021, in line with the requirements of the regulatory framework in force, Telefónica disclosed the proportion of its revenues, capital expenditure and operating expenditure derived from its Taxonomy-eligible activities2 (i.e. from activities covered by the Taxonomy due to their potential to make a substantial contribution to climate change mitigation and climate change adaptation). In the second year of application of the EU Taxonomy, non-financial undertakings must report the proportion associated with Taxonomy-aligned
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1 Delegated Regulation (EU) 2021/2139 (climate); Delegated Regulation (EU) 2021/2178 (disclosure); Delegated Regulation (EU) 2022/1214 (complementary to the climate regulation).
2 An economic activity is considered as Taxonomy-eligible if it is described in the related Delegated Regulation.
activities3 of the same three key performance indicators (KPIs) in addition to material information on their accounting policy, compliance with the EU Taxonomy regulation and contextual information about those KPIs.
The scope of application of the EU Taxonomy Regulation consists of the activity of Telefónica, S.A. and all Group subsidiaries (fully consolidated companies). Telefónica offers connectivity solutions and digital services that connect people by deploying environmentally and sustainably efficient telecommunication networks. Sustainability is embedded into Telefónica’s strategy to the extent that:
For further information see chapter 2.2 Energy and climate change
Telefónica carries out its business based on digitalisation, offering connectivity solutions using the most efficient technologies available on the market (e.g., fibre and 5G) and promoting services such as cloud, the Internet of Things (IoT), big data and e-Health. In this vein, in addition to its operators in each country, Telefónica has two large subsidiaries:
Network leadership evolution brings an opportunity for our industry by building up the concept of Network as a Service (NaaS). On this front, Telefónica is working internally and in collaboration with the industry (GSMA) to expose our telco capabilities to third parties so that more efficient technologies can be developed and to become enablers of new and more advanced services. The digital services Telefónica offers can be tailored to the needs of all kinds of customers. They are not only aimed at make the use of technology easier in their daily lives, but also to benefit the environment by reducing emissions when using these services through the Group's infrastructure.
Telefónica, along with the rest of the ICT sector, is covered by the taxonomy for its climate change mitigation potential. According to ETNO and BCG4, the sector has the potential to reduce global CO2 emissions by as much as 15% resulting from full digitalisation (including smart cities and buildings, transportation, industry IoT, blockchain applications, and energy). Other studies such as the Exponential Roadmap5 indicate that digital technologies can indirectly support a further reduction of up to 35% considering criteria like changing consumption habits over the coming years.
Application of the current regulatory framework leads to uncertainty and doubts regarding interpretation in the market. Essentially, this stems from the difficult articulating a common language for all European sectors and geographies in the highly diverse and complex field of sustainability. In the ICT sector, the main issues surrounding interpretation are related to its consideration as an enabling activity. In other words, an activity with the potential to enable a reduction of emissions for third- party telecommunication network activities. Networks understood as connectivity solutions developed for data transmission, storage and use that can reduce greenhouse gas emissions would help enable decarbonization of third parties. Telecommunications networks are the only technology specifically described in
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An eligible activity is considered as Taxonomy-aligned when it has been assessed to comply with the specific technical screening criteria (substantial contribution to one of the environmental objectives and do no significant harm) for each activity and meets the minimum safeguards.
4 Connectivity & Beyond How Telcos Can Accelerate a Digital Future for All. ETNO and Boston Consulting Group. March 2021. 5 Exponential roadmap. Scaling 36 solutions to halve emissions by 2030. Version 1.5.1. January 2020 the Delegated Regulation (e.g. 5G) that support data transmission. Telefónica uses the definition provided by the International Telecommunications Union (ITU) in its recommendation ITU-L.1480 (12/2022)6 for ICT solutions: "A system encompassing ICT goods, ICT networks and/or ICT services that contributes to meeting a technical, societal or business challenge.". Therefore, according to this body, telecommunications networks are inherently ICT solutions. However, the draft commission notice on frequently asked questions (FAQs) published by the European Commission on 19 December 20227 restricts the classification of telecommunications networks to activity 8.2. The purpose of this document, which has yet to be published in the OJEU8, aims to clarify the content of the delegated act, though it is not a binding regulation, but it is a 'communication'. With this in mind, Telefónica’s reporting took into account the FAQs in the draft to adapt how it calculates KPIs in this report. This adaptation was performed over a short period of time since the date of publication of the draft was close to the end of the reporting period. The publication of the final version of FAQs, or future possible additional clarifications by the regulator and the legislator could affect the considerations reflected in this report. The following sections set out the criteria used by Telefónica based on the current situation. In other words, considering the FAQs published in the draft notice of 19th December 2022 and not the Company’s previous interpretation.
According to article 8 of Regulation (EU) 2020/852, non-financial undertakings subject to application of the EU taxonomy must disclose, as provided for in Annex I of Delegated Regulation (EU) 2021/2178, the following information:
The regulation also specifies9 that qualitative explanations and quantitative breakdowns must be provided in the event of any change in the approach and methodology used previously along with comparative figures and sufficient information to be able to trace the trend of the data provided.
For the Taxonomy-eligibility and Taxonomy- alignment assessment, Telefónica used the following methodological approach to quantify its contribution to the climate change mitigation and climate change adaptation objectives established by the EU Taxonomy:
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6 As included in the document Enabling the Net Zero transition: Assessing how the use of information and communication technology solutions impact greenhouse gas emissions of other sectors. 7 DRAFT COMMISSION NOTICE on the interpretation and implementation of certain legal provisions of the EU (europa.eu). 8 Official Journal of the European Union. 9 As indicated in point 1.2.3.1, sections a) and c) of the Delegated Regulation (EU) 2021/2178.
Following is a description of the process for calculating the three KPIs, covering also key aspects related to accounting policy, compliance with Regulation (EU) 2020/852 and contextual information to support the adequate understanding of those indicators.
To carry out the calculation of the revenues, CapEx and OpEx KPIs in accordance with the Regulation, in 2022, Telefónica used as a basis the information corresponding to the various business units, with higher granularity, that contribute to the aggregation of the information at consolidation level for the Group (bottom up). This enabled it to fine-tune the calculation of the KPIs and restate the figures corresponding reported for previous period to show comparability with the current period. Data for Telefónica United Kingdom was excluded from the calculation because of the changes in the Group's scope of consolidation. Intragroup transactions were excluded from the calculations. Throughout the entire process, due care was taken to avoid double counting:
a. Reconciliation with accounting information, which ensures appropriate consideration of eliminations and adjustments on consolidation.
b. Use of consistent information sources, which prevents considering the same item in two different KPIs or twice in the same KPI.
c. Verification of the completeness and accuracy of the data.
After assessing each of the three indicators, the following were identified as the main Taxonomy-eligible economic activities:
Furthermore, in accordance with the Regulations, Telefónica identified other secondary activities that, although they are not part of the company's business activity, contribute to the reduction of GHG. The Taxonomy Regulation identifies these actions as individual measures that are mainly related to energy efficiency and sustainable mobility. These activities are:
The following aspects must be considered for a better understanding of the information reported for 2022 financial year and comparison with the 2021 financial year: the context of the previous year's report, the complexity of the interpretation and application of the regulatory framework and the lack of a clarifying formal legal document. In this context, Telefónica opted in 2021 to report, in the eligibility exercise, a minimum and maximum percentage of eligibility of its economic activities, to provide greater transparency in the assessment performed. The difference between the two numbers is due to the consideration of telecommunications networks as connectivity solutions, which depend on the interpretation of the description of activity 8.2. The minimum value reported in the calculation of the three KPIs (revenues, CapEx and OpEx) only factors in the development or use of digital services, without including the telecommunications network required for data transmission. The maximum value included, in addition to the data transmission phase, the use of technologies such as fibre or 5G. Both interpretations arose from the complexity in applying the regulatory framework, mostly because there is a certain level of ambiguity in the items and descriptions of the activity and the technical screening criteria of Delegated Regulation (EU) 2021/2139. The Platform on Sustainable Finance, in its document published in October 2022 entitled Platform Recommendations on Data and Usability of the EU
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022
Telefónica, S. A.
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Taxonomy10, proposed providing more technical guidance on compliance with criteria for substantial contribution and DNSH (Do no significant harm) regarding activity 8.2, among others.# 1.8.4.3 Percentage of turnover derived from Taxonomy-eligible and Taxonomy-aligned activities
This KPI shows the relative weight of turnover derived from products or services associated with economic activities covered by the Taxonomy over total turnover. For the economic activities to be Taxonomy- aligned, they must also meet the related technical screening criteria. Telefónica has analysed the various items included in its revenue model, enabling it to identify revenue items considered Taxonomy-eligible and then differentiate between those that comply with the technical screening criteria described in the previous section (Taxonomy- aligned items) and those that are not covered by the Taxonomy. Revenues have been classified into the following items:
Disclosures on turnover for 2022 below are based on the template included in Annex II of Delegated Regulation (EU) 2021/2178 (the Disclosure Delegated Act):
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 42
10 Platform Recommendations on Data and Usability. October 2022.
11 See Note 26 to the Consolidated Financial Statements.
12 Fibre fixed network, 4G and 5G mobile networks.
13 Mainly copper fixed network, 2G and 3G mobile networks.
Proportion of turnover derived from products or services associated with Taxonomy-aligned economic activities – disclosure covering financial year 2022
| Substantial contribution criteria | DNSH Criteria ('Does Not Significantly Harm') | Economic activities Codes | Absolute turnover | Proportion of turnover | Climate Change Mitigation | Climate Change adaptation | Water and marine resources | Circular economy | Pollution | Biodiversity and ecosystems | Climate Change mitigation | Climate Change adaptation | Water and marine resources | Circular economy | Pollution | Biodiversity and ecosystems | Minimum safeguards | Taxonomy-aligned proportion of turnover, year N | Taxonomy-aligned proportion of turnover, year N-1 | Category (enabling activity) | Category (transition activity) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| €M | % | % | % | ||||||||||||||||||
| E | T | ||||||||||||||||||||
| A. TAXONOMY-ELIGIBLE ACTIVITIES | |||||||||||||||||||||
| A.1 Environmentally sustainable activities (Taxonomy-aligned) | |||||||||||||||||||||
| Data-driven solutions for GHG emissions reductions | 8.2 | 515 | 1.3 | 100 | NI | P | P | P | P | NA | Y | NA | NA | Y | 1.3 | 1.3 | E | NR | |||
| Turnover of environmentally sustainable activities (Taxonomy-aligned) (A.1) | 515 | 1.3 | |||||||||||||||||||
| A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned) | |||||||||||||||||||||
| Data processing, hosting and related activities | 8.1 | 705 | 1.8 | ||||||||||||||||||
| Programming and broadcasting activities | 8.1 | 1,538 | 3.8 | ||||||||||||||||||
| Motion picture, video and television programme production, sound recording and music publishing activities | 13.3 | 910 | 2.3 | ||||||||||||||||||
| Turnover of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned) (A.2) | 3,153 | 7.9 | |||||||||||||||||||
| Total (A.1 + A.2) | 3,668 | 9.2 | |||||||||||||||||||
| B. TAXONOMY-NON-ELIGIBLE ACTIVITIES | |||||||||||||||||||||
| Turnover of Taxonomy-non-eligible activities (B) | 36,325 | 90.8 | |||||||||||||||||||
| Total (A + B) | 39,993 | 100.0 |
NI: Activity 8.2 is not included within the criteria of Annex II of the Delegated Act on Climate Change.
P: Pending. The detailed technical screening criteria associated with the other four environmental objectives (sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems) have yet to be published.
NA: Not applicable according to Commission Delegated Regulation (EU) 2021/2139 of June 4, 2021.
NR: No alignment was reported based on legal requirements in the 2021 Consolidated Management Report.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 43
As explained previously, information reported on Taxonomy eligibility for the previous year corresponding to activity 8.2 considered a minimum value (revenues related to digital services) and a maximum value (which also considered the revenue corresponding to connectivity solutions provided by telecommunications networks). The minimum value corresponding to 2022 (A1+A2 in the previous table) of 9.2% would be comparable to the 9.1% of the 2021 financial year. The maximum value corresponding to 2022 of 51.0% would be comparable to the 51.1% of the 2021 financial year.
This indicator shows the proportion of capital expenditure (CapEx) associated with assets or processes associated with economic activities covered by the Taxonomy. For the economic activities to be Taxonomy- aligned, they must also meet the related technical screening criteria. The denominator includes additions to property, plant and equipment and intangible assets (equal to CapEx as defined in the financial information reported by the Group). The definition of CapEx associated with the taxonomy also includes additions of right-of-use assets recognised in accordance with IFRS 16, as well as additions of property, plant and equipment, intangible assets or right-of-use assets arising from business combinations. Telefónica analysed the various items included in its CapEx model, enabling it to classify investments into the following items:
Disclosures on CapEx for 2022 provided below are based on the template included in Annex II of Delegated Regulation (EU) 2021/2178 (the Disclosure Delegated Act):
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5.# Consolidated Annual Report 2022 Telefónica, S. A. 44
14 Restated value for 2021. The value reported in the 2021 Consolidated Management Report is 9.0%.
15 Restated value for 2021. The value reported in the 2021 Consolidated Management Report is 51.6%.
16 See Note 6 and Note 8 to Consolidated Financial Statements.
17 Fibre fixed network, 4G and 5G mobile networks.
18 Mainly copper fixed network, 2G and 3G mobile networks.
| Economic activities | Codes | Absolute CapEx (€M) | Proportion of CapEx (%) | Substantial contribution criteria Climate Change Mitigation | Climate Change adaptation | Water and marine resources | Circular economy | Pollution | Biodiversity and ecosystems | DNSH Criteria ('Does Not Significantly Harm') Climate Change mitigation | Climate Change adaptation | Water and marine resources | Circular economy | Pollution | Biodiversity and ecosystems | Minimum safeguards | Taxonomy-aligned proportion of CapEx, year N (%) | Taxonomy-aligned proportion of CapEx, year N-1 (%) | Category (enabling activity) | Category (transition activity) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| A. TAXONOMY-ELIGIBLE ACTIVITIES | ||||||||||||||||||||
| A.1 Environmentally sustainable activities (Taxonomy-aligned) | ||||||||||||||||||||
| Installation, maintenance and repair of energy efficiency equipment | 7.3 | 6 | 0.1 | P | P | P | P | P | P | NA | Y | NA | S | NA | Y | Y/N | 0.1 | NR | E | |
| Installation, maintenance and repair of instruments and devices for measuring, regulation and controlling energy performance of buildings | 7.5 | 2 | 0.02 | P | P | P | P | P | P | NA | Y | NA | S | NA | Y | Y/N | 0.02 | NR | E | |
| Data-driven solutions for GHG emissions reductions | 8.2 | 42 | 0.5 | P | P | P | P | P | P | NA | Y | NA | Y | NA | Y | Y/N | 0.5 | NR | E | |
| CapEx of environmentally sustainable activities (Taxonomy-aligned) (A.1) | 50 | 0.6 | 0.6 | |||||||||||||||||
| A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned) | ||||||||||||||||||||
| Transport by motorbikes, passenger cars and light commercial vehicles | 6.5 | 3 | 0.04 | |||||||||||||||||
| Installation, maintenance and repair of energy efficiency equipment | 7.3 | 3 | 0.03 | |||||||||||||||||
| Acquisition and ownership of buildings | 7.7 | 55 | 0.7 | |||||||||||||||||
| Data processing, hosting and related activities | 8.1 | 38 | 0.5 | |||||||||||||||||
| Data-driven solutions for GHG emissions reductions | 8.2 | 2 | 0.02 | |||||||||||||||||
| Programming and broadcasting activities | 8.3 | 86 | 1.0 | |||||||||||||||||
| Motion picture, video and television programme production, sound recording and music publishing activities | 13.3 | 39 | 0.5 | |||||||||||||||||
| CapEx of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned) (A.2) | 225 | 2.7 | ||||||||||||||||||
| Total (A.1 + A.2) | 275 | 3.3 | 0.6 | |||||||||||||||||
| B. TAXONOMY-NON-ELIGIBLE ACTIVITIES | ||||||||||||||||||||
| CapEx of Taxonomy-non-eligible activities (B) | 7,992 | 96.7 | ||||||||||||||||||
| Total (A + B) | 8,266 | 100.0 |
NI: Activity 8.2 is not included within the criteria of Annex II of the Delegated Act on Climate Change.
P: Pending. The detailed technical screening criteria associated with the other four environmental objectives (sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems) have yet to be published.
NA: Not applicable according to Commission Delegated Regulation (EU) 2021/2139 of June 4, 2021.
NR: No alignment was reported based on legal requirements in the 2021 Consolidated Management Report.
Consolidated management report 2022 l
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
As previously explained, the information reported on eligibility in 2021, in relation to activity 8.2, considered a minimum value (which exclusively contemplated the CapEx related to digital services) and a maximum value (which also considered the investments associated with the telecommunications networks, necessary to provide connectivity solutions and data transmission). The minimum value corresponding to 2022 (A1+A2 in the previous table) of 3.3% would be comparable to 1.8%¹⁹ for the year 2021. The differences with respect to the previous year are mainly explained by the inclusion of: acquisition of buildings (+0.7 p.p.), increase investments in Cloud (+0.3 p.p.) and in platforms (+0.3 p.p.) that were identified based on the higher granularity of the information. The maximum value corresponding to 2022 of 71.6% would be comparable to 68.5%²⁰ for the year 2021. New this year is that the values also considered investments associated with wholesale services and other investments associated with the network that were identified based on the higher granularity of the information.
This indicator shows the proportion of operating expenditure (OpEx) associated with the economic activities covered by the taxonomy. The denominator includes direct non-capitalised costs related to short-term leases, maintenance and repairs, and any other direct expenditures relating to the day-to-day servicing of assets of property, plant and equipment that are necessary to ensure the continued and effective functioning of such assets. Telefónica analysed the different items included in its OpEx model, obtaining a Taxonomy-eligible result of approximately 0% in 2022, in accordance with the definition of operating expenses contemplated in the Regulation. Non taxonomy-eligible OpEx amounts to 2,833 million euros (B). The information related to OpEx for the year 2022 is shown below according to the template included in Annex II of the Delegated Regulation (EU) 2021/2178 (the Disclosure Delegated Act):
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1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
| Economic activities | Codes | Absolute OpEx (€M) | Proportion of OpEx (%) | Substantial contribution criteria Climate Change Mitigation | Climate Change adaptation | Water and marine resources | Circular economy | Pollution | Biodiversity and ecosystems | DNSH Criteria ('Does Not Significantly Harm') Climate Change mitigation | Climate Change adaptation | Water and marine resources | Circular economy | Pollution | Biodiversity and ecosystems | Minimum safeguards | Taxonomy-aligned proportion of OpEx, year N (%) | Taxonomy-aligned proportion of OpEx, year N-1 (%) | Category (enabling activity) | Category (transition activity) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| A. TAXONOMY-ELIGIBLE ACTIVITIES | ||||||||||||||||||||
| A.1 Environmentally sustainable activities (Taxonomy-aligned) | ||||||||||||||||||||
| OpEx of environmentally sustainable activities (Taxonomy-aligned) (A.1) | 0 | 0.0 | ||||||||||||||||||
| A.2 Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned) | ||||||||||||||||||||
| Data-driven solutions for GHG emissions reductions | 8.2 | 0.1 | 0.004 | |||||||||||||||||
| OpEx of Taxonomy-eligible but not environmentally sustainable activities (not Taxonomy-aligned) (A.2) | 0.1 | 0.004 | ||||||||||||||||||
| Total (A.1 + A.2) | 0.1 | 0.004 | ||||||||||||||||||
| B. TAXONOMY-NON-ELIGIBLE ACTIVITIES | ||||||||||||||||||||
| OpEx of Taxonomy-non-eligible activities (B) | 2,833 | 100.0 | ||||||||||||||||||
| Total (A + B) | 2,833 | 100.0 |
Consolidated management report 2022 l
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
As previously explained, the information reported on eligibility the previous year in relation to operating expenses considered a minimum and a maximum value. The minimum value considered exclusively expenditures related to digital services, which was approximately 0%, in both 2021 and 2022. The maximum value considered the OpEX associated with the network technologies that carry out the data transmission. The value of 71.0% corresponding to 2022 would be comparable to the 77.3% included in the 2021 Consolidated Management Report.
Each activity identified as Taxonomy eligible is assessed for compliance with the technical screening criteria of substantial contribution and “Do no significant harm” as laid down in the Regulation. Compliance with social minimum safeguards at Group level was also verified. The main actions and measures taken by Telefónica can be summarised as follows:
In its draft of FAQs, disclosed in December 2022, the European Commission includes certain clarifications about this activity, specifically about the criteria for compliance and verification of compliance with the Code of Conduct. The response states that in early 2023 the Code of Conduct will be completed with an assessment framework for external verification of compliance with the practices set out in that Code of Conduct. Telefónica has participated in the ICT Council’s working group, providing feedback on the proposal for establishing this assessment framework to verify compliance with the Code of Conduct in order to make it auditable.# Consolidated Annual Report 2022
Since the framework is still not available, it is not possible to report alignment with these technical criteria in 2022.
The substantial contribution to climate change mitigation of data-driven solutions is associated with the fulfilment of the following technical screening criteria:
Regarding technical criterion one, the use of solutions to reduce emissions, is demonstrated through a set of studies and methodologies that evaluate, identify, and often quantify the impacts of the digital solutions provided by Telefónica to its customers on the climate. There are numerous industry studies showing how the use of digital solutions reduce emissions, such as those mentioned above. Example include the GSMA's The Abatement Effect and the GeSI Mobile Carbon Impact both of which provide information on the substantial contribution of avoided emissions from these ICT solutions.
Analysis carried by Telefónica included the following projects:
In relation to the first technical screening criterion, the substantial contribution of solutions applied to the telecommunications network has also been analysed and demonstrated.
Telefónica identified the audiovisual content broadcast on its Movistar Plus platform and classified it into two categories in accordance with the Regulation for each activity:
To substantially contribute to climate change adaptation, the Regulation states that activities 8.3 and 13.3 must provide a technology, product, service, information or practice to increase the level of resilience of third parties to physical climate risks. Telefónica broadcasts content related to the environment and climate change, mainly through the broadcasting of documentaries (activity 13.3). For this activity, it was not possible to fully justify the technical alignment criteria. However, it should be noted that, in Spain alone, the viewing of this content reached a total of almost 6 million hours in 2022, taking into account only Movistar Plus' own channels.
As mentioned previously, Telefónica also carries out numerous actions related to energy efficiency that contribute to reducing greenhouse gas emissions from its own activity. The following activities have been considered Taxonomy-aligned:
– 7.3. Installation, maintenance and repair of energy efficiency equipment
The initiatives identified by Telefónica are mainly related to the modernisation of air conditioning and free-cooling in buildings. Telefónica includes EER purchase criteria identifying minimum performance, in line with it's energy efficiency strategy. Equipment that meets the minimum criteria of high energy efficiency was considered Taxonomy-aligned.
– 7.5. Installation, maintenance and repair of instruments and devices for measuring, regulation and controlling energy performance of buildings
The initiatives identified by Telefónica correspond to the implementation of electronic devices to improve the energy management of buildings. Therefore, this activity is considered to be aligned with the individual measures listed in activity 7.5.
The ‘do not significant harm to climate change adaptation’ principle requires the identification and assessment of physical climate risks associated with Telefónica’s operations under different climate scenarios. The objective is to identify and apply adaptation solutions that significantly reduce the material risks identified. Risk identification is carried out in accordance with the Group's risk management approach, tailored to the cause underlying the climate risk assessment. For each risk, the probability of occurrence is estimated for each risk, along with the possible impact and economic value, to arrive at an expected level of exposure for each scenario analysed23.# Consolidated management report 2022
To this end, Telefónica assessed the physical risk of climate change using climate projections covering both the RCP2.6 (global temperature increase by the end of the century of no more than 2ºC) and RCP 8.5 (global temperatures increase by the end of the century of around 4ºC) climate scenarios and time horizons up to 2030, 2040 and 2050. In addition, Telefónica has developed an Adaptation Plan containing, which includes several lines of initiatives aimed at protecting the Company’s assets against any extreme weather event (e.g. extreme wind, fires or sea level rise) to reduce its exposure to the main physical risks identified and to adapt to the consequences of climate change. For further information, see chapter 2.2. Energy and climate change
Telefónica's water consumption is mainly due to sanitary use, and to a lesser extent to its use in cooling. Aware of this, Telefónica takes several measures to use water more efficiently, especially in areas of high water stress (765 millions of liters in 2022). Water consumption of data centres is undertaken through a closed cooling system, so there are no discharges to freshwater streams or seawater that could cause harm or have a material adverse impact. Of the 3,194 millions of liters of water we consumed in 2022, the vast majority was for sanitary uses of the Group's employees.
The maintenance of the network infrastructure is the main source of waste for Telefónica. With regard to the management of waste at the end of the useful life of electrical and electronic equipment, Telefónica maintains contractual agreements for the collection of waste and verifies that the waste manager is authorised and has adequate control over the waste. In addition, the appropriate documentation is in place to ensure compliance with the directives applicable to the equipment purchased and that are part of the Company's operations.
For climate change, any risk associated with a negative perception of Telefónica's commitments to a low carbon economy or adapting to resource scarcity is considered a material strategic impact. For further information, see chapter 2.3. Circular Economy
For an economic activity to qualify as environmentally sustainable, it must be carried out in accordance with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. Telefónica’s compliance was assessed taking into account the Platform on Sustainable Finance’s Report on Minimum Safeguards published in October 2022. It is worth noting that, this Platform report was prepared for the sole purpose of guiding the European Commission in establishing formal criteria for assessing social issues, Telefónica considered it a good practice to anticipate potential future regulatory developments and analysed the alignment with social safeguards based on the four areas identified in the report: human rights, corruption, taxation and fair competition.
Telefónica respects and promotes human rights throughout its entire value chain. For this reason, it has a due diligence system in place that includes policies, periodic procedures to assess adverse impacts, management measures to prevent and mitigate identified potential impacts, monitoring and communication procedures, and complaint and remedy mechanisms. Likewise, it also has policies and procedures in place regarding competition, anti-corruption, responsible business, conflicts of interest, and fiscal responsibility, among others, to reinforce the Group's commitment to social rights and sustainable growth. For further information, see chapter 2.15. Human rights
Based on the issues addressed in the previous sections, Telefónica is implementing all the requirements it needs to comply with the three levels of technical screening criteria associated with the climate change mitigation and adaptation objectives for activities reported by Telefónica.
Telefónica is the company that it is today thanks to its almost 100 years of transformation and adaptation. At a time when technology is more present than ever in our lives, we cannot forget that the most important connections are human ones. They are the main source of people's well-being and happiness. At Telefónica, we know that it is people who give meaning to technology and not the other way around. For this reason, we offer connections that bring people together, rather than isolate them; connections that allow them to express themselves, share with others and improve their quality of life. This mission compels us to protect people and the planet, as well as ensure that business ethics are at the heart of everything we do. We aim to digitalise the whole of society, leaving no one behind, naturally aligning ourselves with the United Nations 2030 Agenda, which highlights the key role of technology, innovation and communications in addressing the great challenges facing humanity. We offer innovative solutions that transform and simplify people's lives, and we continue to work to do so more and more effectively. We believe in a more compassionate world that is driven by the talents of people. That is why we have spent nearly 100 years not only securing the best connections, but supporting talent the best way we know how, by connecting it. We are a privately held and listed global company that in 2022 operated in 12 countries (Spain, Germany, Brazil, the United Kingdom, Argentina, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela) and had a presence in 38 countries, representing 383 million connections worldwide. We also have emerging units such as Telefónica Infra, a subsidiary of the Telefónica Group that operates as a portfolio manager, which owns and rotates stakes in vehicles for investments in infrastructure together with financial investors.
Key indicators
| Revenue 2022 | Millions of euros |
|---|---|
| Telefónica Spain | 12,497 |
| Telefónica Germany | 8,224 |
| Telefónica Brazil | 8,870 |
| Telefónica Hispam | 9,141 |
| VMED O2 | 12,155 |
| Connections 2022 | Thousands |
| Total accesses | |
| Telefónica Spain | 40,493 |
| Telefónica Germany | 48,892 |
| Telefónica Brazil | 112,424 |
| Telefónica Hispam | 110,971 |
| VMED O2 | 57,745 |
| Key financial indicators | Millions of euros | 2022 | Reported annual variation |
|---|---|---|---|
| Revenues | 39,993 | 1.8% | |
| OIBDA | 12,852 | (41.5%) | |
| Profit for the year | 2,319 | (78.4%) | |
| Free Cash Flow | 4,566 | 72.4% | |
| Net financial debt | 26,687 | 2.3% |
In 2022, European and US equity and bond markets suffered historic declines amid high levels of uncertainty and volatility. Among the main European markets (EURO STOXX 50 ‑11.7%), the DAX performed the worst (‑12.3%), followed by the CAC 40 (-9.5%), while the IBEX 35 recorded a better relative performance (‑5.6%) and the FTSE 100 closed with slight gains (+0.9%). While most European indices had their worst annual performance since 2018, in the US they suffered their biggest falls since 2008 (Nasdaq ‑33.1%, S&P ‑19.4% and Dow Jones ‑8.8%). The MSCI World index fell by 19.5%. As for the Western bond market, there were the largest price cuts in decades, with an unprecedented rally in yields (e.g. the 10-year US Treasury bond closed 2022 at 3.9% vs. 1.5% in 2021). The determining factors for the performance of the markets in 2022 were high inflation and monetary policy by central banks, alongside a monetary stimulus withdrawal process and interest rate hikes to control inflation, the unfolding war in Ukraine, the situation and reopening of the economy in China and the global macroeconomic scenario. These factors led to a strong sector rotation and high levels of uncertainty and volatility in the markets, and their behaviour remains key to market performance in 2023.
The performance of the telecommunications sector was divided into two clear parts in 2022. In the first half, it outperformed in relative terms (STOXX Telecommunications stable vs. STOXX 600 ‑16.5%) favoured by the rotation towards defensive and value stocks, hopes of consolidation in certain markets (as in Spain with the proposed merger between Orange and MásMóvil) and low valuations, coupled with industrial interest in the sector. Telefónica, which also benefited from the appreciation of Latin American currencies and speculation about its return to the EURO STOXX 50, was the best performing operator (+26.2%). In the second half of the year, despite solid results, STOXX Telecommunications had suffered a reversal in its fortunes (‑17.7% vs.
Telefónica continues to implement its strategy and, in 2022, a difficult year from a macroeconomic and geopolitical point of view, met its growth targets, which it revised upwards following the results of the first six months of the year. Telefónica delivered profitable and sustainable revenues and OIBDA growth and continued to allocate capital efficiently, prioritising growth investments. Telefónica ended the 2022 financial year with a market capitalisation of €19.5 billion, price per share of €3.39, ‑12.1% in the year, and total shareholder return of ‑5.3%. Regarding the dividend payment, €0.30 per share was paid in 2022 (€0.15 per share in June under the voluntary flexible dividend and €0.15 per share in December in cash). The 2022 shareholder remuneration policy provides for a dividend of €0.30 per share in cash (€0.15 per share paid in December 2022 and €0.15 per share to be paid in June 2023). The 2022 dividend yield stood at 8.9%. In addition, in April 2022, 139.3 million treasury shares were redeemed.
Sustainability starts at home. Acting with integrity, commitment and transparency is what helps us build trusting relationships. That is why we go beyond our responsibility and aim to be an exemplary company with the trust of our stakeholders: customers, employees, suppliers and shareholders.
Connectivity is the fundamental requirement for access to the digital world and at Telefónica we focus our efforts on having the best technology for our network, a network based on fibre technologies, fibre to the home (FTTH) and the development of 4G and 5G mobile technologies, thereby ensuring excellent Wi-Fi connectivity in the home. Telefónica has already switched on 5G technology in its four main markets: Spain, Brazil, Germany and the United Kingdom. 5G is not just a new generation of mobile telephony, it is a revolution, both due to its practical applications for all sectors and because it enables ultra- broadband coverage to be extended. In addition, 5G technology is more efficient, up to 90% more efficient than 4G per unit of traffic. Our network has always been a unique asset. People's lives depend on it and it has shown unrivalled resilience when it has been needed most. It has demonstrated its robustness and stability by accommodating the large growth in traffic caused by the COVID-19 crisis in 2020 without significant incidents or saturation. For further information, see chapter 2.12. Responsibility in our products and services. We have a scalable, innovative network, capable of handling more and more traffic, a greater number of services and a more complex value proposition in both B2C and B2B areas. It is a flexible and efficient network thanks to an increasingly automated management that is evolving towards the zero-touch concept. It is also a more sustainable network, powered by renewable sources, which has managed to reduce energy consumption by 7.2% since 2015, despite a 7.4-fold increase in the traffic handled since then. Our aim is to bring technology to everyone so that they can benefit from the opportunities it offers and build fairer, more prosperous and sustainable societies. Infrastructure deployment is key in this regard, as it allows our services to reach all regions, including rural or hard- to-reach areas.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 54
In this regard, our LTE mobile networks have a penetration of 91% and we have over 24 million ultra- broadband connections (6.6% higher than the previous year). We are committed to achieving between 90-97% rural mobile broadband coverage by 2024. In 2022, we already have 80% in Brazil, 94% in Spain and we have exceeded the target in Germany with 99%.
| LTE Penetration | 2021 | 2022 |
|---|---|---|
| Spain | 91.6% | 91.6% |
| United Kingdom | 91.5% | 90.5% |
| Germany | 98.9% | 97.3% |
| Brazil | 85.1% | 88.1% |
| Argentina | 89.2% | 91.0% |
| Peru | 91.3% | 92.3% |
| Chile | 91.8% | 90.5% |
| Uruguay | 91.4% | 92.8% |
| Colombia | 83.1% | 86.1% |
| Mexico | 79.7% | 85.9% |
| Total | 89.6% | 90.5% |
| UBB Accesses (thousands) | 2021 | 2022 | YoY variation |
|---|---|---|---|
| Spain | 4,848 | 5,042 | 4.0% |
| Germany | 1,857 | 1,939 | 4.4% |
| Brazil | 5,535 | 5,968 | 7.8% |
| Hispam | 4,432 | 5,155 | 16.3% |
| Total | 22,282 | 23,758 | 6.6% |
We have been monitoring and reporting our Net Promoter Score (NPS) as a recommendation indicator for our products and services since 2018. We perform the calculation of the Group’s Global NPS based on the results obtained from each of our operations. This indicator has also been set as a target linked to Customer Trust for the variable remuneration of all the Company's employees in the short term. For further information, see chapter 2.11. Customers.
In 2022, we ended the year with a result of 30 points, 4 above last year’s figure and we exceeded the annual target as a result of positive performance in Brazil, Hispam and Germany and, more significantly in Spain.
| NPS Telefónica Group | 2021¹ | 2022 |
|---|---|---|
| 26 | 30 |
¹ Includes Spain, Germany, Brazil and Hispam (Argentina, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay, and Venezuela).
At Telefónica, we aim to minimise our footprint and take advantage of digitalisation as a key tool for tackling environmental challenges. Our environmental strategy, therefore, cuts across the business and seeks to decouple economic growth from our impact on the planet. To help limit the global temperature rise to 1.5°C, we will have net zero emissions by 2040, including our value chain. We also aim to be a Zero Waste company by 2030, through eco-design, circular purchasing, reuse and recycling. These targets are not only compatible with the expansion of the network and quality of service, but also help us to be more competitive. We obtained 82% of our electricity consumption from renewable sources in the Group as a whole -100% in our main markets, as well as in Chile and Peru- and we have reduced carbon emissions by 80% (scope 1+2) compared to 2015. For further information, see chapter 2.2. Energy and climate change. For further information, see chapter 2.3. Circular Economy. We also drive connectivity and digitalisation as key levers to help our customers run their business more efficiently and sustainably. Thanks to the efficiencies generated by our products and services, 81.7 million tonnes of CO2 emissions were avoided in 2022. For further information, see chapter 2.4. Digital solutions for the green transition.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 55
¹ Reported figure in 2021: 27.
Key energy and climate change indicators
Base year: 2015
| 2015 | 2021 | 2022 | |
|---|---|---|---|
| % Renewable electricity consumption in own facilities | 17% | 79% | 82% |
| Energy consumption per traffic unit (MWh/PB) | 386 | 54 | 49 |
| % Evolution of energy efficiency (base year: 2015) | – | -86% | -87% |
| GHG emissions scope 1+2 (market method) (tCO2e) | 1,811,155 | 536,737 | 353,346 |
| Zero Waste in 2030 Target | 2030 | 2021 | 2022 |
|---|---|---|---|
| Percentage of recycled waste | 100% | 98% | 98% |
At Telefónica, we incorporate diversity and inclusion as a key element to connect talent and grow as a company. The Global Diversity Council promotes an inclusive culture and leadership style to ensure environments where employees can give their best. We are committed to diversity in all its forms, but our strategy is built around five lines of work: gender equality, the LGBT+ community, people with disabilities, generational diversity and ethnic diversity. In particular, when it comes to gender equality, our targets for 2024 are to have 33% of directors being filled by women and to achieve an adjusted pay gap of +/-1%. These targets will contribute to eliminating the gender pay gap by 2050, which is our long-term north star. With regard to people with disabilities, we are committed to doubling the number of employees with disabilities over the next two years. For further information, see chapter 2.7. Diversity and inclusion.
| Women in Telefónica | 2021 | 2022 |
|---|---|---|
| Women in the workforce | 38.1% | 38.6% |
| Women directors | 29.5% | 31.3%² |
| Pay gap | 2021 | 2022 |
|---|---|---|
| Gross pay gap | 17.49%³ | 16.80% |
| Adjusted pay gap | 1.18% | 0.74% |
| Employees with disabilities | 2021 | 2022 |
|---|---|---|
| 1,128⁴ | 1,482 |
With the Sustainable Development Goals as our compass and our unwavering commitment to human rights, we help society thrive by fostering economic and social progress through digitalisation. At Telefónica, we identify where and how we contribute most significantly to the SDGs and measure our social and environmental impact annually. We have developed an innovative ESG impact assessment model with a methodology based on Harvard University's Impact Weighted Account Initiative (IWAI) and KPMG's True Value methodology, which shows that we contribute over €98 billion to communities. In addition, sustainable financing helps us to continue to support the SDGs with projects that have a social and environmental impact. For further information, see chapter 2.14. Contribution and impact on communities.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5.# Consolidated Annual Report 2022
| Bloomberg Gender-Equality Index | Included |
| CDP | A |
| CDP Supplier Engagement Leader | |
| Digital Inclusion Benchmark (DIB) | 89.5/100 |
| 1st in the world (ICT sector) | |
| 2021 Assessment | |
| EcoVadis | 76/100 |
| Fortune | Members of the Most Admired Companies 2022 list (4th in the world/2nd in Europe) |
| FTSE Russell | 4.4/5 |
| 1st in the world (telecommunications sector) | |
| Moody’s Vigeo Eiris | 67/100 |
| MSCI | A |
| Ranking Digital Rights | 1st in the telecommunications sector |
| Refinitiv | A - |
| S&P DJSI | 86/100 |
| Member of DJSI Europe | |
| Sustainalytics | 15.2 (low risk) |
| 6th in the telecommunications sector | |
| Workforce Disclosure Initiative | 91% |
The table includes the latest valuations provided by institutions in 2022 or later, but based on information from that year.
GRI 2-6
2022 was a challenging year, during which Telefónica showed its resilience and ability to mitigate the effects of an adverse macro environment. Additionally, in 2022 the foreign exchange rates positively affected Telefónica’s results, after various years of negative impacts, mitigating the impact of the inflation in Europe and certain Latin American markets.
In 2022, revenues grew in reported terms y-o-y for the first time since 2015 (+1.8%). In organic terms, considering 50% of the results of VMO2 in 2021 and 2022, revenues grew 4.0% y-o-y, supported by a strong commercial momentum. OIBDA in organic terms, considering 50% of the results of VMO2 in 2021 and 2022, grew 3.0% due to higher revenues and cost efficiencies.
Telefónica strengthened its position in core markets:
We took further steps in our strategy to build a stronger Telefónica and focused our investments on next-generation networks, while maintaining a disciplined capital allocation framework. Telefónica’s total accesses include Oi accesses base since April 1, 2022 within Telefónica Brazil and exclude Telefónica El Salvador since January 1, 2022, totaling 383.1 million as of December 31, 2022. Accesses base increased by 3.8% year-on-year, mainly due to the prior impacts. Excluding the sale of Telefónica El Salvador, the increase of the accesses base was 4.3%.
The table below shows the evolution of accesses over the past two years as of December 31, of such years:
| %Reported YoY | %Organic YoY | |||
|---|---|---|---|---|
| Accesses | 2021 | 2022 | ||
| Thousands of accesses | ||||
| Fixed telephony accesses(1) | 29,966.9 | 27,941.9 | (6.8%) | (6.4%) |
| Broadband | 25,833.3 | 26,303.9 | 1.8% | 1.8% |
| UBB | 22,281.8 | 23,757.7 | 6.6% | 6.6% |
| FTTH | 12,243.8 | 14,273.0 | 16.6% | 16.6% |
| Mobile accesses | 277,793.3 | 292,168.1 | 5.2% | 5.8% |
| Prepay | 129,675.7 | 129,685.7 | 0.0% | 1.2% |
| Contract | 117,432.1 | 126,242.3 | 7.5% | 7.7% |
| IoT | 30,685.4 | 36,240.1 | 18.1% | 18.1% |
| Pay TV | 11,111.7 | 10,586.5 | (4.7%) | (4.7%) |
| Retail Accesses | 344,945.5 | 357,213.3 | 3.6% | 4.1% |
| Wholesale Accesses | 24,173.3 | 25,932.9 | 7.3% | 7.3% |
| Fixed wholesale accesses | 3,694.5 | 3,665.7 | (0.8%) | (0.8%) |
| FTTH wholesale accesses | 2,988.0 | 3,211.7 | 7.5% | 7.5% |
| Mobile wholesale accesses | 20,478.8 | 22,267.2 | 8.7% | 8.7% |
| Total Accesses | 369,118.9 | 383,146.2 | 3.8% | 4.3% |
Notes:
The table below shows the contribution to reported growth of each item considered to calculate the organic variations. To exclude the impact of the sale of Telefónica El Salvador in the calculation of organic variations, the 2021 comparative figures exclude the accesses of Telefónica El Salvador. For each line item, the contribution to reported growth, expressed in p.p., is the result of dividing the amount of each impact (on a net basis when the impact affects both years) by the consolidated reported figure for the previous year.
| %Reported YoY | %Organic YoY | Contribution to the reported growth (percentage points) | |
|---|---|---|---|
| Telefónica El Salvador | |||
| Fixed telephony accesses | (6.8%) | (6.4%) | — |
| Broadband | 1.8% | 1.8% | — |
| UBB | 6.6% | 6.6% | — |
| FTTH | 16.6% | 16.6% | — |
| Mobile accesses | 5.2% | 5.8% | (0.5) |
| Prepay | 0.0% | 1.2% | (0.4) |
| Contract | 7.5% | 7.7% | (0.1) |
| IoT | 18.1% | 18.1% | — |
| Pay TV | (4.7%) | (4.7%) | — |
| Retail Accesses | 3.6% | 4.1% | (0.5) |
| Wholesale Accesses | 7.3% | 7.3% | — |
| Fixed wholesale accesses | (0.8%) | (0.8%) | — |
| FTTH wholesale accesses | 7.5% | 7.5% | — |
| Mobile wholesale accesses | 8.7% | 8.7% | — |
| Total Accesses | 3.8% | 4.3% | (0.5) |
The table below shows the evolution of accesses by segment:
| YoY variation % | Over Total Accesses | |
|---|---|---|
| ACCESSES | 2021 | 2022 |
| Telefónica Spain | 0.9% | 10.9% |
| Telefónica United Kingdom / VMED O2 UK(1) | 3.1% | 15.2% |
| Telefónica Germany | (2.6%) | 13.6% |
| Telefónica Brazil | 13.7% | 26.8% |
| Telefónica Hispam | 0.5% | 29.9% |
| Other companies | (6.6%) | 3.7% |
| 10.6% | 15.1% | |
| 12.8% | ||
| 29.3% | ||
| 29.0% | ||
| 3.3% |
Note:
Mobile accesses totaled 292.2 million as of December 31, 2022, up 5.2% compared to December 31, 2021, mainly due to the inclusion of Oi's mobile accesses, partially offset by the sale of Telefónica El Salvador. Excluding the sale of Telefónica El Salvador, mobile accesses increased by 5.8%. Postpaid accesses represented 49.3% of the mobile accesses excluding IoT accesses (+1.8 p.p. and +1.6 p.p. excluding the impact of the sale of Telefónica El Salvador).
Fixed broadband accesses stood at 26.3 million at December 31, 2022, up 1.8% year-on-year. Retail fiber (FTTH) accesses stood at 14.3 million at December 31, 2022, growing by 16.6% compared to December 31, 2021. Pay TV accesses totaled 10.6 million as of December 31, 2022, down 4.7% year-on-year mainly due to lower accesses in Telefónica Spain.
The tables below show the evolution of Telefónica's estimated access market share for mobile and fixed broadband for the past two years.
Competitive Position
Evolution Mobile Market Share(1)
| Telefónica | 2021 | 2022 |
|---|---|---|
| Spain | 27.6% | 27.5% |
| United Kingdom(2) | 30.1% | 29.6% |
| Germany | 34.9% | 34.2% |
| Brazil | 33.1% | 38.9% |
| Argentina | 29.2% | 28.5% |
| Chile | 25.8% | 25.5% |
| Peru | 30.4% | 29.0% |
| Colombia | 26.0% | 25.6% |
| Venezuela | 54.7% | 53.3% |
| Mexico | 19.5% | 18.3% |
| Ecuador | 31.5% | 31.4% |
| Uruguay | 29.1% | 27.8% |
(1) Internal estimates in both years.
(2) It refers to VMO2 market share as of September 2021 and September 2022, respectively.
FBB Market Share(1)
| Telefónica | 2021 | 2022 |
|---|---|---|
| Spain | 35.3% | 34.0% |
| Brazil | 15.3% | 14.6% |
| Argentina | 11.7% | 11.3% |
| Chile | 29.8% | 31.5% |
| Peru | 61.0% | 55.1% |
| Colombia | 13.8% | 15.1% |
(1) Internal estimates in both years.
In this section, we discuss changes in the Group’s consolidated income statements for the years ended December 31, 2022 and 2021.# Consolidated Results
| Year ended December 31, | Variation | Consolidated Results |
|---|---|---|
| 2021 | 2022 | |
| Millions of euros | ||
| Total Revenues | 39,277 | 39,993 |
| Other income | 12,673 | 2,065 |
| Supplies | (12,258) | (12,941) |
| Personnel expenses | (6,733) | (5,524) |
| Other expenses | (10,976) | (10,741) |
| OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION (OIBDA) | 21,983 | 12,852 |
| OIBDA Margin | 56.0% | 32.1% |
| Depreciation and amortization | (8,397) | (8,796) |
| Amortization of intangible assets, depreciation of property, plant and equipment | (6,748) | (6,731) |
| Amortization of rights of use | (1,649) | (2,065) |
| OPERATING INCOME (OI) | 13,586 | 4,056 |
| Operating Margin | 34.6% | 10.1% |
| Share of income of investments accounted for by the equity method | (127) | 217 |
| Net financial expense | (1,364) | (1,313) |
| PROFIT BEFORE TAX | 12,095 | 2,960 |
| Corporate income tax | (1,378) | (641) |
| PROFIT FOR THE YEAR | 10,717 | 2,319 |
| Attributable to equity holders of the parent | 8,137 | 2,011 |
| Attributable to non-controlling interests | 2,580 | 308 |
c.s.: change of sign
Year-on-year percentage changes referred to in this document as “organic” or presented in “organic terms” intend to present year-on-year variations on a comparable basis, by considering a constant perimeter of consolidation, constant average foreign exchange rates and by making certain other adjustments which are described herein. Organic variations should not be viewed in isolation or as an alternative to reported variations.
For purposes of this report, 2022/2021 organic variation is defined as the reported variation as adjusted to exclude the impacts detailed below:
| Millions of euros | |
|---|---|
| 2021 | |
| Telefónica Spain | 1,382 |
| Telefónica United Kingdom | — |
| Telefónica Germany | 22 |
| Telefónica Brazil | — |
| Telefónica Hispam | 174 |
| Other companies | 85 |
| Total restructuring costs | 1,663 |
The table below shows 2022/2021 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the consolidated income statement and CapEx and OIBDA-CapEx:
| YoY variation | TELEFÓNICA 2022 |
|---|---|
| % Reported YoY | |
| Revenues | 1.8% |
| Other income | (83.7%) |
| Supplies | 5.6% |
| Personnel expenses | (18.0%) |
| Other expenses | (2.1%) |
| OIBDA | (41.5%) |
| Depreciation and amortization | 4.8% |
| Operating income (OI) | (70.1%) |
| CapEx | (19.9%) |
| OIBDA-CapEx | (52.2%) |
The table below shows the contribution to reported growth of each item considered to calculate the organic variations, as explained above. For each line item, the contribution to reported growth, expressed in percentage points, is the result of dividing the amount of the impact of each such item (on a net basis when the impact affects both years) by the consolidated reported figure for the previous year.
| Contribution to reported growth (percentage points) | TELEFÓNICA2022 |
|---|---|
| Exchange rate effect | |
| Revenues | 4.5 |
| Other income | 0.6 |
| Supplies | 3.3 |
| Personnel expenses | 3.1 |
| Other expenses | 5.0 |
| OIBDA | 3.0 |
| Depreciation and amortization | 5.3 |
| Operating income (OI) | 1.6 |
| CapEx | 4.2 |
| OIBDA-CapEx | 2.4 |
Revenues in 2022 totaled 39,993 million euros, increasing 1.8% year-on-year in reported terms, positively impacted by foreign exchange effects, mainly due to the appreciation of the Brazilian real against the euro (+4.5 p.p.), despite the changes in the consolidation perimeter (-7.1 p.p.) related mainly to the exclusion of the entities that comprised our former Telefónica United Kingdom segment since June 1, 2021. In organic terms, as explained above, considering 50% of VMO2 in 2021 and 2022, revenues grew by 4.0%, thanks to the positive growth in service revenues (+3.2%) driven by Telefónica Brazil, Telefónica Germany and Telefónica Hispam.
Other income mainly includes work on fixed assets and gains on disposal of assets. In 2022, other income totaled 2,065 million euros compared to 12,673 million euros recorded in the same period of 2021 mainly due to the capital gain from the sale of the Telxius towers business (6,099 million euros), the establishment of VMO2 (4,460 million euros), the sale of 60% of the shares in InfraCo, SpA in Chile (274 million euros), the sale of Telefónica Costa Rica to Liberty Global (136 million euros) and the establishment of FiBrasil in Brazil (26 million euros). In 2022 the sale of fiber optic assets in Colombia (162 million euros) and the sale of fiber optic assets in United Kingdom (20 million euros) were recorded. In organic terms as explained above, considering 50% of VMO2 in 2021 and 2022, other revenues grew by 12.8%.
The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) was 29,206 million euros in 2022, down 2.5% year-on-year in reported terms. compared to 2021. This decrease was mainly attributable to the impact of changes in the scope of consolidation (-6.2 p.p.) mainly the exit of Telefónica United Kingdom from the perimeter on June 1, 2021, and lower restructuring costs (-5.0 p.p.), partially offset by changes in foreign exchange rates (+3.9 p.p.). In organic terms, as explained before, considering 50% of the results of VMO2 in 2021 and 2022, the total amount of supplies, personnel expenses and other expenses increased by 5.0%. The evolution of these expenses is explained in greater detail below:
As a result of the foregoing, OIBDA totaled 12,852 million euros in 2022, compared with 21,983 million euros in 2021, strongly impacted by the gains from the transactions recorded in "Other income" in 2021 (-49.2 p.p.), changes in the scope of consolidation (-4.5 p.p.) partially offset by lower restructuring expenses in 2022 (+6.8 p.p.), and the positive exchange rate impact (+3.0 p.p.). In organic terms, as explained above, considering 50% of VMO2 in 2021 and 2022, OIBDA would grow 3.0% year-on-year.
Depreciation and amortization amounted to 8,796 million euros in 2022 increasing by 4.8%, mainly affected by the impact of the exchange rates (+5.3 p.p.) as well as the changes in the consolidation perimeter (+1.3 p.p.) as a consequence of the sale of the towers communications division sale in 2021, which resulted in an increase in the amortization of rights of use. In organic terms, as explained above, considering 50% of the results of VMO2 in 2021 and 2022, amortization would decrease by 1.3% year-on-year.
Operating income (OI) for 2022 totaled 4,056 million euros compared to 13,586 million euros recorded in the same period of 2021, strongly impacted by the capital gains on the sale of businesses discussed above (-79.6 p.p.) and changes in the scope of consolidation (-8.2 p.p.), partially offset by lower restructuring expenses in 2022 (+10.9 p.p.). In organic terms, as explained above, considering 50% of VMO2 in 2021 and 2022, operating income grew by 15.4% year-on-year due to the result of revenue growth in all segments.
The share of income (loss) of investments accounted for by the equity method in 2022 was an income of 217 million euros, compared to a loss of 127 million euros in 2021, mainly due to the respective results of VMO2, affected by changes in the fair value of derivatives.
Net financial expense amounted to 1,313 million euros in 2022, down 51 million euros compared to 2021, mainly due to extraordinary income related to the payment by the Spanish administration to the Group of delayed interest in connection with tax litigation in Spain, which more than offset the increase in the expenses due to the increase in interest rates and a higher level of debt denominated in Brazilian reais.
Corporate income tax amounted to 641 million euros in 2022, decreasing compared to 2021 (1,378 million euros) by 737 million euros. The y-o-y change is explained mainly by the extraordinary expenses recorded in 2021 (among others, the impact of the Spanish tax inspection closing), the deconsolidation of the entities that comprised our former Telefónica United Kingdom segment since June 2021, the positive outcome of the tax inspection closing in Germany in 2022 and the corporate simplification carried out in Brazil in 2022.
As a result, profit for the year attributable to equity holders of the parent in 2022 was 2,011 million euros (8,137 million euros in 2021). Profit attributable to non-controlling interests was 308 million euros in 2022 (2,580 million euros in 2021). The variation is mainly due to a decrease in profit attributable to non-controlling interests in Telxius, which completed the sale of its towers divisions in Europe and Latin America in 2021.
CapEx totaled 5,819 million euros in 2022, down 19.9% year-on-year in reported terms, impacted by lower spectrum purchases in 2022 (-17.7 p.p), and the change in the consolidation perimeter (-13.6 p.p.), partially offset by the exchange rate impact (+4.2 p.p.). In organic terms, as explained above, considering 50% of VMO2 in 2021 and 2022, CapEx increased by 4.6% year-on-year.
OIBDA-CapEx stood at 7,033 million euros in 2022, compared to 14,716 million euros in 2021 (-52.2%), strongly affected by the above mentioned capital gains from the sale of businesses (-73.5 p.p.), partially offset by lower restructuring expenses (+10.1 p.p.),the positive effect of lower spectrum purchase (+8.8 p.p.), the recording of goodwill impairment in 2021 in a greater amount than asset impairments in 2022 (+2.1 p.p.) and exchange rate impact (+2.4 p.p.). In organic terms, as explained above, considering 50% of VMO2 in 2021 and 2022, OIBDA- CapEx grew by 1.8% year-on-year.
The table below shows the evolution of accesses in Telefónica Spain over the past two years as of December 31 of such years:
| ACCESSES | Thousands of accesses | ||
|---|---|---|---|
| 2021 | 2022 | %Reported YoY | |
| Fixed telephony accesses (1) | 8,376.3 | 8,102.3 | (3.3%) |
| Broadband | 5,874.9 | 5,854.5 | (0.3%) |
| FTTH | 4,847.6 | 5,042.2 | 4.0% |
| Mobile accesses | 18,484.6 | 19,347.3 | 4.7% |
| Prepay | 752.5 | 796.0 | 5.8% |
| Contract | 15,210.7 | 15,099.5 | (0.7%) |
| IoT | 2,521.5 | 3,451.8 | 36.9% |
| Pay TV | 3,716.4 | 3,526.3 | (5.1%) |
| Retail Accesses | 36,460.9 | 36,838.9 | 1.0% |
| Wholesale Accesses | 3,674.3 | 3,653.6 | (0.6%) |
| FTTH Wholesale Accesses | 2,982.0 | 3,206.1 | 7.5% |
| Total Accesses | 40,135.2 | 40,492.6 | 0.9% |
Notes:
(1) Includes "fixed wireless" and Voice over IP accesses.
(2) Accesses in 2022 include an upward revision of approximately 500 thousand IoT accesses recorded in March 2022.
In May 2022, we launched miMovistar, a new global portfolio for the general public through which customers will be able to choose the products and services they need in a simple, customizable and flexible way. The proposal is the natural evolution of Movistar Fusión, Movistar's benchmark product over the last ten years.The portfolio starts with connectivity (Internet, voice and data), to which, if the customer wishes, modules can be added to include a television content offer and value- added services such as, initially, health, gaming and security, to build the most complete and adapted formula that the customer wants. The company plans to integrate in the future more services within the miMovistar ecosystem, such as Movistar Car/Moto, Movistar Money, Home Insurance, Energy, as well as additional connectivity options. With this new move, Telefónica Spain responds to the needs derived from the transformation of the market and a consumer who demands flexibility and personalization, both in connectivity services and in content or services relevant to his life, while being able to control costs. In addition, each of the miMovistar connectivity options also includes a device at no cost to the customer, whose catalog depends on their choice and includes, in addition to smartphones, smart TVs, tablets, laptops or smart watches. Existing Movistar Fusión customers can choose to continue with their current tariff or switch to miMovistar and adapt it to what they choose. Telefónica Spain's investment in the 5G mobile network made it possible to achieve 85% of population coverage as of December 31, 2022. Additionally, in 2022, Telefónica Spain has continued to improve its offer proposals to strengthen its relationship with customers and reach new segments, highlighting:
* Solar 360, a joint venture of Repsol and Telefónica Spain formed to develop a solar self-consumption business. The new company started to operate in June 2022, offering a comprehensive self-consumption solution to private customers, communities of neighbors and companies, SMEs, and large companies, through solar panel installation.
* Movistar Prosegur Alarmas, a joint venture of Prosegur and Telefónica Spain, reached 445 thousand customers as of December 31, 2022.
Telefónica Spain had 40.5 million accesses as of December 31, 2022, an increase of 0.9% as compared to December 31, 2021, due to an increase in the IoT accesses base.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 67
The convergent offer (residential and SMEs) had a customer base of 4.5 million customers as of December 31, 2022, a decrease of 2.2% y-o-y. Retail fixed accesses totaled 8.1 million and decreased 3.3% as compared to December 31, 2021, with a net loss of 274 thousand accesses as of December 31, 2022. Retail broadband accesses totaled 5.9 million (-0.3% y- o-y), with a net loss of 20 thousand accesses as of December 31, 2022. Retail fiber (FTTH) accesses reached 5.0 million customers (+4.0% as compared to December 31, 2021), representing 86.1% of total retail broadband customers (+3.6 p.p. y-o-y) with net adds of 195 thousand accesses as of December 31, 2022. At December 31, 2022, fiber deployment reached 28.0 million premises, 1.1 million more than at December 31, 2021. Total retail mobile accesses stood at 19.3 million as of December 31, 2022, an increase of 4.7% as compared to December 31, 2021 as a result of an increase in the IoT accesses base (+36.9% y-o-y impacted by an upward revision recorded in March 2022 figures, in an amount of 500 thousand accesses) and prepay accesses (+5.8% y- o-y), with a decrease in mobile contract accesses (-0.7% y-o-y). Pay TV accesses reached 3.5 million at December 31, 2022, decreasing 5.1% year-on-year due to a higher penetration of customers in service bundles that do not include TV. Wholesale accesses stood at 3.7 million at December 31, 2022, down 0.6% year-on-year, and wholesale fiber (FTTH) accesses were up 7.5% year-on-year (87.8% of total wholesale accesses at December 31, 2022 compared with 81.2% at December 31, 2021).
The table below shows Telefónica Spain’s results over the past two years:
| Millions of euros | TELEFÓNICA SPAIN | 2021 | 2022 | % Reported YoY | % Organic YoY (1) |
|---|---|---|---|---|---|
| Revenues | 12,417 | 12,497 | 0.6% | 0.6% | |
| Mobile handset revenues | 400 | 548 | 37.4% | 37.4% | |
| Revenues ex-mobile handset sales | 12,017 | 11,948 | (0.6%) | (0.6%) | |
| Retail | 9,699 | 9,662 | (0.4%) | (0.4%) | |
| Wholesale and Other | 2,318 | 2,286 | (1.4%) | (1.4%) | |
| Other income | 664 | 803 | 20.9% | 20.9% | |
| Supplies | (4,636) | (5,008) | 8.0% | 8.0% | |
| Personnel expenses | (3,201) | (1,765) | (44.9%) | (6.1%) | |
| Other expenses | (1,867) | (1,939) | 3.9% | 6.4% | |
| OIBDA | 3,377 | 4,588 | 35.9% | (3.3%) | |
| Depreciation and amortization | (2,153) | (2,157) | 0.2% | 0.2% | |
| Amortization of intangible assets, depreciation of property, plant and equipment | (1,807) | (1,747) | (3.3%) | (3.3%) | |
| Amortization of rights of use | (346) | (410) | 18.3% | 18.3% | |
| Operating income (OI) | 1,224 | 2,431 | 98.6% | (6.1%) | |
| CapEx | 1,815 | 1,550 | (14.6%) | 5.9% | |
| OIBDA-CapEx | 1,562 | 3,038 | 94.5% | (7.3%) |
Notes: (1) See adjustments made to calculate organic variations below.
The table below shows 2022/2021 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures, and the contribution of each item for which we have adjusted to our reported growth:
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| YoY variation (percentage points) | Contribution to reported growth | ||||
|---|---|---|---|---|---|
| TELEFÓNICA SPAIN 2022 % Reported YoY | % Organic YoY | Optimization | Distribution Restructuring costs | Spectrum acquisition | |
| Revenues | 0.6% | 0.6% | — | — | — |
| Other income | 20.9% | 20.9% | — | — | — |
| Supplies | 8.0% | 8.0% | — | — | — |
| Personnel expenses | (44.9%) | (6.1%) | — | (41.4) | — |
| Other expenses | 3.9% | 6.4% | (2.3) | — | — |
| OIBDA | 35.9% | (3.3%) | 1.3 | 39.2 | — |
| Depreciation and amortization | 0.2% | 0.2% | — | — | — |
| Operating income (OI) | 98.6% | (6.1%) | 3.6 | 108.2 | — |
| CapEx | (14.6%) | 5.9% | — | — | (19.4) |
| OIBDA-CapEx | 94.5% | (7.3%) | 2.8 | 84.8 | 22.5 |
Revenues in 2022 amounted to 12,497 million euros, growing 0,6% y-o-y both in reported and in organic terms. This trend was supported by handset revenues due to the fact that since April 2021 the portfolio includes several devices as part of the packages (including 5G smartphones of different brands, Smart TVs, tablets and laptops, among others). The evolution of revenues excluding mobile handset sales is described below:
* Retail revenues totaled 9,662 million euros in 2022, decreasing by 0.4% year-on-year both in reported and in organic terms, due in part to the customer base decline, partially offset by higher IT revenues due to the higher demand for digitalisation projects in the B2B segment.
* Wholesale and other revenues totaled 2,286 million euros in 2022, decreasing by 1.4% year-on-year both in reported and in organic terms, due mainly to the decrease in fixed traffic revenues, mobile interconnection revenues due to lower mobile termination rates, and the impact of less "La Liga" content available in the wholesale offer since mid- August. These have been partially offset by an important recovery in roaming-in revenues at pre- pandemic levels and the growth of revenues from MVNOs.
The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) amounted 8,712 million euros in 2022, down 10.2% year- on-year in reported terms compared to 2021. The year- on-year evolution was mainly attributable to the restructuring costs recorded in 2021 (1,382 million euros). In organic terms, expenses increased by 4.6%.
* Supplies amounted to 5,008 million euros in 2022, up 8,0% year-on-year both in reported and organic terms compared to 2021, mainly attributable to higher handset costs in the year (from commercial campaigns offering free devices) as well as the costs related to IT revenue growth.
* Personnel expenses amounted to 1,765 million euros in 2022, down 44.9% year-on-year in reported terms compared to 2021, mainly attributable to the restructuring plan in 2021 (1,382 million euros). In organic terms, personnel expenses decreased by 6.1% due to savings from prior restructuring plan.
* Other expenses amounted to 1,939 million euros in 2022, up 3.9% year-on-year in reported terms compared to 2021, mainly attributable to the optimization of the distribution network (44 million euros) in 2021 (-2.3 p.p.). In organic terms, other expenses increased by 6.4% due mainly to higher energy costs.
OIBDA reached 4,588 million euros in 2022, a year-on- year increase of 35.9% in reported terms (-3.3% year-on- year in organic terms). Depreciation and amortization amounted to 2,157 million euros in 2022, increasing by 0.2% year-on-year both in reported and organic terms. Operating income amounted to 2,431 million euros in 2022, a year-on-year increase of 98.6% in reported terms. The year-on-year increase was mainly driven by the higher restructuring provision in 2021 than in 2022 (+108.2 p.p.) as well as the optimization of the distribution network in 2021 (+3.6 p.p.). Excluding these impacts, the decrease is 6.1%, impacted by lower service revenues and the impact of the higher energy costs for most of the year.
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After receiving the final approval from the UK Competition & Markets Authority (CMA), the joint venture between Liberty Global and Telefónica was established on June 1, 2021, and our former Telefónica United Kingdom segment was replaced by the new VMO2 segment.# Telefónica, S. A.
Telefónica ceased to fully consolidate the results of the entities that composed our former Telefónica United Kingdom segment in its consolidated financial statements and started to account for VMO2's results under the equity method. Therefore, since June 1, 2021, for purposes of the Group’s consolidated results, the results of VMO2 are reflected under a single heading of the consolidated income statement, “Share of income of investments accounted for by the equity method”. However, the VMO2 segment information included in this section is presented under management criteria, and shows 100% of the VMO2's results; Telefónica’s actual percentage ownership of VMO2 is 50%. The information of this segment in reported terms refers to the period from January 1 to December 31, 2022, compared with the period from June 1, 2021 to December 31, 2021. See additional information in: Note 2. Basis of presentation of the consolidated financial statements. "Agreement between Telefónica and Liberty Global plc to combine their operating businesses in the UK".
More than one year after the formation of VMO2, the company continues to integrate and innovate while investing heavily to expand and upgrade its fiber and 5G networks to provide the highest quality connectivity to more regions of the country. The FTTP speed upgrade of the existing network is accelerating after the completion of tests in the first quarter of 2022, paving the way for the planned deployment of fiber throughout the fixed network, which began in the fourth quarter of 2022 and is expected to be completed by 2028. The “Lightning” project rollout now totals 2.9 million accesses, further reinforcing VMO2's gigabit leadership in the UK with speeds of 1.1 Gbps offered across its entire footprint of 16.1 million premises passed.
On July 29, 2022, T. Infra, Liberty Global plc ("Liberty Global") and InfraVia Capital Partners ("InfraVia") reached an agreement for the establishment of a joint venture that will deploy fiber-to-the-home (FTTH) to 5 million homes in the United Kingdom currently not reached by VMO2's network, with potential for expansion to an additional 2 million homes. The fiber network will offer wholesale FTTH access to telecommunications service providers, with VMO2 acting as the lead customer, as well as providing a range of technical services. Liberty Global and Telefónica jointly hold a 50% stake in the joint venture through a holding company, with InfraVia owning the remaining 50%.
VMO2 launched the “Better Connections Plan”, its first sustainability strategy as a joint business, in May 2022 with a commitment to reduce carbon emissions, champion the circular economy, such as recycling devices and donating smartphones and tablets, and giving back to the community. The company has an ambitious target to achieve net zero carbon emissions across its operations, products and supply chain by the end of 2040, 10 years ahead of the Paris Agreement and the UK's target of net zero emissions by 2050.
The following table shows the evolution of accesses in VMO2 in 2022 compared to 2021:
| ACCESSES | Thousands of accesses | ||
|---|---|---|---|
| 2021 | 2022 | %Reported YoY | |
| Broadband | 5,626.7 | 5,661.6 | 0.6% |
| UBB | 5,596.8 | 5,653.8 | 1.0% |
| Mobile accesses | 32,276.8 | 33,831.3 | 4.8% |
| Prepay | 8,119.1 | 7,968.3 | (1.9%) |
| Contract | 15,938.1 | 16,087.6 | 0.9% |
| IoT | 8,219.7 | 9,775.5 | 18.9% |
| Retail Accesses | 46,021.1 | 46,926.8 | 2.0% |
| Wholesale Accesses | 9,966.6 | 10,818.6 | 8.5% |
| Total Accesses | 55,987.8 | 57,745.4 | 3.1% |
The total accesses base grew 3.1% year-on-year and stood at 57.7 million as of December 31, 2022, mainly driven by the increase in the mobile accesses base, which grew 4.8% year-on-year and reached 33.8 million accesses. The contract mobile customer base grew 0.9% year- on-year and reached 16.1 million accesses adding 149.5 thousand new accesses to the base in 2022. Churn remained stable at low levels.
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The prepay mobile customer base decreased 1.9% year-on-year and totaled 8.0 million accesses declining 150.8 thousand accesses to the base in 2022. IoT mobile customer base grew 18.9% year-on-year and reached 9.8 million accesses underpinned by the Smart Metering Programme roll out. The fixed broadband base grew 0.6% year-on-year and reached 5.7 million accesses, adding 34.9 thousand new accesses in 2022. UBB accesses grew 1.0% year-on-year with a net gain of 57.0 thousand new accesses in 2022, supported by the increase in customer demand for higher speeds. The company’s average broadband speed is 301 Mbps and increased 41% year-on-year, five times higher than the national average.
The table below shows the evolution of of the VMO2 segment's results over the past two years (which, for the purposes of 2022, consists of the results obtained by VMO2 from January 1 to December 31, 2022, and, for the purposes of 2021, consists of the results obtained by VMO2 from June 1 (the date on which VMO2 was established) to December 31, 2021):
| Millions of euros | VMO2 June 1 to December 30 2021 | December 2022 | % Organic YoY |
|---|---|---|---|
| Revenues | 7,223 | 12,155 | 0.0 % |
| Mobile Business | 4,122 | 6,938 | 1.7 % |
| Handset revenues | 1,234 | 1,894 | (0.9 %) |
| Fixed Business | 2,782 | 4,639 | (3.4 %) |
| Other | 319 | 578 | 8.0 % |
| Other income | 290 | 551 | 13.6 % |
| Supplies | (2,601) | (4,019) | (5.1 %) |
| Personnel expenses | (786) | (1,348) | (4.2 %) |
| Other expenses | (1,676) | (2,938) | 2.3 % |
| OIBDA | 2,450 | 4,401 | 6.3 % |
| Depreciation and amortization | (2,395) | (4,170) | 1.3 % |
| Operating income (OI) | 55 | 231 | 147.8 % |
| Share of income (loss) of investments accounted for by equity method | — | 1 | |
| Financial income | 27 | 24 | |
| Financial expenses | (504) | (1,020) | |
| Realized and unrealized gains on derivative instruments, net | (1) | 489 | 2,567 |
| Foreign currency transaction losses, net | (367) | (1,296) | |
| Net financial result | (355) | 275 | |
| Result before taxation | (300) | 507 | |
| Net result | (235) | 492 | |
| CapEx | 1,508 | 2,707 | |
| OIBDA-CapEx | 942 | 1,694 |
(1) VMO2 entered into various derivative instruments to manage interest rate exposure and foreign currency exposure. Generally, VMO2 does not apply hedge accounting to its derivative instruments. Accordingly, changes in the fair values of most of its derivatives are recorded in the finance results of its consolidated income statement.
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Year-on-year changes are mainly explained by the fact that the VMO2 segment’s results for 2022 include VMO2’s results for the full year, whereas the VMO2 segment's results for 2021 include VMO2’s results for seven months only. Further, the 2021 results were adversely affected by restructuring and integration costs incurred in connection with the incorporation of VMO2. Since both periods are not entirely comparable, the below explanations discuss the drivers of the 2022 and 2021 results separately.
The evolution of the results of 100% VMO2 in organic terms is detailed below, considering seven months of VMO2 in 2021 and the full year 2022.
In the full year 2022, revenues amounted to 12.155 million euros, growing flat (0.0%) in organic terms, driven by the macro-economic environment that offsets the price increases.
The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) was 8,305 million euros in 2022, down 2.4% year-on-year in organic terms compared to 2021. This decrease was mainly attributable to the realization of synergies and other cost efficiencies that resulted from the formation of the joint venture, which offset inflationary tendencies.
OIBDA in the 2022 reached 4.401 million euros, growing 6.3% year-on-year in organic terms.
Depreciation and amortization amounted to 4.170 million euros in 2022, increasing by 1.3% year-on-year in organic terms.
Operating income (OI) amounted to 231 million euros in the year 2022, growing 147.8% year-on-year in organic terms, mainly thanks to the synergies, roaming recovery, price increase in fixed and mobile businesses and cost efficiencies that cushion current inflationary pressures.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6.# Other information
The table below shows the evolution of accesses in Telefónica Germany over the past two years as of December 31 of such years:
| ACCESSES | Thousands of accesses | 2021 | 2022 | %Reported YoY |
|---|---|---|---|---|
| Fixed telephony accesses (1) | 2,179.6 | 2,211.6 | 1.5% | |
| Broadband (2) | 2,262.3 | 2,294.2 | 1.4% | |
| UBB | 1,856.8 | 1,939.1 | 4.4% | |
| Mobile accesses (3) | 45,693.6 | 44,306.6 | (3.0%) | |
| Prepay | 18,973.0 | 16,274.8 | (14.2%) | |
| Contract | 25,107.8 | 26,336.2 | 4.9% | |
| IoT (4) | 1,612.8 | 1,695.7 | 5.1% | |
| Retail Accesses | 50,219.3 | 48,891.6 | (2.6%) | |
| Total Accesses | 50,219.3 | 48,891.6 | (2.6%) |
Notes: (1) Includes "fixed wireless" and Voice over IP accesses.
In 2022, Telefónica Germany delivered strong operational and financial momentum. The company continues to expand its mobile market share in a rational yet dynamic environment on the back of core business strength building on strong O2 brand appeal including strong customer demand for the innovative "O2 Grow" tariff, network parity and ESG leadership. Telefónica Germany’s key milestones in 2022 were as follows:
The total access base decreased 2.6% year-on-year and stood at 48.9 million at December 31, 2022, mainly driven by a 3.0% decrease in the mobile accesses base, which reached 44.3 million. The contract mobile customer base grew 4.9% year- on-year and reached 26.3 million accesses, increasing the share over the total mobile accesses base to 59.4%. Net adds reached 1.2 million accesses driven by high O2 brand appeal thanks to the O2 Free tariff portfolio’s gross add momentum in the market and the continued solid contribution of partner brands. Churn was 1.3% in 2022 (+0.1 p.p. y-o-y) leveraging network and service quality and commercial success despite being impacted by the European Electronic Communications Code (EECC) introduction, as a result of which contract customers can terminate their contracts at any time. The prepay mobile customer base decreased 14.2% year-on-year to 16.3 million accesses. This decrease was driven mainly by a combination of a technical base adjustment in December 2022 (which was revenue neutral) following the introduction of a stricter active SIM card definition and the ongoing German market trend of prepaid to postpaid migration leading to a net loss of 2.7 million prepay customers in 2022. Broadband accesses reached 2.3 million accesses (up 1.4% y-o-y), with a net add of 31.9 thousand accesses in 2022, reflecting the success of the "O2 myHome" tariff portfolio with high-speed cable and fiber connections as well as FMS (Fixed Mobile Substitution) driving customer demand.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
The table below shows the evolution of Telefónica Germany’s results over the past two years:
| Millions of euros | TELEFÓNICA GERMANY | 2021 | 2022 | % Reported YoY | % Organic YoY (1) |
|---|---|---|---|---|---|
| Revenues | 7,765 | 8,224 | 5.9% | 5.9% | |
| Mobile Business | 6,942 | 7,394 | 6.5% | 6.5% | |
| Handset revenues | 1,450 | 1,652 | 13.9% | 13.9% | |
| Fixed Business | 814 | 806 | (1.0%) | (1.0%) | |
| Other income | 140 | 153 | 9.2% | 9.2% | |
| Supplies | (2,403) | (2,524) | 5.0% | 5.0% | |
| Personnel expenses | (585) | (622) | 6.2% | 6.8% | |
| Other expenses | (2,493) | (2,673) | 7.2% | 7.4% | |
| OIBDA | 2,424 | 2,558 | 5.5% | 5.2% | |
| Depreciation and amortization | (2,394) | (2,295) | (4.1%) | (4.1%) | |
| Amortization of intangible assets, depreciation of property, plant and equipment | (1,809) | (1,659) | (8.3%) | (8.3%) | |
| Amortization of rights of use | (585) | (636) | 8.9% | 8.9% | |
| Operating income (OI) | 30 | 263 | n.m. | n.m. | |
| CapEx | 1,284 | 1,209 | (5.8%) | (5.8%) | |
| OIBDA-CapEx | 1,140 | 1,349 | 18.3% | 17.4% |
Notes: (1) See adjustments made to calculate organic variations below. n.m.: not meaningful
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The table below shows 2022/2021 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures and the contribution of each item for which we have adjusted to our reported growth:
| % Reported YoY | % Organic YoY | YoY variation Contribution to reported growth (percentage points) | |
|---|---|---|---|
| TELEFÓNICA GERMANY | Restructuring costs | ||
| Revenues | 5.9% | 5.9% | — |
| Other income | 9.2% | 9.2% | — |
| Supplies | 5.0% | 5.0% | — |
| Personnel expenses | 6.2% | 6.8% | (0.5) |
| Other expenses | 7.2% | 7.4% | (0.1) |
| OIBDA | 5.5% | 5.2% | 0.3 |
| Depreciation and amortization | (4.1%) | (4.1%) | — |
| Operating loss | n.m. | n.m. | 20.2 |
| CapEx | (5.8%) | (5.8%) | — |
| OIBDA-CapEx | 18.3% | 17.4% | 0.5 |
n.m.: not meaningful
Total revenues were 8.224 million euros in 2022, a year- on-year increase of 5.9%, driven by the increase in the mobile business.
Mobile ARPU was 10.1 euros (+1.5% y-o-y) in reported terms due to the 6.2% y-o-y increase in prepay ARPU, offset in part by the 1.5% y-o-y decrease in contract ARPU reflecting the accelerated MTR glide path and higher focus on customer loyalty and retention. Data ARPU was 6.7 euros (+10.8% y-o-y), supported by the success of the O2 Free portfolio.
| TELEFÓNICA GERMANY | 2021 | 2022 | % Reported YoY |
|---|---|---|---|
| ARPU (EUR) | 10.0 | 10.1 | 1.5% |
| Prepay | 6.3 | 6.7 | 6.2% |
| Contract (1) | 13.5 | 13.3 | (1.5%) |
| Data ARPU (EUR) | 6.1 | 6.7 | 10.8% |
(1) Excludes IoT.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) amounted to 5,819 million euros in 2022, increasing 6.2% year-on-year in reported terms. In organic terms, total expenses increased 6.3%.
OIBDA totaled 2,558 million euros in 2022, increasing by 5.5% y-o-y in reported terms. In organic terms, OIBDA increased by 5.2% year-on-year.
Depreciation and amortization amounted to 2,295 million euros in 2022, decreasing 4.1% year-on-year in reported terms mainly as a result of the 3G switch-off at year-end 2021 in combination with the decision to shorten the useful life of assets in the context of technology optimization and modernization. This was partly offset by higher right of use asset amortization and new additions in IT-architecture added in the context of network modernization.
Operating income totaled 263 million euros in 2022, compared to 30 million euros in 2021. In organic terms, the year-on-year comparison was positively impacted by improved operational leverage in both, fixed and mobile, reflecting own brand momentum and efficiency gains and tight cost management.
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The table below shows the evolution of accesses of Telefónica Brazil over the past three years as of December 31 of such years:
| ACCESSES | |||
|---|---|---|---|
| Thousands of accesses | 2021 | 2022 | %Reported YoY |
| Fixed telephony accesses(1) | 7,506.5 | 7,012.7 | (6.6%) |
| Broadband(2) | 6,262.0 | 6,419.6 | 2.5% |
| UBB | 5,535.3 | 5,967.7 | 7.8% |
| FTTH | 4,608.7 | 5,482.4 | 19.0% |
| Mobile accesses(3) | 83,912.3 | 97,973.0 | 16.8% |
| Prepay | 34,287.3 | 39,305.9 | 14.6% |
| Contract | 37,166.7 | 43,947.2 | 18.2% |
| IoT | 12,458.3 | 14,719.9 | 18.2% |
| Pay TV | 1,114.8 | 966.3 | (13.3%) |
| IPTV | 916.8 | 898.3 | (2.0%) |
| Retail Accesses | 98,853.2 | 112,423.7 | 13.7% |
| Total Accesses | 98,854.2 | 112,424.0 | 13.7% |
Notes:
(1) Includes "fixed wireless" and Voice over IP accesses. In 2022, Telefónica Brazil strengthened its leadership in the mobile value segment (38.9% market share as of December 31, 2022, source: ANATEL), both due to the organic growth of its customer base and the incorporation of Oi's accesses. In the fixed business, Telefónica Brazil continued to focus on the implementation of strategic technologies, such as fiber, which offset the decline in the fixed traditional business. Telefónica Brazil reached 112.4 million accesses as of December 31, 2022, 13.7% higher than December 31, 2021 due to the sustained growth in the organic mobile business, in addition to the incorporation of the customer base of Oi, and the growth in FTTH, which more than offset the decline in the fixed voice business due to the continuous migration from fixed to mobile, encouraged by unlimited voice offers in the market, the contraction of the lower-value fixed broadband customer base and the loss of DTH customers as a result of the company’s strategic decision to discontinue legacy technologies. In the mobile business, Telefónica Brazil strengthened its leadership in terms of total accesses, with an access market share of 38.9% as of December 31, 2022 (source: ANATEL) growing both in terms of contract customers (+18.2% year-on-year, +11.5% excluding Oi) and of prepaid customers (+14.6% year-on-year, -1.2% excluding Oi). Telefónica Brazil's strategy continues to be focused on strengthening the high-value customer base, reaching a 43.5% contract ex IoT market share as of December 31, 2022 (source: ANATEL). Contract commercial offers are focused on data plans, with extra data allowances subject to subscription to digital invoice, it is complete with OTT services of their choice (for example, Disney+, Netflix, Spotify, Vivo Meditação, Vivo Pay, Babbel, GoRead, among others). The Vivo Travel roaming service for voice and data is maintained in a selection of countries of America and Europe, depending on the plan. For higher- value customers, family plans are maintained, with a greater number of available apps. Additionally, Vivo Easy Prime was launched, with flexible proposals ranging from 7GB to 20GB and allowing customers to tailor their plans according to their needs. In the prepaid segment, Telefónica Brazil offers VIVO PreTurbo, which includes WhatsApp and unlimited minutes. All of this is supported by the interaction with our customers through the AURA virtual assistant in the Meu VIVO application, transforming the service channels to improve the user experience. In the broadband business, Telefónica Brazil maintained its strategic focus on the deployment of fiber, reaching 28.6 million real estate units passed with FTTx access as of December 31, 2022, of which 23.3 million correspond to FTTH. Additionally, Telefónica Brazil continued to develop alternative deployment models to accelerate the expansion of fiber with lower CapEx and a reduced time to market. Telefónica Brazil reached 6.0 million connected homes of which 5.5 million homes connected with FTTH as of December 31, 2022, increasing 7.8% and 19.0% year-on-year, respectively. This growth offset the drop in other broadband accesses (xDSL), placing retail broadband accesses at 6.4 million as of December 31, 2022, increasing by 2.5% year-on-year.
Traditional fixed telephony accesses decreased by 6.6% year-on-year due to the aforementioned fixed- mobile substitution. Pay TV customers fell to 1.0 million as of December 31, 2022, decreasing 13.3% year-on-year due to the strategic decision to discontinue the DTH service, whose customer base decreased 65.7% year-on-year.
The table below shows the evolution of Telefónica Brazil’s results over the past two years:
| Millions of euros | % Reported YoY | % Organic YoY (1) | ||
|---|---|---|---|---|
| TELEFÓNICA BRAZIL | 2021 | 2022 | ||
| Revenues | 6,910 | 8,870 | 28.4% | 9.1% |
| Mobile Business | 4,610 | 6,106 | 32.4% | 12.6% |
| Handset revenues | 415 | 573 | 38.2% | 17.5% |
| Fixed Business | 2,300 | 2,764 | 20.2% | 2.1% |
| Other income | 474 | 416 | (12.3%) | (7.9%) |
| Supplies | (1,216) | (1,783) | 46.7% | 24.7% |
| Personnel expenses | (799) | (1,097) | 37.3% | 16.7% |
| Other expenses | (2,231) | (2,674) | 19.8% | (2.1%) |
| OIBDA | 3,138 | 3,732 | 18.9% | 7.2% |
| Depreciation and amortization | (1,918) | (2,369) | 23.6% | 5.0% |
| Amortization of intangible assets, depreciation of property, plant and equipment | (1,488) | (1,807) | 21.4% | 3.2% |
| Amortization of rights of use | (430) | (562) | 31.1% | 11.4% |
| Operating income (OI) | 1,220 | 1,363 | 11.7% | 11.2% |
| CapEx | 2,069 | 1,795 | (13.2%) | 9.7% |
| OIBDA-CapEx | 1,069 | 1,937 | 81.2% | 5.1% |
Notes:
(1) See adjustments made to calculate organic variations below.
The table below shows 2022/2021 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures, and the contribution of each item for which we have adjusted to our reported growth:
| TELEFÓNICA BRAZIL | ||||||
|---|---|---|---|---|---|---|
| % Reported YoY | % Organic YoY | Contribution to reported growth (percentage points) | Exchange rate effect | Judicial decision | PIS/ COFINS | |
| Revenues | 28.4% | 9.1% | 19.3 | — | — | — |
| Other income | (12.3%) | (7.9%) | 13.2 | — | — | — |
| Supplies | 46.7% | 24.7% | 22.0 | — | — | — |
| Personnel expenses | 37.3% | 16.7% | 20.6 | — | — | — |
| Other expenses | 19.8% | (2.1%) | 18.0 | 10.9 | (6.9) | — |
| OIBDA | 18.9% | 7.2% | 17.8 | (7.7) | 4.9 | — |
| Depreciation and amortization | 23.6% | 5.0% | 18.5 | — | — | — |
| Operating income (OI) | 11.7% | 11.2% | 16.8 | (19.9) | 12.6 | — |
| CapEx | (13.2%) | 9.7% | 13.0 | — | — | (32.7) |
| OIBDA-CapEx | 81.2% | 5.1% | 27.2 | (22.7) | 14.4 | 63.2 |
Analysis of results
In 2022, revenues totaled 8,870 million euros, growing by 28.4% in reported terms, mainly due to the appreciation of the Brazilian real (+19.3 p.p.). In organic terms, the year-on-year growth was 9.1%, mainly due to service revenues, leveraged on mobile business – both organic and by the incorporation of the business acquired from Oi -, by businesses associated with new technologies (FTTH, IPTV and Digital Services) and the handset sales, which offset the erosion of revenues associated with voice and traditional accesses.
Mobile ARPU increased by 12.9% year-on-year in reported terms in 2022, due mainly to the appreciation of the Brazilian real. In local currency, mobile ARPU decreased by 4.1% y-o-y as a result of a customer mix with a higher participation of hybrid plans together with the inclusion of Oi accesses, with lower ARPU.
| TELEFÓNICA BRAZIL | % Reported YoY | %Local Currency YoY | |||
|---|---|---|---|---|---|
| 2021 | 2022 | ||||
| ARPU (EUR) | 4.2 | 4.7 | 12.9% | (4.1%) | |
| Prepay | 2.0 | 2.3 | 17.7% | 0.0% | |
| Contract (1) | 7.4 | 8.3 | 12.3% | (4.5%) | |
| Data ARPU (EUR) | 3.1 | 3.7 | 20.2% | 2.1% |
(1) Excludes IoT.
The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) amounted to 5,554 million euros in 2022, growing 30.8% year-on-year in reported terms compared to 2021. In organic terms, expenses increased by 8.9% mainly due to higher personnel expenses due to inflation, higher subsidies and commissions due to higher commercial activity as well as the addition of the business acquired from Oi.
The table below shows the evolution of accesses of Telefónica Hispam over the past three years as of December 31 of such years:
| Thousands of accesses | 2021 | 2022 | %Reported YoY |
|---|---|---|---|
| Fixed telephony accesses (1) | 7,034.1 | 6,375.7 | (9.4%) |
| Broadband | 5,756.9 | 6,030.6 | 4.8% |
| UBB | 4,432.2 | 5,155.0 | 16.3% |
| FTTH | 4,259.0 | 5,053.9 | 18.7% |
| Mobile accesses | 94,612.6 | 95,579.7 | 1.0% |
| Prepay | 66,075.3 | 65,340.7 | (1.1%) |
| Contract | 23,799.6 | 24,771.9 | 4.1% |
| IoT | 4,737.6 | 5,467.2 | 15.4% |
| Pay TV | 2,905.3 | 2,899.8 | (0.2%) |
| IPTV | 913.2 | 1,384.7 | 51.6% |
| Retail Accesses | 110,395.5 | 110,958.9 | 0.5% |
| Total Accesses | 110,414.7 | 110,970.7 | 0.5% |
Notes: (1) Includes "fixed wireless" and Voice over IP accesses.
Telefónica Hispam's total accesses amounted to 111.0 million as of December 31, 2022 (+0.5% year-on-year), as a result of the increase in mobile and FTTH accesses. Mobile accesses amounted to 95.6 million, increasing by 1.0% y-o-y mainly due to the higher postpay customer base.
•Contract accesses increased by 4.1% year-on-year due to the increase in accesses in Mexico (+14.7%), Colombia (+8.4%) and Ecuador (+6.3%), partially offset by the decrease in Venezuela (-6.3%). This evolution was mainly driven by the commercial activity recovery and the attractive commercial offers.
•Prepay accesses decreased by 1.1% year-on-year, with a net loss of 735 thousand accesses as of December 31, 2022. The year-on-year accesses evolution was greatly impacted by the loss of accesses in Mexico (-921 thousand accesses) due to a higher number of disconnected non-active customers. In addition, accesses in Argentina decreased by 696 thousand. The year-on-year decrease was partially offset by an increase in accesses in Colombia (+1.3 million accesses), and to a lesser extent Ecuador (+155 thousand accesses).
Fixed accesses stood at 6.4 million as of December 31, 2022 (-9.4% year-on-year) with a net loss of 658 thousand accesses due to the continued erosion of the traditional fixed business.
Fixed broadband accesses amounted to 6.0 million as of December 31, 2022 (+4.8% year-on-year). The penetration of FBB accesses over fixed accesses stood at 94.6% (+12.7 p.p. y-o-y), as a result of the focus on Ultra Broadband (UBB) deployment in the region reaching 5.2 million connected accesses (+16.3% y-o-y) and 18.8 million premises. The penetration of UBB accesses over fixed broadband accesses stood at 85.5% (+8.5 p.p. y-o-y).
Pay TV accesses stood at 2.9 million as of December 31, 2022, with a decrease of 0.2% y-o-y as a result of the net loss of 5.5 thousand customers, mainly as a result of the lower Direct-To-Home (DTH) technology accesses (-366 thousand accesses) due to the change in commercial strategy as well as the lower cable access base (-111.5 thousand accesses), partially offset by the increase in IPTV accesses (+471.5 thousand accesses), in which the Company is placing strategic focus.
The table below shows the evolution of Telefónica Hispam's results over the past two years:
| 2021 | 2022 | % Reported YoY | % Organic YoY (1) | |
|---|---|---|---|---|
| Revenues | 8,362 | 9,141 | 9.3% | 3.7% |
| Mobile Business | 5,444 | 6,003 | 10.3% | 3.8% |
| Handset revenues | 1,398 | 1,541 | 10.2% | 5.7% |
| Fixed Business | 2,907 | 3,138 | 7.9% | 3.9% |
| Other income | 582 | 448 | (23.0%) | 51.1% |
| Supplies | (2,856) | (3,384) | 18.5% | 13.5% |
| Personnel expenses | (1,174) | (1,201) | 2.3% | 2.8% |
| Other expenses | (3,196) | (3,046) | (4.7%) | (2.1%) |
| OIBDA | 1,718 | 1,958 | 14.0% | 2.7% |
| Depreciation and amortization | (1,873) | (1,799) | (3.9%) | (9.0%) |
| Amortization of intangible assets, depreciation of property, plant and equipment | (1,451) | (1,345) | (7.3%) | (13.0%) |
| Amortization of rights of use | (422) | (454) | 7.6% | 5.8% |
| Operating loss | (155) | 159 | c.s. | n.m. |
| CapEx | 978 | 1,058 | 8.1% | 3.6% |
| OIBDA-CapEx | 740 | 900 | 21.6% | 2.0% |
Notes: (1) See adjustments made to calculate organic variations below.
c.s.: change of sign
n.m.: not meaningful
The table below shows 2022/2021 variations in reported and organic terms (the latter, calculated in accordance with the adjustments referred to above) of certain line items of the income statement and other measures, and the contribution of each item for which we have adjusted to our reported growth:
| YoY variation | Contribution to reported growth (percentage points) | |
|---|---|---|
| TELEFÓNICA HISPAM | ||
| 2022 | ||
| % Reported YoY | % Organic YoY | |
| Revenues | 9.3% | 3.7% |
| Other income | (23.0%) | 51.1% |
| Supplies | 18.5% | 13.5% |
| Personnel expenses | 2.3% | 2.8% |
| Other expenses | (4.7%) | (2.1%) |
| OIBDA | 14.0% | 2.7% |
| Depreciation and amortization | (3.9%) | (9.0%) |
| Operating loss | c.s. | n.m. |
| CapEx | 8.1% | 3.6% |
| OIBDA-CapEx | 21.6% | 2.0% |
c.s.: change of sign
n.m.: not meaningful
Revenues amounted to 9,141 million euros in 2022, increasing 9.3% year-on-year in reported terms. This increase was attributable in part to the foreign exchange effects (+4.7 p.p.), impact of changes in the scope of consolidation (+0.6 p.p.), and the reported variation of companies in hyperinflationary countries (+0.3 p.p.). In organic terms, revenues increased by 3.7% year-on-year, mainly driven by revenue growth due to handset sales, the B2C (Business to Customer) specially postpaid and B2B (Business to Business) service revenue evolution, as well as higher fixed voice revenues, broadband and new services.
Mobile business revenues amounted to 6,003 million euros in 2022, increasing 10.3% year-on-year in reported terms. This increase was due to foreign exchange effects (+5.5 p.p.) and the reported variation of companies in hyperinflationary countries (+1.0 p.p.). In organic terms, mobile business revenues increased by 3.8% year-on- year, mainly driven by revenues growth in handset sales as a result of commercial activity recovery and higher postpaid revenues in B2C (Business to Customer).
The performance by country was:
•In Argentina, mobile revenues amounted to 1,378 million euros in 2022, increasing 2,7% year-on-year in reported terms. Excluding the impact of foreign exchange effects (-43.9 p.p.), mobile revenues increased 46.5% mainly due to higher service revenues as a result of the increase in accesses and continued tariff upgrades.
•In Chile, mobile revenues amounted to 969 million euros in 2022, decreasing 3.3% year-on-year in reported terms. Excluding the impact of foreign exchange effects, which reduced growth by 2.2 percentage points, mobile revenues decreased by 1.1% year-on- year, mainly due to the lower handset revenues and prepaid mobile revenues, partially offset by higher postpaid revenues.
•In Peru, mobile revenues amounted to 923 million euros in 2022, increasing 21.3% year-on-year in reported terms, benefited from the foreign exchange effects which increased growth by 14.7 percentage points. Excluding this impact, mobile revenues increased by 6.7% year-on-year, mainly driven by higher service revenues, as a result of the higher postpaid client base, and the price increase carried out in 2022, and to a lesser extent due to higher handset revenues, as a result of the higher commercial activity.
•In Colombia, mobile revenues amounted to 891 million euros in 2022, increasing 11.8% year-on-year in reported terms. Excluding the impact of the foreign exchange effects (-0.7 p.p.), mobile revenues increased by 12.5% driven by the higher handset revenues, postpaid revenues and prepaid B2C (Business to Customer) revenues due to higher commercial activity and favourable churn evolution. The higher revenues were also impacted by higher interconnection and international roaming revenues.
•In Mexico, mobile revenues amounted to 1,172 million euros in 2022, increasing 16.1% year-on-year in reported terms.Excluding the impact of the foreign exchange effects (+13.8 p.p.), these revenues increased by 2.3% due to higher service revenues as a result of the good performance in postpaid B2C (Business to Customer) revenues and to a lesser extent due to higher handset revenues. Fixed business revenues amounted to 3,138 million euros in 2022, increasing 7.9% year-on-year in reported terms. This growth was due to foreign exchange effects (+3.2 p.p.), the impact of changes in the scope of consolidation (+1.7 p.p.), partially offset by reported variation of companies in hyperinflationary countries (-0.9 p.p.). Excluding these impacts, these revenues increased by 3.9%, driven by higher broadband, new services, access and voice revenues in Colombia, Chile and Peru that more than offset the decrease in TV revenues in Peru.
The total amount of supplies, personnel expenses and other expenses (mainly external services and taxes) were 7,631 million euros in 2022, up 5.6% year-on-year in reported terms compared to 2021. This increase was mainly attributable to foreign exchange effects, the reported variation of companies in hyperinflationary countries and higher network costs. In organic terms, expenses increased by 5.2%.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 83
OIBDA reached 1,958 million euros in 2022, increasing 14.0% year-on-year in reported terms (+2.7% in organic terms).
Depreciation and amortization amounted to 1,799 million euros in 2022, decreasing 3.9% year-on-year in reported terms mainly attributable to the transformation of the operational model in Telefónica Mexico (-3.5 p.p.), partially offset by the foreign exchange effects (+4.4 p.p.) and the reported variation of companies in hyperinflationary countries (+3.8 p.p.). In organic terms, depreciation and amortization decreased by 9.0% y-o-y due to lower depreciation and amortization base in Telefonica Mexico and to a lesser extent in Telefónica Chile.
Operating Income (OI) was 159 million euros in 2022 (compared to a loss of 155 million euros in 2021). This result is mainly explained by the lower depreciation and amortization base in Telefonica Mexico due to the transformation of the operational model, the recording of goodwill impairment in 2021 (relating to Telefónica del Perú) in a greater amount than the other assets impairment recorded in 2022 (relating to Telefónica Argentina), the higher restructuring costs in the region in 2021 than in 2022 and the reported variation of companies in hyperinflationary countries, partially offset by higher capital gains on sales of fiber optic assets in 2021 than in 2022. In organic terms, the year-on-year change was positively affected by higher revenues and lower depreciation and amortization.
Below is additional information by country:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 84
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 85
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Building a greener future 3. Risks 4. Annual Corporate Governance Report 5. Other information Consolidated Annual Report 2022 Telefónica, S. A. 86
GRI 2-23, 3-3
We are committed to minimising our environmental impact and being a decarbonised and circular company. All our operators have implemented externally-certified environmental management systems. We have verified 54% of our solutions as Eco Smart due to the efficiencies and environmental benefits they generate for our customers.
Companies play a key role in protecting the environment, both in terms of the impacts they can cause and the environmental risks and opportunities which affect and influence the value of companies. Customers, investors and employees are significantly more environmentally conscious, which is reflected in their need to carry out their activities in a more sustainable way and to seek partnerships with companies that have incorporated these values into their strategy. At Telefónica, we are striving to ensure our environmental impact is minimal and are committed to decoupling the growth of our business from our environmental footprint. Furthermore, we believe it is vital to enhance the synergies between the digital, green and energy transition in order to achieve a competitive, resilient and sustainable economy. This is why digitalisation becomes a crucial tool in facing environmental challenges: climate change, circular economy, water management and biodiversity. This commitment is part of the Company's general strategy, for which the Board of Directors is ultimately responsible. Our performance in this area is regularly supervised by the Board's Sustainability and Quality Committee as well as by the Responsible Business Office, made up of the global areas that execute said strategy alongside the business units. We have global environmental and energy management policies and take action at all levels of the organisation. The environment is a central issue throughout the Company, involving both operational and management areas as well as business and innovation areas. The emissions reduction targets are part of the variable remuneration of all the Company's employees, including the Executive Committee. We are working towards a world where digitalisation becomes a key ally in the green transition.
Our major targets are to:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Building a greener future 3. Risks 4. Annual Corporate Governance Report 5.# Annual Report on Remuneration of the Directors
• Be a zero-waste company by 2030, through eco-design, procurement with circular criteria, reuse and recycling.
GRI 3-3 The Environmental Management System (EMS) in accordance with ISO 14001 is the model we have chosen to monitor the environmental impact of our activities. All our operators have an externally-certified EMS. We have a series of global standards (in addition to our environmental, energy management and supply chain sustainability policies) that guide the Company in improving its environmental performance and that incorporate a life-cycle perspective. This allows us to integrate the environmental aspects of our value chain and involve our employees in environmental management. Having in place certified EMSs allows us to ensure that we successfully control and comply with the environmental legislation applicable in each of our markets, with this preventive model of compliance being associated with the Company's overall compliance process. We were not subject to any significant environmental penalties in 2022. We manage all our main environmental aspects, such as energy and waste, but also others such as noise, biodiversity and water, in order to reduce progressively our environmental impact. We provide our employees with specific training on environmental management systems. During the last year, some 200 employees with duties related to Environmental Management Systems participated in a dedicated 4-hour training, with the aim of increasing their competence, training and awareness and contributing to the improvement of the organisation's environmental performance. We maintain the Energy Management Systems certification (ISO 50001) for our operations in Spain and Germany, and in 2022 we extended it to other operations, such as Chile and Brazil (the last one with two certified operating centres, including the Eco Berrini headquarters).
The Company's environmental and climate-related risks are controlled and coordinated under the Telefónica Group's global risk management model, based on the precautionary principle. The main risk of our environmental aspects is related with the wide geographical spread of our infrastructure, which is controlled through environmental management based on standardised procedures, certified according to the ISO 14001 standard. We analyse climate-related risks in accordance with the recommendations of the Task Force on Climate‑related Financial Disclosures (TCFD). These are specifically discussed in chapter 2.2. Energy and climate change. For further information, see chapter 2.2. Energy and climate change. In 2022, the Telefónica Group contracted, both locally and globally, several insurance programmes in order to mitigate the possible occurrence of any incident arising from the risks of environmental liability and/or natural disasters, so as to guarantee business continuity. We currently have fully comprehensive insurance and coverage for all risks, material damages and loss of profit, in order to cover any material losses, damage to assets and loss of income and/or customers, among other problems, as a consequence of natural events. We also have insurance to cover the environmental liabilities set out by applicable laws and regulations. Both policies consist of limits, sub-limits and hedges appropriate to the risks and exposures of Telefónica and its Group of companies. However, the opportunities arising from sound environmental management outweigh the risks. By being proactive, establishing preventive measures and integrating environmental criteria in decision-making, we manage to increase the Company's sustainable financing, reduce our dependence on fossil fuels and reduce our CO2 emissions in absolute terms, despite the increase in network traffic. We also manage to increase reuse and recycling rates, promote eco-design and purchasing based on circular criteria, and help to minimise the environmental footprint of our customers with our Eco Smart products and services.
Our environmental strategy seeks to minimise our impact on the planet and maximise the environmental benefits generated by our digital products and services. The strategy is built around three levels. Within our report we have broken down the three levels of the environmental strategy into four chapters.
• The first level is related to the responsibility we assume as a company that is committed to our environment, to ensure compliance with environmental legislation, to manage our risks and opportunities, to implement management systems, to set stringent environmental targets and to carry out proactive advocacy work on environmental issues. The first level of the strategy is detailed in chapter 2.1. Responsibility with the environment.
l 1. Strategy and growth model
2. Non-financial Information statement _Building a greener future
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
• The second level concerns the Company's decarbonisation and circularity, thanks to the use of renewable energies, the implementation of energy efficiency projects, extending the lifespan of electronic equipment, reducing the consumption of resources and reintroducing our waste as raw materials in the value chain through recycling. The second level of the strategy is detailed in chapters 2.2.Energy and climate change and 2.3. Circular economy. For further information, see chapter 2.2. Energy and climate change. For further information, see chapter 2.3. Circular economy.
Lastly, the third level is linked to our raison d'être, the digitalisation of our customers, through services with a positive impact on the environment thanks to connectivity technologies such as IoT, cloud and big data. The third level is detailed in chapter 2.4. Digital solutions for the green transition. For further information, see chapter 2.4. Digital solutions for the green transition
In addition, as part of the integration of the environment into the Company's strategy, we are progressively increasing the Company's sustainable financing. For further information, see chapter 1.7. Sustainable finance.
Environmental Strategy
We reduce our impact and provide solutions to major environmental challenges through digitalisation.
l 1. Strategy and growth model
2. Non-financial Information statement _Building a greener future
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
GRI 3-3 Aiming at providing top-quality service while promoting care for the environment, we successfully monitor environmental risks and impacts related to network management throughout its life cycle. In 2022, we invested around € 19 million towards this goal (similar to the investment in 2021). We work to make our network the most eco-efficient and environmentally responsible, promoting the circular economy in all our assets. We have managed to keep electricity consumption stable, despite increased digitalisation, thanks to our energy efficiency and renewable energy plans. In addition, our circular economy strategy has enabled us to reuse 229,907 units of network equipment and to recycle 98% of our waste in 2022. In order to minimise the impact of network deployment, we implement best practices, such as noise insulation measures when necessary and co-location of our facilities with other operators. This enables us to optimise land occupation and reduce visual impact, energy consumption and waste generation
RESPONSIBLE NETWORK LIFE CYCLE
| PLANNING AND CONSTRUCTION | OPERATION AND MAINTENANCE | DISMANTLING |
|---|---|---|
| Environmental licences and permits 1,199 | Energy efficiency and managements projects 128 | Network equipment reused (units) 229,907 |
| Visual impact reduction measures 104 | Renewable electricity in own facilities (%) 82 | Hazardous waste (t) 2,566 |
| Base stations with renewable energy 485 | GHG emissions (Scopes 1+2) (tCO2e) 353,346 | Total waste recycled (%) 98 |
| Energy consumption per traffic (MWh/PB) 49 |
Regarding biodiversity, the impact of our facilities is very limited. Nevertheless, we conduct environmental impact assessments and implement corrective measures when necessary, for instance in protected areas. 98% of our facilities are located in habitats with low or very low biodiversity value.
l l l
To analyse the impact of the Group's infrastructure on biodiversity in greater detail, a Geographic Information System was used to put together the area occupied by each type of infrastructure and the different layers of information about protected areas and species obtained from renowned international organisations, such as the International Union for Conservation of Nature (IUCN). This allows us to determine the quality of habitats where any of the Company's infrastructure is located and to assess the potential impact on biodiversity. The main finding is that 98% of Telefónica's facilities are located in habitats with low or very low biodiversity value, such as urban areas, and we have no facilities located in habitats of major importance, which means that the organisation has a relatively insignificant direct impact on biodiversity. Furthermore, aware of the importance of enhancing the urban biodiversity of our sites, the facilities of Telefónica District (headquarters in Spain) have participated in the European LIFE BooGI-BOP project, which aims to provide companies with solutions aimed at improving biodiversity in their business facilities.# Consolidated Annual Report 2022 Telefónica, S. A.
GRI 301-3, 302-3, 303-5, 305-1, 305-2, 305-3, 305-4, 306-3, 306-4
The trend of our environmental performance is displayed in the following summary of indicators:
Telefónica's environmental performance, at a glance
| Indicator | Unit | 2021 | 2022 | Trend |
|---|---|---|---|---|
| Management | ||||
| Certified activity according to ISO 14001 (%) | % | 100 | 100 | l |
| Energy | ||||
| Energy consumption (MWh) | MWh | 6,106,625 | 6,106,255 | q |
| Renewable electricity in own facilities (%) | % | 79.4 | 82.3 | p |
| Energy consumption per traffic (MWh/PB) | MWh/PB | 54 | 49 | q |
| Emissions | ||||
| Scope 1 GHG emissions (tCO2e) | tCO2e | 183,231 | 131,809 | q |
| Scope 2 GHG emissions - market based (tCO2e) | tCO2e | 353,506 | 221,537 | q |
| Scope 3 GHG emissions (tCO2e) | tCO2e | 2,072,159 | 1,930,051 | q |
| Emissions offsets (tCO2e) | tCO2e | 63,018 | 35,537 | q |
| Avoided emissions | ||||
| Emissions avoided by customers (MtCO2e)¹ | MtCO2e | 8.7 | 81.7 | p |
| Water | ||||
| Water consumption (ML) | ML | 2,949 | 3,194 | p |
| Circular economy | ||||
| Waste generated (t) | t | 64,059 | 52,906 | q |
| Non-hazardous waste (t) | t | 60,791 | 50,340 | q |
| Hazardous waste (t) | t | 3,268 | 2,566 | q |
| Waste recycled (%) | % | 98 | 98 | l |
| Equipment reused (t) | t | 2,207 | 5,557 | p |
| Biodiversity | ||||
| Visual impact reduction measures (no.) | no. | 88 | 104 | p |
MILESTONES
¹ The increase in this indicator is due to the fact that in 2022 the scope of the indicator has been extended to include additional services. For further information, see chapter "2.4. Digital solutions for the green transition".
GRI 2-3, 2-23, 3-3
KEY POINTS
Managing climate change is part of our business strategy, and we follow the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We are committed to achieving net-zero emissions by 2040 across the value chain (as validated by the SBTi's Net-Zero Standard). Our Climate Action Plan lays out the roadmap for achieving this target. We have reduced our Scope 1 + 2 carbon emissions by 80% and our Scope 3 emissions by 32%.
Intensive energy use in the current economic model is one of the main causes of climate change and most pressing challenges we are facing. In their latest report, the UN expert panel warned that the world must cut emissions by 45% before 2030 and achieve net-zero emissions by 2050 on a global scale. Organisations like the World Economic Forum identify climate change as the major risk factor for the world's economy and the investment world is increasingly aware of the need to focus on sustainable investments.
Energy, mainly electricity, is a vital resource for the development of our business. Over 95% of it comes from providing our services through the telecommunications network. Therefore our vision is aligned with our strategy and stakeholder demands, incorporating energy management, mitigation, adaptation and the opportunities arising from climate change.
Digitalisation is a must for the green transition.
Our targets, validated by the Science Based Targets initiative (SBTi) under the new Net-Zero Standard, aim to reduce emissions consistent with the 1.5ºC scenario across our entire operation, including the value chain:
Telefónica's climate targets are validated by the SBTi and include Scopes 1, 2 and 3.
The road to net-zero
| Energy and climate change targets | Beyond the Paris Agreement |
|---|---|
| Net-zero emissions 2040 | Entire value chain (Scopes 1, 2 and 3) |
| Renewable energy | Renewables in Europe, Brazil, Chile and Peru Globally in 2030 |
| Energy efficiency | MWh/PB 2025 Energy consumption per traffic unit |
| Emissions reduction | 2030 Scope 1 and 2 -90% in main markets by 2025 |
| Value chain | 2030 Scope 3 |
| Neutralisation | 2040 Unabated emissions |
| Main markets by 2025 (sc1+2) |
| Actions |
|---|
| Guarantee of origin certificates. |
| Long-term power purchase agreements (PPAs). |
| Self-generation. |
| Network transformation and legacy shutdown. |
| Power-saving features (PSF). |
| Modernisation of air conditioning and power equipment. |
| Lighting. |
| Incorporating an internal carbon pricing in our purchases. |
| Leakage control and new refrigerant gases. |
| Reduction in the use of fossil fuels. |
| Supplier emissions reduction programme. |
| Efficiency in customer devices. |
| Nature-based projects. |
| With social and biodiversity benefits. |
| Certified by recognised international standards. |
GRI 2-12
The climate change and energy strategy is part of the Responsible Business Plan, headed by the Board of Directors. The Board of Directors' Sustainability and Quality Committee, which meets monthly, oversees the strategy implementation, reviews the risks and monitors its targets. Our Global Energy and Climate Change Office has been operational since 2007. Comprising such areas as Operations, Environment and Procurement, it is responsible for implementing the strategy. Furthermore, the Global Energy Centre, created in 2015, deals with accelerating the fulfilment of the targets and, alongside local officers, promotes energy efficiency and renewable energy projects in each country.
At our Global Workshop on Energy and Climate Change, which we have been holding annually since 2010, we discuss our progress and new opportunities with over 30 suppliers. In addition, a percentage of the variable remuneration of all our employees, including the Executive Committee, is linked to fulfilment of the annual and multi-annual CO2 emission reduction and neutralisation targets. For further information, see chapter 5.1. Annual Report on Remuneration.
Reducing CO2 emissions has been part of the variable remuneration of all employees, including the Executive Committee, since 2019.
We have a number of internal regulations designed to align the organisation with our energy and climate change targets:
GRI 201-2
Climate change is one of the basic risks inside the Telefónica's Risk Management Model. For further information, see chapter 3.1. Risk management framework. We analyse climate-related risks in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), covering both physical risks and transition-related risks in the medium and long term. To assess the physical risks, we use projections of climate variables for two different CO2 concentration scenarios (RCP, Representative Concentration Pathway).In the RCP 2.6 scenario (aligned with the Paris Agreement), the risks relate mainly to transitioning to a decarbonised economy (regulatory, technological, market and reputational risks), for example, due to tightening of measures to limit GHG emissions. This transition would also mean considerable opportunities associated with cost reductions due to energy efficiency and renewable energy and to business growth in digital solutions designed to help our customers decarbonise their activities. For further information, see chapter 2.4. Digital solutions for the green transition. In contrast, in the RCP8.5 scenario (“business as usual”), the major risks are physical risks associated with changes to specific climate variables, whether these be temporary (increase in extreme weather events) or chronic (increase in temperature, variation in rainfall). The risk associated with the increase in temperature would entail a great financial impact, as it could increase electricity consumption for cooling our network equipment. In addition, this could be aggravated by a possible increase in the cost of electricity, mainly in countries which are highly reliant on hydropower, in the event of episodes of drought. Furthermore, transition scenarios, which provide necessary parameters to test the impact of transition to a low-carbon economy, also provide key information to help us understand how the future might unfold given a temperature increase limited to 1.5 °C. For this assessment, we use the International Energy Agency's NZE 2050 scenario, which describes the efforts needed to reduce GHGs and reach net-zero emissions globally by 2050.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Building a greener future 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 94
In order to ensure the resilience of our assets, we have drawn up an Adaptation Plan, the main pillars of which are business continuity, energy efficiency and renewable energy plans, which help us to reduce exposure to physical risks and adapt to the consequences of climate change.
Climate change risks
Transition
Physical
Regulatory
Technological
Market
Reputational
Chronic
Acute
Price increases for certain products and services due to direct or indirect CO2 taxes or charges (energy, transport, etc.).
Need for early decommissioning of HVAC assets or energy assets due to transition to low-emission energy.
Increased energy OpEx, e.g. in countries with high reliance on hydro generation or due to higher CO2 prices.
Greater demands in this area from key stakeholders (investors, analysts, customers, etc.).
Rising carbon offset costs.
Increased electricity consumption for cooling associated with rising global temperatures.
Possible increase in electricity prices during periods of drought.
A higher occurrence of extreme weather events (mainly floods) would increase the business continuity risk and the cost of replacing damaged assets.
Climate change opportunities
Resource efficiency
Eco
Smart products and services
Energy source
Resilience
New financing sources
We optimise the costs of our networks and operations through our Energy Efficiency Plan. Our connectivity and digitalisation solutions are key to decarbonising other sectors and will allow us to access new business opportunities. Our Renewable Energy Plan allows us to reduce carbon emissions and lower the cost of energy for our network, thanks to self-generation and long-term power purchase agreements (PPAs). Our adaptive strategy allows us to incorporate risks and opportunities into the Company's strategy, influencing our investment, modernisation and network deployment decisions. Access to new sustainable financing sources, which are more competitive than traditional financing.
Assessing climate scenarios has allowed us to identify the most material risks and opportunities for our business in terms of impact, which we outline below.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Building a greener future 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 95
| Category | Nature | Risk Description | Financial impact | Risk management and mitigation # Consolidated Annual Report 2022
Medium term Medium impact One of our strategic targets in terms of climate change is to commit to renewable energies as a sustainable source for our business, ensuring that 100% of our electricity consumption comes from renewable sources by 2030. The Renewable Energy Plan includes all types of solutions: self-generation, purchase of renewable energy with guarantees of origin, distributed generation and long-term PPAs. The plan allows us not only to reduce our exposure to market variations, but has enabled us to achieve considerable savings in electricity costs as a result of long-term PPAs and distributed generation.
| Type | Opportunity description | Financial impact | Opportunity management | Sources of sustainable finance |
|---|---|---|---|---|
| Medium term Medium impact | Access to new and more competitive sources of sustainable finance, such as green bonds, which offer interest rate savings compared to traditional financing. | Reduction of financing costs. Broadening the investor base and investor type. | Telefónica uses green bonds and green and sustainable hybrid instruments to finance projects with a positive environmental impact as defined in its sustainable financing framework, for example improving energy efficiency by transforming the copper network to fibre optics (85% more efficient). Telefónica is one of the largest issuers of sustainable bonds in its sector, both in terms of volume, number and range of issuances (senior green bonds and hybrid green or sustainable instruments). In addition, Telefónica uses other sustainable bank financing instruments, such as loans and credit facilities linked to sustainability targets, which allow it to make progress towards achieving corporate targets linked to emissions reductions. |
GRI 305-5 The energy and climate change strategy is integrated into the Company's management and focuses on building a greener future. We are committed to reducing our own carbon footprint in order to have a network with net-zero emissions through which we deliver Eco Smart solutions to reduce our customers' emissions. Our journey to net zero means reducing our own emissions (Scope 1 and 2) and those of our value chain (Scope 3), in addition to neutralising unabated emissions. We have developed a Climate Action Plan with specific actions aligned with the most ambitious scientific climate recommendations to achieve our targets.
At Telefónica, keeping our energy consumption stable is a priority, despite the considerable rise in digitalisation of society and therefore the data traffic circulating through our networks. Therefore, our Energy Efficiency Plan encompasses initiatives such as modernising our network by replacing copper with fibre optics (85% more efficient); the renovation of power plants and HVAC equipment; free cooling for lowering the air temperature by using naturally cool air instead of mechanical refrigeration; immersion liquid cooling; shutdown of HVAC equipment; shutdown of legacy networks; the implementation of Power Saving Features (PSFs) and AI/ ML platforms at off-peak hours without affecting the performance of the access network. Also fuel consumption is reduced through hybrid stations with solar photovoltaic energy and delaying the ignition of generators using deep-cycle lithium batteries.
To achieve the decarbonisation of the Company, not only do we need maximum efficiency in energy usage, but we also need the energy to come from renewable sources. Our Renewable Energy Plan includes all types of solutions - self-generation, the purchase of renewable energy with a guarantee of origin and long-term Power Purchase Agreements (PPAs) - and prioritises non- conventional renewable energy sources. Our goal is to go further than just having 100% of renewable energy in our main markets. We want to contribute to increasing the renewable energy mix through self-generation or by facilitating the construction of new parks through our medium and long-term consumption commitments (under PPA models).
In addition, introducing an internal carbon pricing helps us make better investment and equipment procurement decisions. When procuring energy-consumption- intensive equipment, we take into account the Total Cost of Ownership (TCO). This enables us to bear in mind not just the purchase price, but also the price of the energy consumed and the emissions generated during its useful life, and thereby to select more efficient equipment.
The Climate Action Plan, available on our website, is our roadmap to reach net-zero emissions by 2040.
The emissions of our value chain (Scope 3) are the largest in our entire carbon footprint. Of the total Scope 3 emissions, more than two thirds come from our supply chain (categories of "purchased goods and services" and "capital goods" as defined in the Corporate Value Chain Accounting & Reporting Standard of GHG Protocol), and from the use of sold products by our customers. In order to reduce our value chain emissions, cooperating with our main suppliers and the rest of the sector is paramount, as we share the same challenges. Regarding this, we have been running a programme with our most intensive suppliers in terms of emissions for several years. We analyse their climate maturity and support them in their decarbonisation process, through training sessions and by asking them to make specific commitments. In addition, we work closely with other operators in working groups of JAC (Joint Audit Cooperation) and the GSMA on methodological issues and specific actions to encourage emission reductions in our common value chain. We also participate in multi-sectoral initiatives such as 1.5°C Supply Chain Leaders and the SME Climate Hub to also reach out to small and medium-sized enterprises.
The other major Scope 3 category that is important for our emissions is the one related to the use of sold products. Promoting eco-design and reuse of routers or mobile phones, for example, helps us to reduce the emissions from such electronic devices during their lifetime. We also offer to our costumers sustainable purchasing criteria, like the Eco Rating label, which rates the sustainability of mobile phones, thereby encouraging manufacturers to improve them. For further information, see chapter 2.3. Circular economy. We collaborate in sectoral initiatives to reduce our supply chain emissions.
We will neutralise our unabated emissions (10% in 2040), by permanently removing or sequestering an equivalent amount of CO2 from the atmosphere, through the purchase of carbon credits or by developing our own projects, which must meet the following criteria:
In addition, in the near and medium term, and always on a temporary basis (before 2025 for Scope 1 and 2 emissions from main markets and before 2040 for Scope 3 emissions and those from Hispanoamerica), we will also invest in carbon credits to reduce emissions from deforestation and degradation, with the aim of contributing to halt deforestation in certain regions where Telefónica has operations. In countries with high deforestation rates, projects that yield high-quality emission-reduction credits support the conservation of existing carbon stocks and provide incentives to support indigenous peoples and local communities. In major markets, we will neutralise 100% of our own emissions (Scopes 1+2) by 2025.
GRI 302-1, 302-2, 302-3, 302-4, 305-1, 305-2, 305-3, 305-4, 305-5
In 2022, we implemented 128 energy efficiency and management initiatives in our networks and offices, achieving savings of 408 GWh. Our total energy consumption was 6,106 GWh (21,982,519 GJ), 95% of which was electricity, while 5% was fuel. Our energy consumption per traffic unit rate improved by 87% compared to 2015 and we saved €176 million through the implementation of energy efficiency and management projects.
Total energy consumption
Thanks to the implementation of energy efficiency projects, we have managed to reduce power consumption by 7.2% since 2015, even though data traffic through our networks has increased 7.4 times over.
During 2022, we launched the Sustainable Platform Design project, part of the company's Autonomous Network Journey programme, to develop the network for the coming years. It will be a Telco Cloud network, with edge computing and sustainable by design, i.e. energy efficient and low carbon, so as to address traffic growth while respecting the environment.We prioritised the roll out of more efficient fibre and 5G and the shutdown of legacy elements to foster the circular economy. As part of our energy efficiency projects, we promoted network transformation initiatives, which are responsible for 78% of our energy savings. We also continue to shut down legacy infrastructure, such as 2G and 3G networks, as well as copper networks. In Spain, in line with the 2024 copper closure plan, 788 plants were closed in 2022 (2,236 since 2014) and in Hispanoamerica progress was made with multi-layer and 2G shutdowns. We improved the design of mobile sites thanks to the Smart Site model, which includes equipment modernisation, use of free cooling, more efficient rectifiers, bluetooth locking and renewable energy, among other best practices. Germany is a good example of this, where we continued to work on the NSD (New Site Design) project. Moreover, in 2022, we installed rectifiers with 98% efficiency, thanks to the TCO assessment (compared to 96% rectifiers), which represents a saving of 2% per year and an ROI in under three years. In Spain, we awarded contracts to modernise 40 power plants under the Energy Savings as a Service (ESaaS) model, which will allow us to improve the infrastructure of these buildings and at the same time save energy, all with investment from a third party. With regard to efficient management of network capacity, we increased the use of power saving features (PSFs) during periods of low traffic and we used artificial intelligence (AI) tools, machine learning and automatic traffic prediction. In 2022, we implemented 17 new PSF functionalities in our 4G and 5G networks, enabling us to reduce energy consumption in off-peak hours by up to 30%, without compromising on quality. We also completed the immersion liquid cooling project at the Bellas Vistas power plant in Madrid (Spain). This pilot delivered savings of up to 75% in non-IT energy consumption and eliminated refrigerant gas use while maintaining traditional (Tier III) reliability levels. This type of solution uses an electrically non-conductive, non-toxic and biodegradable liquid. This technology, which enables high-capacity servers to be cooled by immersion (much more efficiently than by air), will help us support the growing demand for data in edge computing and 5G. Lastly, we continued to improve the methodologies for obtaining fuel consumption data from operations and recharging of refrigerant gases. In Brazil, we digitalised the management process, increasing the reliability of data through continuous monitoring, which enabled us to reduce refrigerant gas recharges by 53%. This also makes it possible to implement new projects to reduce Scope 1 emissions. With the aim of reducing emissions derived from the use of fossil fuels, we have implemented various solutions in the field of heating. These encompass, among other things, the replacement of diesel by natural gas or propane in boilers; the implementation of solar or hybrid solutions in sites with no connection to the electricity grid; and the implementation of logic to delay the running of emergency generators at sites with frequent interruptions to the electricity supply. This is achieved by using high cycle batteries (lithium), thereby reducing the need to run generators and saving fuel.
Consolidated management report 2022
l
1. Strategy and growth model
2. Non-financial Information statement _Building a greener future
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 100
In 2022, 82% of our total electricity consumption in our own facilities came from renewable sources. We continued the ambitious distributed generation (DG) project in Brazil, which allowed for the installation of 48 new renewable energy plants in 2022, out of a total of 85 planned. These plants will generate over 700 GWh per year for our operations, thereby reducing dependence on renewable energy certificates or iRECs. In addition, we increased the procurement of renewable energy through new long-term renewable power purchase agreements (PPAs). In Germany we signed two PPA agreements. The first one for the period of 2025-2035, which will cover 54% of the total consumption of our operations, equivalent to 350 GWh per year, and a second one for the period of 2025-2040, which will cover around 33% of the consumption, equivalent to 200 GWh per year. In Spain, the four long-term renewable power purchase agreements (PPAs) signed for the period 2022-2031 came into operation in 2022. They account for 30% of total consumption, equivalent to 482 GWh per year for 10 years. In addition to these new agreements we have to consider also the one signed in 2020, enabling us to achieve a total of 582 GWh of renewable electricity coming from PPAs in our operations in Spain, covering 50% of the consumption of technical buildings. In addition, thanks to the extension of guarantee of origin programmes, countries such as Argentina and Ecuador certified 7% and 30%, respectively, of their electricity consumption in their own facilities as renewable for the first time, while Colombia managed to increase it to 87%. We should mention that in 2022 Chile achieved 100% of renewable electricity, joining Europe, Brazil and Peru, operations where electricity consumption at our own facilities is 100% renewable. Regarding the electricity we use at non-Company facilities, our operations in Germany, Spain, Brazil, Peru and Chile also certified 100% of electricity consumption at third-party sites as being renewable, enabling us to reach a figure of 61% globally. In Europe, Brazil, Peru and Chile, 100% of the electricity we consume at our own facilities comes from renewable sources (82% at global level). Our goal, as part of the RE100 initiative, is for the electricity we consume in all our operations to come entirely from renewable sources by 2030.
l l l
With regard to self-generation of electricity, we have 485 systems installed (both in fixed network buildings and in mobile network base stations) that allow us, firstly, to improve renewable electricity consumption and, secondly, to avoid the use of fossil fuel generators in isolated (off-grid) base stations, reducing consumption by between 70% and 100%. A good example of this is the installation of 23 hybrid self-generation systems in Chile, which is estimated to save around 60,000 litres of fuel per year. In addition, in order to accelerate the implementation of renewable self-generation systems, we have signed several agreements in which we provide roof space for the installation of solar panels by a third party, so that the electricity generated is self-consumed on-site at a lower price than the commercial tariff (on-site PPA). We signed these agreements both in Spain for four major buildings and in Colombia, where 12 of these systems will generate approximately 1.4 GWh per year under this scheme. Thus, our Renewable Energy Plan is focused on continuing to sign long-term Power Purchase Agreements (PPAs) and on increasing self-generation, in order to progressively reduce the purchase of renewable certificates and increase savings in electricity OpEx.
Consolidated management report 2022
l
1. Strategy and growth model
2. Non-financial Information statement _Building a greener future
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 101
*Other: includes projects such as lighting, correcting the output factor, renewable self-generation, reduction in fuel use, cooling, power, and tax exemptions and benefits.
| Unit | 2015 | 2020 | 2021 | 2022 | 2015/2022 Performance |
|---|---|---|---|---|---|
| Total energy consumption MWh | 6,577,766 | 6,269,962 | 6,106,625 | 6,106,255 | -7.2% |
| Electricity consumption + self-generation1 MWh | 6,186,885 | 5,966,242 | 5,815,665 | 5,824,828 | -5.9% |
| Fuel and district heating2 MWh | 390,882 | 303,720 | 290,961 | 281,427 | -28.0% |
| Electricity from renewable sources in own facilities Percentage | 17 | 79 | 79 | 82 | 382.4% |
| Total annual traffic managed Petabyte | 17,054 | 86,591 | 113,547 | 125,790 | 637.6% |
We calculate and verify through an external party our carbon footprint based on the international GHG Protocol Corporate Accounting and Reporting Standard, developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). In 2022, our Scope 1 emissions fell by 54% compared to 2015, resulting in 154 ktCO2e fewer in seven years. In Scope 2 emissions, the reduction was 85% versus 2015, which is 1,303 ktCO2e fewer over the same period. Combined, our Scope 1 and 2 emissions fell by 80%, which is a reduction in emissions to the atmosphere of 1,458 ktCO2e. We have thus reached the 2030 target 8 years ahead of schedule. Furthermore, our energy efficiency and renewable electricity purchase initiatives saved us 118 and 845 ktCO2e, respectively.
Consolidated management report 2022
l
1. Strategy and growth model
2. Non-financial Information statement _Building a greener future
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 102
1 Includes total electricity consumption from renewable sources, which in 2022 amounted to 4,534,310 MWh, of which 3,800,334 MWh are used in our own facilities.
2 Includes biofuel consumption, which in 2022 amounted to 56,639 MWh.
In 2022, without our Renewable Energy Plan, Telefónica's emissions would have been 3.4 times greater.# Consolidated management report 2022
GHG emissions
| Unit | 2015 | 2016 | 2020 | 2021 | 2022 | Performan ce, base year/2022 |
|---|---|---|---|---|---|---|
| Scope 1 | tCO2e | 286,201 | 281,517 | 207,872 | 183,231 | 131,809 | -54% |
| Scope 2 (market-based method) | tCO2e | 1,524,954 | 1,047,751 | 467,587 | 353,506 | 221,537 | -85% |
| Scope 2 (location-based method) | tCO2e | 1,869,500 | 1,712,202 | 1,261,306 | 1,212,173 | 1,002,189 | -46% |
| Scope 1 + 2 (market) | tCO2e | 1,811,155 | 1,329,268 | 675,459 | 536,737 | 353,346 | -80% |
| Emissions offset | tCO2e | 78,101 | 63,018 | 35,537 | N/A | | |
| Scope 3 | tCO2e | 2,855,544 | 2,146,226 | 2,072,159 | 1,930,051 | | -32% |
| Biogenic emissions | tCO2e | 9,695 | 9,020 | 13,873 | N/A | | |
| Emissions avoided due to renewable energy consumption | tCO2e | 392,489 | 752,264 | 782,868 | 902,019 | 845,456 | 115% |
| Emission intensity (Scope 1 + 2/revenue €M) | tCO2e / €M | 33 | 29.4 | 18.6 | 14.6 | 8.8 | -73% |
Emissions by company
| EMISSIONS (tCO2e) | T. GERMANY | T. BRAZIL | T. SPAIN | T. ARGENTINA | T. CHILE | T. COLOMBIA | T. ECUADOR | T. MEXICO | T. PERU | T. URUGUAY | T. VENEZUELA | Telxius | Other companies |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Scope 1 + 2 (market) | 5,781 | 32,190 | 20,679 | 148,842 | 9,736 | 17,886 | 7,202 | 53,335 | 3,621 | 2,870 | 38,097 | 5,211 | 7,896 |
| Scope 1 | 5,520 | 32,190 | 20,679 | 26,995 | 9,736 | 11,040 | 1,134 | 5,408 | 3,621 | 408 | 10,817 | 1,289 | 2,972 |
| Scope 2 (market) | 261 | 0 | 0 | 121,847 | 0 | 6,846 | 6,069 | 47,927 | 0 | 2,462 | 27,281 | 3,922 | 4,922 |
3 Scope 1 emissions by gas type: CO2: 54,494tCO2e; CH4: 230 tCO2e; N2O: 248 tCO2e; HCFCs: 76,837 tCO2e.
4 Emissions offset by purchase of carbon credits in certified projects.
5 Scope 3 emissions include the emissions from relevant categories: Cat. 1 (1,012,294 tCO2e), Cat. 2 (225,991 tCO2e), Cat. 3 (120,194 tCO2e), Cat. 6 (21,149 tCO2e) and Cat. 11 (550,423 tCO2e).
6 Other companies consolidates emissions for the following companies: Telefónica GIES, ACENS, Media Networks Latin America Perú, Telefónica Tech UK
Scope 3 emissions are 85% of the total emissions generated by Telefónica. Of these emissions, 52% come from the purchases to our supply chain. (“Category 1. Purchased goods and services”) and 29% from the use of products we sell to our customers (“Category 11. Use of sold products”). Other relevant categories include “Category 2. Capital goods” and “Category 3. Fuel- and energy-related activities”, which account for over 18% of total value chain emissions. In addition, we calculate and report other emissions that we consider strategic to our business such as “Category 15. Investments”, which in 2022 resulted in the emission of 43,982 tCO2e). This category includes emissions from Virgin Media O2, the joint venture created in the UK in 2021. In 2022, our Scope 3 emissions fell by 32% compared to 2016 (base year), which represents 925 ktCO2 fewer in seven years.
To accelerate the decarbonisation process of our supply chain, in 2022 we added a new climate change requirement in the procurement process, requiring our key suppliers (which account for 90% of our supply chain emissions) to establish in the short term a decarbonisation plan for their activity, aligned with the Science-Based Targets (SBTi) initiative. We continued our Supplier Engagement Programme and invited our most emissions-significant suppliers to join the CDP Supply Chain programme. In 2022, a total of 218 suppliers were involved, accounting for 97% of our supply chain emissions. The information reported enables us to understand their degree of maturity in handling their carbon footprints and identify potential areas for collaboration. On the other hand, we continue to support initiatives such as the 1.5°C Supply Chain Leaders, which advocates for the reduction of emissions by small and medium-sized enterprises (SME), and the SME Climate Hub, which promotes decarbonisation amongst SMEs, and invites them to sign the 'SME Climate Commitment' as well as supporting them with specialised tools, knowledge and best practice for implementing a robust climate strategy. In 2022, these two initiatives launched a pilot programme focused on SMEs where eleven of our suppliers were invited. Furthermore, we are also partnering with the We Mean Business association at the local level to implement the Hub in Spain. We are also part of the GSMA working group which, in collaboration with the GeSI (Global Enabling Sustainability Initiative) and the ITU (International Telecommunication Union), is helping to draft a specific Scope 3 guidance for telecom operators. The Guide is intended to help telecommunications operators to harmonize the methods for calculating Scope 3 emissions, to increase reporting coverage and to encourage greater transparency in the reporting of these emissions. We are working with other companies in the sector to address the challenge of decarbonising our supply chain.
In 2022, we continued to lead the climate change working group within the Joint Alliance for CSR (JAC) initiative to boost the decarbonisation of the sector. Over the course of the year, the climate supplier management of all JAC members was assessed to define and implement common emission reduction actions in the sector's supply chain (members account for over 60% of the industry's revenues).
For more information, see chapter 2.20. Responsible supply chain management
We also worked on reducing emissions associated with the use of customer premises equipment, mainly linked to electricity consumption by routers and set-top boxes, thanks to increasingly energy-efficient equipment. In 2022, we updated the corporate instruction on low carbon procurement, which considers the internal carbon pricing to guide purchasing decisions towards energy-efficient equipment with a lower carbon footprint. To reinforce internal awareness, five training sessions were held for over 500 employees from operations, procurement and sustainability. We are part of the A List of the CDP Climate Change Index for the ninth year in a row.
We have been offsetting the impact of our emissions for several years through nature-based projects that generate high quality carbon credits. In 2022 we closed a global purchase agreement of carbon credits to ensure its availability until 2026 for Spain, Brazil and Germany. In Spain, we continued the Telefónica Forest project, which is helping to restore an abandoned area for forestry use, thereby boosting the local economy, involving rural communities and fostering employment for young people and disadvantaged people. Furthermore, in 2022, under the global carbon credit agreement our Spanish operation acquired carbon credits from a project that protects forests in one of the regions with the highest deforestation rates in the Amazon biome. Thanks to these two projects, it offset 5% of its operational emissions (Scope 1 + 2). Meanwhile, in Brazil we continued to offset 100% of Scope 1 + 2 emissions through the purchase of carbon credits. The projects that generate these credits are backed by recognised certificates and support local projects both for conserving ecosystems that contribute to halt deforestation and for reforesting the Amazon rainforest with native species. Lastly, in Germany, we neutralised 40% of our operational emissions, as well as those from business travel, through a reforestation project in Colombia that promotes the sustainable management of forest resources to encourage natural regeneration.
| 2022 Performance - Global KPI | Unit | Target | Base year value | 2022 value | Performance |
|---|---|---|---|---|---|
| Energy consumption per traffic unit | MWh per Pb | -90% (by 2025) | 386 | 49 | -87% |
| GHG emissions. Scope 1 + 2 (market) | tCO2e | -80% (by 2025) | 1,811,155 | 353,346 | -80% |
| GHG emissions. Scope 3 | tCO2e | -39% (by 2025) | 2,855,544 | 1,930,051 | -32% |
| Renewable electricity consumption in own facilities | Percentage | 100% (by 2030) | 17% | 82% |
| 2022 Performance - Main markets (Germany, Brazil, Spain) | Unit | 2025 Target | Base year value | 2022 value | Performance |
|---|---|---|---|---|---|
| Energy consumption per traffic unit | MWh per Pb | -90% | 336 | 49 | -85% |
| GHG emissions. Scope 1 + 2 (market) | tCO2e | -90% | 1,022,365 | 58,650 | -94% |
| GHG emissions. Scope 3 | tCO2e | -39% | 1,453,453 | 1,081,095 | -26% |
| Renewable electricity consumption in own facilities | Percentage | 25% | 100% |
| VMED O2 UK | Unit | VMED O2 (fixed and mobile operations) |
|---|---|---|
| Total energy consumption | MWh | 1,171,285 |
| Scope 1 + 2 emissions (market) | tCO2e | 71,393 |
Consolidated Annual Report 2022
Telefónica, S. A. 103# Other information
GRI 2-3, 2-23, 3-3
We currently recycle 98% of our waste and we are committed to be a Zero Waste company. We promote the circular economy in the use of electronic devices through ecodesign, recycling and reuse of equipment. We reuse 4.4 million of electronic equipment from operations, offices and customers.
Overexploitation of the planet is one of the main causes of environmental degradation and climate change. According to the World Resources Institute, each year more than 100 billion tonnes of mineral, biological, metal or fuel resources are used. This amount exceeds what the planet can regenerate in a year and only 8.6% of these resources are recycled or have a second life. Circular economy is part of the solution to this problem, as it could reduce resource use by 28% and global greenhouse gas emissions by 39%. In the EU alone, it could create around 700,000 jobs and increase GDP by 0.5% by 2030. All this is based on principles such as reducing impacts from design, extending the useful life of products, recovery of raw materials and the dematerialisation of the economy thanks to digitalisation. At Telefónica, we integrate this philosophy into our processes aiming at optimising resource consumption and promoting ecodesign, reuse and recycling, with the goal of minimising our impact and encouraging keeping materials in circulation.
Our main target is being a Zero Waste company in 2030.
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement _Building a greener future
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Moving towards becoming a Zero Waste company
| 2024 | 2025 | 2025 | 2025 | 2030 | 2030 | |
|---|---|---|---|---|---|---|
| Customer Premise Equipment (CPE) | Refurbished and reused 90% | |||||
| B2B/B2C customer equipment | Purchased following circularity criteria | Ecodesigned | ||||
| New Telefónica branded customer equipment | Ecodesigned | |||||
| Mobile devices | Refurbished | 500,000 mobiles | ||||
| Waste to landfill | Zero Waste | |||||
| For network equipment, by 2025 | 100% reuse, resale and recycling |
We have several policies that lay down the basis for implementation of the circular economy throughout the Company:
Deriving from these policies are the following principles for promoting the circular economy:
According to the World Economic Forum, the natural resource crisis is a high-impact, high-probability risk that can only be reversed by seeking a more circular economy. Overexploitation of resources brings with it supply risks that affect the availability of products and services. Investing in an economy that allows the reintroduction of recovered materials into production chains helps to reduce this risk and be less dependent on imported resources. The pressure on supply chains, which are recovering from the COVID-19 crisis, has been aggravated in the European Union by the war in Ukraine. In addition, the demand for critical raw materials such as lithium, cobalt and nickel is expected to increase further due to the continuing development of the technology industry. Every year 54 million tonnes of e-waste are produced, of which only 17.4% is recovered and recycled. Manufacturing with ecodesign criteria, reuse and recycling contribute to reducing the risk of resource depletion and ensure supply chain continuity. It also reduces the associated environmental impact, as 45% of global emissions derive from the manufacture and use of products, while 90% of the biodiversity loss and water stress is caused by the extraction and processing of natural resources. According to Accenture's Waste2Wealth study, there are five business models that could generate $4.5 trillion by 2030: renewable resources, products as a service, sharing use platforms, product life extension and resource recovery. The reuse and refurbishment of customer equipment and network equipment is a significant opportunity for Telefónica as it generates savings by avoiding the purchase of new equipment. In addition, the sale of refurbished network equipment or waste such as cable from the copper-to-fibre transformation provides us with additional revenues.
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement _Building a greener future
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Furthermore, digitalisation and connectivity are key tools for the circular economy. This, therefore, represents a business opportunity for Telefónica. In addition to influencing the circularity of our operations, we can also support the circularity of other economic sectors by using digital solutions. For further information, see chapter 2.4. Digital solutions for the green transition.
GRI 308-2
At Telefónica we are committed to integrating circular economy criteria transversally at three levels: internal eco-efficiency, suppliers and customers. Circular economy allows us to grow using fewer resources and avoid indirect carbon emissions associated with the manufacture of new equipment.
We reduce our environmental impact through efficiency measures, such as preventive maintenance of infrastructure, replacing equipment with energy-efficient equipment and reusing it internally. This enables us to optimise our consumption of water, paper, and energy, for the latter, through an Energy Efficiency Programme. For further information, see chapter 2.2. Energy and climate change.
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement _Building a greener future
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
To prevent waste generation in our operations and our value chain, we are committed to ecodesign, procurement using circular criteria and reuse, mainly of electronic equipment, as the best waste is that which is not generated at all. All this enables us to be more competitive, reduce our expenses and increase our revenue, while reducing our footprint on the environment and complying with applicable legal regulations.
Electronic equipment
We extend the useful life of equipment by reusing it whenever possible. If the equipment cannot be reused the best option is to recycle it, as each piece of equipment contains precious metals such as gold, copper and nickel which can be used as resources in a new product. During our network transformation, many pieces of equipment are reused within Telefónica, thereby promoting the circular economy in dismantling processes. To encourage reuse, Telefónica has rolled out the MAIA project, which facilitates and promotes internal reuse with the aid of a digital platform. Each operator can access the platform to view available equipment and contact other operators in the Group to accomplish reuse. When internal reuse is not possible, the platform enables operators to connect with technological partners to facilitate equipment sales and therefore extend its useful life.
Waste
The waste we generate is managed outside our facilities by specialised waste management companies, which apply the most appropriate treatment according to the best available techniques, the environmental regulations in force and the established contractual requirements. Whenever waste is collected, the staff responsible ensure that all the information is registered in Telefónica's waste management platform (GReTel).This allow us to obtain and analyse real-time data on the origin and destination of the waste produced by the Company. This system enables us to be aware of the volume of waste removed, draft reports, analyse information and keep all documentary evidence to ensure proper compliance with environmental regulations in each country where Telefónica operates, thus aiding decision- making with regard to promotion of a circular economy approach to waste management.
We support and raise awareness among our customers to reduce their impact on the planet with the Eco Smart and Eco Rating labels, which encourage innovation and environmental impact reduction.# 2. Non-financial Information statement _Building a greener future
We work together with our suppliers to introduce ecodesign measures in products, we encourage the phasing out of single-use plastics and we opt for new models based on digitalisation and dematerialisation, such as acquiring products as services. In addition, we are progressively incorporating circularity requirements in the procurement of electronic equipment, using as our benchmark the criteria established in the ITU‑T L.1023 recommendation on the assessment method for circular scoring. This enables us to assess the ecodesign, the ability to be repaired, recycled and upgraded, as well as the durability of each electronic device acquired. In addition, to encourage eco-efficient procurement, our Global Supply Chain Sustainability Policy includes environmental and circular economy criteria that are taken into account when suppliers provide products or services to Telefónica.
GRI 3-3, 301-2, 301-3,,303-5, 306-1, 306-2, 306-3, 306-4, 306-5
Network infrastructure maintenance is the main waste- generating activity, but so are other activities such as those carried out in our offices and commercial activities with our customers. The vast majority of the waste we generate comes from our network transformation process when we migrate from copper cables to fibre optics. In 2022, this transformation process was accelerated thanks to the Granada Plan for station shutdowns in Spain and the Vivo María do Carmo Project in Brazil, as well as various network transformation projects in Hispanoamerica and the 3G switch-off in Germany.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Building a greener future 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 110
We promote circular economy in our network transformation by prioritising reuse of electronic equipment and, if not possible, by extracting value from materials through recycling. This recovery allows us to generate revenues as the network's transformation evolves. In 2022, we generated 52,906 tonnes of waste of which we managed to recycle 98%. Regarding the electronic equipment, we reuse about 44% of the total equipment collected and recycle the other 56%. As a result, we reused around 4.4 million items of equipment from our network, offices and customers, avoiding 358,103 tonnes of CO2 associated with the manufacture of new products:
In addition, we have reused 86% of the total number of customer premise equipment delivered for refurbishment, which brings us closer to our goal of refurbishing 90% of this equipment by 2024.
| Category | Reused equipment | Recycled equipment | Equipment sent to landfill | Equipment with other treatment |
|---|---|---|---|---|
| Mobile phones | 5,557 | 40 | 0 | |
| Customer premise equipment | 1,896 | 1,508 | 0.1 | |
| Office equipment | 19 | |||
| Network equipment | 3,589 | 5,622 | 22.4 | 1 |
| Category | 2021 | 2022 |
|---|---|---|
| Reused equipment | 15.59% | 43.58% |
| Recycled equipment | 84.32% | 56.23% |
| Incinerated equipment | 0 | 0 |
| Equipment to energy recovery | 0 | 0 |
| Equipment sent to landfill | 0.10% | 0.18% |
VICKY is an initiative that uses blockchain technology to achieve greater traceability throughout the value chain of modems, routers and TV set-top boxes. This significantly improves recovery rates, refurbishment processes and equipment lifespans. The solution has been recognized for its innovation (Gartner, Forbes) and for encouraging a more efficient, faster, simpler and more sustainable supply chain. APOLLO, meanwhile, improves efficiency in reverse logistics processes by using big data and analytics to optimise collection routes for uninstalled or inactive equipment, both at the customer's premises and at collection points. Both initiatives are being rolled out across the organisation with the aim of reusing 90% of customer premises equipment by 2024 and being a zero waste company by 2030.
In terms of mobile handset reuse, Telefónica has a global MARA initiative, an omnichannel model with an end- to-end approach that allows our customers to assess their devices automatically and access trade-in programmes anywhere (home, retail and voice channels). This process optimizes device management times, reduces discrepancies and logistics while generating revenue from the reuse and resale of handsets, preventing them from becoming waste.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Building a greener future 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 111
To reduce its impact and waste generation, we extend the life of electronic equipment by reusing it wherever possible and recycling the rest:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Building a greener future 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 112
| Target | Indicator | 2022 |
|---|---|---|
| Zero waste to landfill | % recycled waste | 98% |
| To refurbish 90% of customer premise equipment (routers, set-top boxes, etc.) collected from customers by 2024 | % CPE reused or refurbished | 86% |
| Refurbish 500,000 mobiles a year by 2030 thanks to different programmes | Number of reused customer mobile phones | 386,210 |
| B2B/B2C customer equipment purchased with circular economy criteria | % of procurement processes for B2B/B2C equipment incorporating circularity criteria | |
| Purchase of B2B routers and switches at Telefónica Spain | 100% | |
| 100% of new Telefónica-brand customer equipment ecodesigned by 2025 | % of new Telefónica-brand equipment which have been ecodesigned | |
| Life Cycle Assessment (LCA) on a new 5G router model |
| Non-hazardous waste | Hazardous waste | Total | |
|---|---|---|---|
| 2020 | 2021 | 2022 | |
| Total waste generated (t) (excludes reuse as it is not considered waste until its useful life has ended). | 41,637 | 60,791 | 50,340 |
| Waste diverted from disposal (t) (includes recycling, reuse and other treatments). | 43,176 | 62,468 | 55,348 |
| Waste directed to disposal (t) (includes energy recovery, incineration and landfill). | 322 | 571 | 548 |
| Treatments prioritized according to the waste hierarchy principle | |||
| Reused equipment (t) | 1,840 | 2,207 | 5,557 |
| Waste recycled (t) | 40,813 | 60,030 | 49,491 |
| Waste for energy recovery (t) | 1 | 17 | 68 |
| Other treatments (t)1 | 502 | 191 | 300 |
| Waste incinerated (t)2 | 6 | 11 | 0 |
| Waste sent to landfill (t)2 | 314 | 543 | 480 |
All data in this table exclude the United Kingdom from the reporting perimeter to facilitate comparability between periods.
In 2022, our overall consumption was 3,194 ML (3.2 Hm³), 765 ML in high water stress areas, which represents 24% of the total. This consumption was mainly due to sanitary use and to a lesser extent due to its use in air conditioning. For this reason, in each country where we operate we establish specific measures to improve efficiency in its use and reduce consumption, especially in areas where water stress is highest, as is currently the case in Spain, Chile and Mexico.
Over 1,700 buildings have a Sustainable Water Management Plan, which includes measures such as:
In addition, we collaborate with public and private sector entities to promote the efficient use of water, especially in Brazil where we have participated in the water thematic chamber of the Brazilian Business Council for Sustainable Development (CEBDS) and in the UN Global Compact's platform for action on water and oceans.# Consolidated management report 2022
1 Other treatments: includes physical treatments, biological treatments, secure cells and intermediate treatments prior to recycling.
2 2020 and 2021 data recalculated according to the improvement applied as of fiscal year 2022: separate reporting of waste for landfill and incineration.
In terms of the measures carried out in regions with high water stress, the following stand out:
* Treatment systems in cooling towers at Telefónica Chile.
* The commissioning of the grey water treatment plant for the collection and reuse of rainwater and the installation of energy saving devices and sanitary supply valves with sensors to limit consumption in the Torre Telefónica building in Mexico.
* The sustainable water use plan implemented at our headquarters in Madrid (Spain), which reduces consumption by collecting rainwater for irrigation and other water-saving systems in sanitation.
Details of water consumption in 2022 (m3)
| Total consumption | 3,194,277 |
| Municipal potable water | 99.4% |
| Surface water | 0.2% |
| Groundwater | 0.4% |
However, despite the savings measures implemented, the return to office-based working after two years of teleworking due to the pandemic situation has led to an increase in water consumption, albeit to levels somewhat lower than pre-pandemic levels (-2% vs 2019).
Water consumption from all regions (ML)
| 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|
| 3,248 | 2,777 | 2,949 | 3,194 |
All data in this table exclude the United Kingdom from the reporting perimeter to facilitate comparability between periods. The 2021 figure has been recalculated due to better data quality obtained from our German and Venezuelan operations.
Water consumption from regions with high water stress (ML)
| 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|
| 806 | 750 | 765 | 765 |
Water consumption in countries with high levels of water stress according to the Aqueduct Baseline Water Stress Atlas, from the World Resources Institute (Spain, Chile and Mexico)
Total water consumption
We adopt specific measures to achieve efficient consumption, especially in regions with high water stress.
| From non water-stressed regions | 76% |
| From water-stressed regions | 24% |
Paper
Of the paper we consumed in our offices last year, 96% was of recycled or certified origin (FSC, from the Forest Stewardship Council, or PEFC, from the Programme for the Endorsement of Forest Certification schemes). In addition, 189 million customers chose paperless bills. We therefore generated over 830 million electronic bills which avoided the consumption of 4,151 tonnes of paper and the felling of almost 70,564 trees.
Relationship with our customers
For more details on the total customer electronic equipment reused and initiatives, please refer to the previous section on internal eco-efficiency. In addition, we provide other initiatives for our customers, such as Eco Smart services and the Eco Rating label, which owing to their importance have been accorded their own specific chapter. For more information, see chapter 2.4.
Relationship with suppliers
Ecodesign and innovation
Ecodesign helps us to extend useful life and reduce use of raw materials in manufacturing, lessen the energy consumption of the product and avoid emissions. Therefore, we cooperate with our suppliers to integrate ecodesign into electronic devices that are designed under the Company's brand image (Movistar, O2 or Vivo). Our aim is for all these devices to integrate ecodesign criteria from 2025 onwards.
For this reason, from 2021 and throughout 2022, we have been collaborating with the Basque government's public environmental management company IHOBE in carrying out a Life Cycle Assessment (LCA) study on a new router model. This study has helped us to ascertain which elements of the device have a greater environmental impact in order to establish measures to reduce it by design. The identified criteria will provide the basis for the incorporation of ecodesign in other devices.
Additionally, we have undertaken a study of how repairable, recyclable and durable the device is in order to integrate the circular economy approach even further through its design. Furthermore, we are working on reducing use of plastic in our SIM cards through our Half SIM Card format, which has enabled us to halve the amount of plastic used to manufacture the cards. It also represents an improvement in the efficiency of the logistics process, by reducing the size of the containers used to transport and store them. In 2022, we avoided the production and consumption of 228 tonnes of plastic. This format has already been implemented at nine of our operations and is gradually establishing itself as the main format in the Group. In addition, in 2022 our joint venture in the UK, VMED O2, incorporated recycled PVC/ABS plastic into its SIM cards.
Procurement using circular criteria
Following the 2021 pilot in Spain to apply circular criteria in the B2B router and switch procurement process, in 2022 we broadened expanded the product categories in order to expand the implementation of these guidelines. This allows technical areas to include circular economy criteria in more procurement processes. We work with our suppliers to reduce GHG emissions from the products and services they provide us with through various initiatives explained in the section on Scope 3 emissions. For further information, see chapter 2.2. Energy and climate change
VMED O2 UK
The details of the waste indicators for VMED O2 UK for 2022 are given below:
VMED O2 (Fixed and mobile operations)
| Total waste produced (t) | Total waste recycled (t) | |
|---|---|---|
| 5,053 | 4,252 |
MILESTONES
KEY POINTS
At Telefónica, we are committed to achieving a world in which technology contributes to protecting the planet. That is why we promote the digital and green transition as twin transitions. It is becoming increasingly urgent to accelerate the green transformation of the economy and society to achieve the required level of decarbonisation and limit the global temperature increase to below 1.5°C. The digital transition is key to achieving this while at the same time improving the competitiveness of the economy. Organisations such as the World Economic Forum and the Exponential Roadmap initiative state that digital technologies can help reduce global greenhouse gas emissions by 15% by 2030 when implementing solutions in industrial sectors, and up to 35% if we consider their ability to transform people's habits.
At Telefónica, we develop green digital solutions to help our customers in their transition towards more sustainable and competitive business models.
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This issue is more important than ever in the current uncertain landscape marked by rising energy costs and geopolitical tensions. We also provide clear and transparent information on the environmental benefits of our products. In this way, B2B and B2C customers can incorporate sustainability criteria into their purchasing decisions and consume technology in a more responsible manner.
We envisage a world where technology contributes to protecting the planet.
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We are committed to further develop new digital solutions to accelerate the decarbonisation of the economy. The emissions avoided for our customers in 2022 are higher than our target of avoiding 12 million tonnes of CO2 per year in 2025, because we have increased the scope of the calculation, including new services. We are working on the definition of a new long-term target aligned with the methodological recommendations being developed in the European Green Digital Coalition (EGDC).
While it is true that connectivity and digital solutions reduce CO2 emissions from other sectors, according to the GSMA the telecommunications sector is responsible for approximately 0.4% of global emissions. Therefore, the challenge for us is to ensure that the solutions we offer have a positive climate impact, contributing to reducing more emissions than they generate. To do so, we are reducing the environmental footprint of our network with energy efficiency and renewable energy. For further information, see chapter 2.2. Energy and climate change.
The UN expert panel has warned that the world must cut greenhouse gas emissions by 45% before 2030 and achieve net-zero emissions by 2050 globally. This is why governments and businesses urgently need to transform society and the economy towards a low- emission, circular and environmentally-friendly model. As a result, we foresee an increased demand for technological solutions from our customers to implement more sustainable processes. This will allow us to seize new business opportunities through our Eco Smart solutions and services which we will develop in the coming years based on innovative technologies such as 5G and artificial intelligence (AI).
One of the priorities of our environmental strategy is to boost connectivity and digitalisation as key factors enabling the green transition, and improve the competitiveness of our customers. At the same time, we also provide information on the environmental benefits or attributes of our products and services so that customers can identify how their technology purchase will contribute to achieving their own sustainability goals. We have the following lines of action for this purpose:
We develop services based on connectivity, the Internet of Things (IoT), the cloud, big data and 5G. These solutions provide not only operational and cost-saving benefits, but also environmental benefits. To identify them, at Telefónica we use the Eco Smart label. These services are externally verified by AENOR. The label has four icons, which represent: energy savings, reduction in water consumption, reduction in CO2 emissions, and the promotion of the circular economy. The icons are coloured to identify the environmental benefit our products and services impact where applicable. Below are some of our most significant Eco Smart solutions, all of which are based on our fixed and/or mobile connectivity.
Connectivity is the fundamental requirement for access to the digital world. It is a core service that we offer directly to our customers and is also present in the majority of the most-advanced digital solutions. Telecommunications networks are therefore the main and most powerful platform for making progress towards the green transition. Our sustainability strategy focuses on optimising these networks through energy efficiency, renewable energy, and advanced technologies. This includes fibre optics replacing copper (85% more energy efficient) and 5G (up to 90% more efficient than 4G in terms of energy consumption per unit of traffic). Thanks to this, we can offer a robust, secure, stable and increasingly-sustainable network to respond to the growing demand for data, allowing us to take actions that contribute to the reduction of CO2 emissions, such as teleworking, migration of services and servers to the cloud, remote training, or medical care, among others.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Building a greener future 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 117
Productivity and collaboration solutions allow people inside and outside the organisation to connect and work remotely. They deliver considerable environmental benefits by reducing travel, fuel consumption and office HVAC. All this translates into lower CO2 emissions and reduced pollution in cities.
Companies are increasingly relying on the cloud to carry out an endless number of processes that make them more agile, flexible and efficient. The cloud offers them a place to integrate all their networks and services safely, provides instant access to critical information and greater control of their business, and increases engagement among their employees. Our commitment is to offer companies solutions that best suit their needs. That is why we have a comprehensive portfolio of global services, enhanced by worldwide agreements with leading hyperscalers including AWS, Google and Microsoft Azure.
Digital solutions for environmental challenges
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Building a greener future 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 118
Our cloud services use servers hosted in data centres that meet high energy efficiency standards. The average PUE (Power Usage Effectiveness) of our main data centres was 1.70 in 2022. As a result, the migration of companies to the cloud leads to a reduction in energy consumption as well as a reduction in emissions.
Technologies such as IoT, big data, AI and blockchain are key to economic recovery and sustainability. All the connected objects and equipment generate data in real time. By combining them with our customers' data and other external sources, the processed and analysed information makes it possible to increase the efficiency of production processes, reduce consumption of raw materials, decrease wastage and even extend the life span of equipment. All this can be seen in services like:
In addition, the inclusion of the technological capacities of blockchain in many of the use cases mentioned above improves traceability, transparency and security, enabling faster and more efficient ways of doing things. As an example, we have implemented document management (eliminating the use of paper in the management of delivery notes, official certificates, contracts, etc.) and the traceability of foodstuffs and medicines to optimise logistics and promote the circular economy.
5G is expected to represent an unprecedented, disruptive, technological change in different economic sectors and society over the next decade. At Telefónica, we are already marketing 5G solutions for large companies and administrations. The first use cases we offer involve, for example, the incorporation of robots into industry to improve processes and operations; remote assistance for supervision, assembly or operation of assets attended remotely by expert staff; and the use of drones for inspections of critical and remote assets, stock control, supervision and control of spaces, and swift assistance, etc. These use cases prevent travel, improve predictive maintenance, increase the efficiency of productive processes and therefore generate significant environmental benefits for our customers.
Connectivity is the fundamental requirement for access to the digital world. Thanks to this, our customers in the residential segment can use applications or online services that allow them to transform many of their daily actions into more environmentally friendly ones. To understand the usage profile of these applications and the adoption of new, more sustainable habits, such as reducing travel or commuting, in 2022 we launched a survey of over 3,300 customers in Spain, Brazil and Germany. With the data obtained, we have developed a methodology that allows us to measure the CO2 emissions avoided through the use of our connectivity and digital applications by B2C customers.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Building a greener future 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 119
More digitalisation and fewer emissions in our daily lives. The main findings of these surveys were that the digital services with the highest penetration are audio/video calling, online shopping and online banking.# 1. Strategy and growth model
They all make it possible to reduce or eliminate daily commutes or longer distance journeys by facilitating teleworking, remote training and access to online services. This leads to a reduction in the fuel consumption of these vehicles, which are no longer in use, and therefore in the related GHG emissions. Our customers also use car sharing apps and accommodation options -that are less polluting than traditional ones-, as well as public transport apps that provide real time information to boost their use and satellite navigation apps that provide the most efficient routes.
European Green Digital Coalition (EGDC)
In line with our commitment to promoting green digital solutions and transparently communicating the environmental benefits they deliver, we have been a founding member of the EGDC since 2021. It is an initiative promoted by the European Commission and the main European companies in the ICT sector. To make the EU's green transition possible, we, the participating companies, are committed to:
Telefónica has been working along these lines for many years. For example, we not only use the Eco Smart label to identify environmental benefits qualitatively but we also measure the emissions avoided by the services. Since 2019, with support from the Carbon Trust, we have developed a calculation methodology that converts the efficiencies (energy, operational or material consumption), produced by our services when implemented for a customer, into avoided CO2 emissions. We continuously update it to include new digital services and the technological development of our solutions and customers, while applying industry guidelines or methodological recommendations. Digitalisation is vital to achieving the emission reduction targets required to limit the average global temperature increase to below 1.5°C.
Other initiatives for B2C customers
We want our customers to consume technology responsibly by providing them with information and alternatives that allow them to make the most sustainable choices.
Eco Rating
Telefónica is part of the Eco Rating consortium, the driving force behind a system that measures the environmental impact of mobile phones throughout their life cycle. Our aim is twofold: to help our customers make informed decisions about the handsets they buy and for mobile phone manufacturers to incorporate environmental criteria into their design and manufacturing processes. The Eco Rating methodology assesses the environmental performance of phones from 1 to 100. The higher the score, the more environmentally friendly the phone.
Consolidated management report 2022
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1. Strategy and growth model
2. Non-financial Information statement _Building a greener future
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
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It covers 19 environmental and material efficiency indicators and criteria. It is based on information provided by the manufacturers themselves on the technical specifications and components of each mobile phone.
Carbon offsetting in the purchase of devices
Telefónica's online shop for devices and accessories “tu.com” is the first sustainable-technology e-commerce shop in Spain. On tu.com, customers can offset the carbon footprint associated with the manufacture of the devices they purchase (mobile phones, TVs, smartwatches, etc.). During the purchase process, information is provided on the kilograms of CO2 resulting from the manufacture of the device and the option is offered to offset it free of charge by choosing from a number of reforestation or nature conservation projects.
Refurbished mobile phones
We sell refurbished second-hand phones with the aim of promoting the circular economy. For further information, see chapter 2.3. Circular economy.
Planet Pledge
In line with our commitment to transparency, in 2021 we joined the Planet Pledge initiative launched by the World Federation of Advertisers (WFA). It aims to help companies' marketing and communications teams to be part of the solution to climate change. We are committed to:
Avoided emissions
In 2022, thanks to the efficiencies generated by our Eco Smart and connectivity services, our customers avoided the emission of 81.71 million tonnes of CO2. This demonstrates the capacity of new technologies to accelerate the transformation of the economy into a more sustainable model. This figure, which is significantly higher than in previous years, is due to the fact that we have updated and added new services to our methodology for calculating the decarbonisation effects of our solutions. Specifically, we have included:
Eco Smart
Last year, we continued to roll out the Eco Smart label: AENOR has assessed the Telefónica Tech , Spain, Brazil, Germany and Chile solution portfolios, certifying that 54% of the services we offer for the B2B segment provide environmental benefits and contribute to mitigating the environmental impact of our customers.
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4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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1 Of the total figure, 80.6 million correspond to services where Telefonica only provides broadband and mobile connectivity for the B2C segment and 1.1 million to IoT, Cloud, Big Data and Health services where Telefonica provides connectivity, IoT devices, platforms, servers and/or software. This data includes the emissions generated by the connectivity and network infrastructure that are part of these services.
Eco Rating
In 2022, Telefónica implemented the Eco Rating in all our markets by extending it to operations in Latin America (with the exception of Venezuela, as we do not sell devices there) and Europe. Furthermore, since its implementation in all our markets, by the end of 2022 we have assessed 71% of the mobile portfolio we offer to our customers under this system. The Eco Rating consortium has been expanded to include 9 telecommunications companies and more than 20 mobile device manufacturers. Collectively, over 300 handsets were assessed and we expanded the system to a total of 35 countries.
Carbon offsetting for the purchases of devices
At the end of 2022, more than 388 tCO2e of device emissions have been offset at Tu.com.
Planet Pledge
In 2022, we trained around 400 marketing, communications, events and sponsorship staff to identify the environmental impact of their projects and help them reduce it. We also provided them with guidelines and recommendations on how to avoid and detect greenwashing.
Customers' emissions avoided through digitalisation
MILESTONES
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5. Annual Report on Remuneration of the Directors
6. Other information
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3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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GRI 3-3
KEY POINTS
Our people management strategy is based on promoting a growth mindset in our teams and empowering individuals so they can harness their full potential. The Board of Telefónica oversees key Human Capital issues. The strategic lines of action for talent management are defined by the Global Human Resources Committee. Despite a rather complex backdrop, Telefónica has maintained a stable workforce of more than 103,000 people. Over 98% of our employees are on permanent contracts.
People are at the heart of our strategy, and our corporate mission is to “make our world more human by connecting lives”. Human Capital remains key in our increasingly digital work environment. We understand this factor as the value stemming from the sum of all the skills, knowledge and experience that our employees bring to the table.## 2. Non-financial Information statement
Social Capital is also especially important because this is what consolidates the connections that are made between people and teams within the organisation. These two factors combined represent our People Capital, in other words, the value of people as an intangible asset for the Company. This helps us boost our growth mindset and enables teams to meet Company targets. We aspire to be the best company in the world to work for; a company with diverse talent, flexible working methods and personal growth.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 124
Our goal is to stand at the cutting edge of transformation, maximising Telefónica’s people capital to meet business needs. Human capital represents the value of people as an intangible asset for the Company.
= People capital is the value stemming from the sum of all the skills, knowledge and experience that all the people within our organisation bring to the table.
+ Social capital consolidates the value of connections between the people and teams within the organisation.
Many of our internal rules and policies are related to human capital. The following are the most important:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 125
The main challenges we face in human capital management no longer exclusively stem from the rapid digital transformation we are undergoing, which is reflected in the labour market. We must also learn how to tackle even greater uncertainty and instability, given the context in which we are living. The context of high inflation, the strong competition for highly qualified talent and the development of new internal skills will be our major challenges. We therefore have a huge opportunity to prepare ourselves now and start building the skills that the Company will need to implement its strategy. The pandemic has given us a window to rethink our culture and the ways we work and innovate, with the aim of boosting productivity in the new digital age. At Telefónica, we believe that developing hybrid environments capable of harnessing the best of both worlds is key for promoting co-creation, communication and team spirit. We could not lead the digital revolution without having the best talent, ensuring that all our people - without exception - thrive in a diverse and inclusive work environment. This also allows us to empathise better with our customers, to innovate and to reflect their diversity in our commercial value proposition. We must help our employees to overcome the challenges posed by the swift pace of exponential change that we are experiencing due to the digital transformation, economic uncertainty and political tensions, reducing their impact on their work and well-being. Similarly, we work to strengthen consistency between the Company’s vision and the personal goals of each employee in order to further cement their ties to the Company. These challenges are included as emerging risks of the People area in the Telefónica Risk Management Model. For further information, see Chapter 3.1. Risk management model.
Telefónica’s people strategy aims to transform and adapt our teams in line with the context of permanent change in which we find ourselves. In this respect, our main lines of action (further explained in the following chapters) are focused on:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 126
Our efforts in terms of talent attraction and development, diversity and inclusion and health and safety have been awarded by different actors, both at the global and the national level.
For further information, see chapter 2.6. Attraction, retention and talent development
For further information, see Chapter 2.7. Diversity and inclusion.
For further information, see Chapter 2.8. New ways of working
Main KPIs on the Telefónica workforce can be seen below:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 127
Total number and distribution of employees by country
| Country | 2021 | 2022 | On-site workforce % 2021 | On-site workforce % 2022 |
|---|---|---|---|---|
| Spain | 28,949 | 27,411 | 27.9% | 26.4% |
| Brazil | 34,746 | 35,241 | 33.4% | 34.0% |
| Germany | 7,238 | 8,246 | 7.0% | 8.0% |
| Hispam | 32,091 | 31,483 | 30.9% | 30.4% |
| Argentina | 12,276 | 11,210 | 11.8% | 10.8% |
| Chile | 4,053 | 4,190 | 3.9% | 4.0% |
| Colombia | 5,965 | 6,462 | 5.7% | 6.2% |
| Ecuador | 922 | 961 | 0.9% | 0.9% |
| Mexico | 2,097 | 1,798 | 2.0% | 1.7% |
| Peru | 4,557 | 4,616 | 4.4% | 4.5% |
| Uruguay | 580 | 606 | 0.6% | 0.6% |
| Venezuela | 1,641 | 1,640 | 1.6% | 1.6% |
| Rest | 910 | 1,257 | 0.9% | 1.2% |
| Group Total | 103,934 | 103,638 | 100.0% | 100.0% |
The Group’s average on-site workforce in 2022 stood at 102,483 employees. The Group’s equivalent (FTE) workforce in 2022 stood at 100,128 FTE. The VMED O2 U.K workforce at 31 December, stood at 17,054 employees (5,217 women, 11,813 men, 24 non-gender-identified employees). However, those indicators that include the cumulative staffing situation will be reflected.
Total number and distribution of employment contract types by gender and region
| Region | Permanent contracts Men 2021 | Permanent contracts Men 2022 | Permanent contracts Women 2021 | Permanent contracts Women 2022 | Permanent contracts Total 2021 | Permanent contracts Total 2022 | Temporary contracts Men 2021 | Temporary contracts Men 2022 | Temporary contracts Women 2021 | Temporary contracts Women 2022 | Temporary contracts Total 2021 | Temporary contracts Total 2022 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Germany | 4,220 | 4,845 | 2,482 | 2,808 | 6,702 | 7,653 | 357 | 380 | 179 | 213 | 536 | 593 |
| Brazil | 20,020 | 19,906 | 14,723 | 15,333 | 34,743 | 35,239 | — | 0 | 3 | 2 | 3 | 2 |
| Spain | 18,299 | 17,292 | 9,941 | 9,688 | 28,240 | 26,980 | 376 | 239 | 333 | 192 | 709 | 431 |
| Rest | 655 | 917 | 245 | 338 | 900 | 1,255 | 8 | 2 | 2 | 0 | 10 | 2 |
| Hispam | 20,006 | 19,626 | 11,408 | 11,205 | 31,414 | 30,831 | 439 | 434 | 238 | 218 | 677 | 652 |
| Group Total | 63,200 | 62,586 | 38,799 | 39,372 | 101,999 | 101,958 | 1,180 | 1,055 | 755 | 625 | 1,935 | 1,680 |
Relevant KPIs from VMED O2 U.K at 31 December: Permanent Contracts = 16,974 Temporary Contracts = 80
Total number and distribution of working day types by gender and region
| Region | Full-time contracts Men 2021 | Full-time contracts Men 2022 | Full-time contracts Women 2021 | Full-time contracts Women 2022 | Full-time contracts Total 2021 | Full-time contracts Total 2022 | Part-time contracts Men 2021 | Part-time contracts Men 2022 | Part-time contracts Women 2021 | Part-time contracts Women 2022 | Part-time contracts Total 2021 | Part-time contracts Total 2022 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Germany | 4,244 | 4,586 | 1,640 | 1,778 | 5,884 | 6,364 | 333 | 639 | 1,021 | 1,243 | 1,354 | 1,882 |
| Brazil | 20,018 | 19,905 | 14,726 | 15,335 | 34,744 | 35,240 | 2 | 1 | — | — | 2 | 1 |
| Spain | 18,618 | 17,479 | 10,132 | 9,765 | 28,750 | 27,244 | 57 | 52 | 142 | 115 | 199 | 167 |
| Rest | 663 | 916 | 223 | 308 | 886 | 1,224 | — | 3 | 24 | 30 | 24 | 33 |
| Hispam | 20,427 | 20,041 | 11,545 | 11,340 | 31,972 | 31,381 | 18 | 19 | 101 | 83 | 119 | 102 |
| Group Total | 63,970 | 62,927 | 38,266 | 38,526 | 102,236 | 101,453 | 410 | 714 | 1,288 | 1,471 | 1,698 | 2,185 |
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| Contract Type | Men 2021 | Men 2022 | Women 2021 | Women 2022 | Total 2021 | Total 2022 |
|---|---|---|---|---|---|---|
| Permanent contracts | 65,445 | 62,125 | 40,175 | 38,739 | 105,620 | 100,864 |
| Temporary contracts | 1,089 | 947 | 707 | 672 | 1,797 | 1,619 |
| Part-time contracts | 751 | 580 | 1,823 | 1,410 | 2,575 | 1,989 |
| Contract Type | Over 50 2021 | Over 50 2022 | 35 to 50 2021 | 35 to 50 2022 | Under 35 2021 | Under 35 2022 | Total 2021 | Total 2022 |
|---|---|---|---|---|---|---|---|---|
| Permanent contracts | 22,026 | 24,541 | 53,125 | 48,272 | 30,469 | 28,051 | 105,620 | 100,864 |
| Temporary contracts | 57 | 77 | 492 | 509 | 1,247 | 1,033 | 1,797 | 1,619 |
| Part-time contracts | 375 | 430 | 1,190 | 1,099 | 1,009 | 460 | 2,575 | 1,989 |
| Contract Type | Executives 2021 | Executives 2022 | Middle management 2021 | Middle management 2022 | Other professionals 2021 | Other professionals 2022 | Total 2021 | Total 2022 |
|---|---|---|---|---|---|---|---|---|
| Permanent contracts | 4,331 | 4,328 | 8,630 | 9,247 | 92,658 | 87,288 | 105,620 | 100,864 |
| Temporary contracts | 7 | 6 | 11 | 10 | 1,779 | 1,603 | 1,797 | 1,619 |
| Part-time contracts | 17 | 14 | 49 | 58 | 2,509 | 1,918 | 2,575 | 1,989 |
The calculation is based on the cumulative average for the year by type of contract and by type of working day.
For further information, see chapters 2.6, 2.7, 2.8 and 2.9.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 129
Our employees' level of commitment and engagement as measured by eNPS (employment Net Promoter Score), has risen again in 2022 (+2 pts) to 69. We promote one of the largest reskilling programmes in Europe, involving more than 16,000 employees in Spain, and 78% of our employees worldwide invested in acquiring and developing new skills in 2022. More than 50,000 employees already use our SkillsBank skill development platform and we have digitalised 92% of the training we offer.
Attracting, developing and retaining talent is fundamental to the success of our Company. We want our teams to have whatever they need to overcome present and future challenges. We know that professional careers have shifted from being vertical and stable to more cross-cutting and flexible, meaning that our development is no longer conditioned by our current job, but rather by what we want to become in the future.
We engage in strategic, skill-related preparation via our Skills Workforce Planning process, which seeks to ensure alignment between the skills we possess in the organisation and the skills that we need to grow our businesses. This enables us to make the right decisions to close the skills gap. We are therefore firmly committed to developing any new skills that we need internally, in combination with incorporating external talent.
For further information, see Chapter 2.7. Diversity and inclusion.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 130
The situation arising from the COVID-19 pandemic has presented us with an opportunity to accelerate the digitalisation of learning.
The SkillsBank tool, AI for customised training at Telefónica SkillsBank, a software tool developed internally and recognized externally, is a key element of our skills development model.Built on big data and artificial intelligence, it gives us real-time information about the skills that are present within our organisation. We use SkillsBank to create a unique and personalized value proposition for each professional, with recommendations on vacancies and development paths. A total of 91,000 employees have access to this tool. For new skills to be developed, we also encourage geographic and job mobility as a key factor in talent retention. We therefore foster an open and innovative environment that makes it easier to match our employees’ interests and backgrounds with real opportunities that can maximize learning and development towards the roles of the future. All these initiatives are aimed at promoting the development and promotion of our employees within the Company. As a result, 25% of the vacancies published have been filled by internal applicants. Of those employees who received a promotion, 40% are women. If we all grow, Telefónica grows: our range of development options for employees combines technical and human skills.
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.
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2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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Having undertaken an enormous technological transformation, Telefónica has boosted the Innovation and Talent Hub by opening a new Universitas campus. Its physical location is at our central offices in Madrid (Spain) and it is equipped with advanced in-person, virtual and hybrid executive education resources. We have the right environment to achieve the goal of ensuring that at least two out of three of our employees regularly take part in growth, development and skill development programmes every year.
The commitment of our professionals has always been high on Telefónica’s agenda and it forms part of our active listening strategy. For several years now, we have been measuring this through the employee Net Promoter Score (eNPS), which indicates the degree to which the Company's employees recommend the organisation by answering the question: How likely would you be to recommend your company to people close to you as a good place to work? (1=Definitely would not recommend, 10=Definitely would recommend). This procedure lets us align ourselves with the customer satisfaction measurement by using the same logic as the Net Promoter Score, which measures the percentage of promoters (those who give scores of between 9 and 10) against the percentage of detractors (those who give scores from 1 to 6). We achieved a result of 69 in 2022, which is an improvement of 2 points on the 2021 result. This clearly highlights our commitment and sense of pride in belonging. A result above 40 is considered excellent and we are part of the select group of companies that are above 60. Our challenge now is to keep increasing our professionals’ sense of pride in belonging to our Company, under the conviction that their motivation is key for driving good results. 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 level of commitment. This is all complemented by professional performance appraisals, exit interviews, incident tracking and the availability of a Responsible Business Channel that employees can always use to report conflicting situations.
This programme aims to promote a culture of meritocracy through personal recognition by leaders towards employees and among employees themselves, giving visibility to those individuals and teams that excel through both their outstanding contribution and their day-to-day behavior. It also recognizes "social volunteers or volunteer teams" for their extraordinary contribution to a social cause or in an emergency or humanitarian crisis. In total, we recorded 100,183 incidents of recognition for colleagues and teams, showing that recognition remains in Telefónica’s DNA. We will continue to promote it to connect with our talent.
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 globalized framework in which we operate, fostering 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, and contributing to the fight against climate change, influence the calculation of the variable remuneration of our entire team since 2019. For further information, see Chapter 2.16. Governance and culture of sustainability.
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2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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Telefónica is a company that fosters meritocracy and equal opportunities. We therefore offer a competitive and fair remuneration package that can comprise fixed amounts and both short and long-term variable amounts (tied to the achievement of financial, business, value creation and sustainability targets, which should be specific, quantifiable and aligned with the Company’s strategic plan). Additionally, we offer remuneration in kind and other social benefits adapted to local practices in the markets where we operate, allowing for customization and tax efficiency through flexible compensation plans. Telefónica’s professionals are consistently remunerated according to their level of responsibility, leadership and performance within the organisation. To maintain this premise, we ensure that we do not discriminate 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 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 all our operations, which covers the needs of people with disabilities. We also offer life insurance, a pension fund, share purchase programme, discount programmes, childcare assistance (including nursery services) and food assistance, among other things. All these benefits increase job quality. Our social benefits are especially focused on improving well-being for our employees. They help to maintain physical and mental health while supporting their families and adapting healthcare coverage to new circumstances and needs. For further information, see Chapter 2.9. Occupational health, safety and well-being.
The emotional salary is another relevant factor to foster the retention and motivation of our professionals and to attract the best talent. This is expressed through new ways of working, work-life balance, psychological well-being, a firm commitment to learning and professional development, and a culture of commitment and recognition of our employees. Furthermore, Telefónica launched an incentivized global share purchase plan in 2022 - “Plan 100” - aimed at all employees of the Group, without exception. For every share bought under this plan, until it ends in 2024, Telefónica rewards the buyer with another share. As part of our Company’s centenary celebrations, each employee who takes part in the plan will receive 100 additional shares for free.
Telefónica has different social welfare systems in each geographic region where we operate. In Spain, most of the companies in the Telefónica Group have a complementary social welfare system in place that is channelled through two pension funds: Empleados de Telefónica de España, FP and Fonditel B, FP. Empleados de Telefónica de España, FP is a uni-plan while Fonditel B, FP is a multi-plan. Both pension funds have been set up as private and voluntary Social Welfare Institutions that complement and are independent from the Public Social Security System. The Pension Plans belong to the employment system and are based on defined contributions, with compulsory contributions from the fund promoters and participants. Generally speaking, the ordinary compulsory contributions from the promoter of Telefónica de España, FP consist of 6.87% of the participant’s base salary provided that the participant joined Telefónica de España before 1 July 1992 and 4.51% of the participant’s base salary if they joined the Company after 30 June 1992. In turn, the participant must contribute 2.2% of their base salary.# Consolidated Annual Report 2022
In the case of Fonditel B, FP each pension plan has its own contribution scheme that, generally speaking, requires the promoter to contribute 4.51% of the participant’s base salary while the participant must contribute 2.2% of their base salary. At 31 December 2022, the number of participants and beneficiaries stood at 24.741 and 11,093 in Telefónica de España employees, FP and 17.345 and 195 under Fonditel B, FP. The annual contributions from the sponsor in 2022 amounted to €39,6 million in Telefónica de España employees, FP and 26,1 under Fonditel B, FP.
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
With regard to our Board of Directors, we have a Remuneration Policy for the Directors of Telefónica, S.A., which ensures compliance with best practices in the area of good governance. For further information, see Chapter 5.1. Annual Report on Remuneration.
Telefónica has a worldwide performance review process for all employees of the Group. The same timetable, guidelines and tools are shared everywhere. Although the process is coordinated globally, it is managed locally so as to better adapt to the needs of our business.
| Percentage of employees subject to performance reviews | 2021 | 2022 |
|---|---|---|
| By gender | ||
| Men | 42% | 48% |
| Women | 45% | 50% |
| By professional category | ||
| Executives | 45% | 50% |
| Middle management | 56% | 53% |
| Other professionals | 42% | 48% |
| Total | 43% | 48% |
The 2021 data are recalculated in such a way that the percentage of employees subject to performance review is calculated using the average workforce for the whole group.
GRI 404-1, 404-2, 404-3
Our SkillsBank skill development platform is available to more than 90,000 employees. 50,000 employees (35,000 in 2021) have already uploaded their profiles to it. In 2022, our professionals completed more than 1.6 million courses, with an average of 15 courses per employee and an average of 35 training hours per employee. It is important to note that our training offer has been digitalized almost in its entirety, up from 30% virtual activities in 2019 to 92% today, which means that, even though the number of hours of training may decrease, they are more targeted in terms of impact and relevance. Furthermore, according to the annual motivation survey, 82% of our employees feel that learning has been incorporated into their day-to-day work, which represents an improvement of 2 p.p compared with 2021.
A million Europeans reskilled
In 2022, the Chairman of Telefónica, José María Álvarez-Pallete, 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.
Universitas ran a total of 84 programmes, impacting more than 11,000 people. Its goal is to strengthen our culture of lifelong learning by maintaining synchronous programmes. We achieved an NPS of 77, which is far above the average reflected by various training benchmarks in Spain. We also have new programmes that focus on the skills identified as critical, such as focus on the customer, growth mentality, experimentation and innovation, so as to meet the needs expressed by the local operations and complement local upskilling and reskilling initiatives.
In 2022, we launched the Power of Connections programme, a key tool for developing the Telefónica culture.
Power of Connections, inspiration and motivation for 42,000 employees
Power of Connections, the most ambitious employee motivation programme ever carried out at Telefónica, was launched in 2022. It was designed to rally people around our purpose - “to make our world more human by connecting people’s lives” - and to share a forward-looking vision and strengthen our culture. With support from over 1,000 specially trained internal facilitators, we organized an event for guided conversation between professionals. We also empowered employees to make a distinctive contribution to the history of our Company as we approach our centenary.
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Power of Connections, beyond training
Fresh shared energy: when we listen, when we share, when we feel truly united, we begin to learn and grow
The largest event in the history of Telefónica
65k employees invited
42K participants
20k completed the full programme
7,500 hours of guided conversation
1k employees trained to facilitate conversation
20k simultaneous connections
Every member of the Executive Committee took part
In 2022, 78% of employees invested in the acquisition and development of new skills that are needed for the future through different skill development programmes (reskilling/upskilling), from among which the following can be highlighted:
All these initiatives form part of the strategic skill-related preparation that we undertake via the Skills Workforce Planning process. In addition to the training focused on the critical skills we need for the future, we run lifelong learning initiatives on digital and business skills to ensure that the entire workforce has the latest knowledge on these issues. For more information, see chapter 2.8. New ways of working
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
In 2022, we continued to boost our young talent, while investing in new skills through selective recruitment processes, by means of various programmes such as Talentum in Spain, 42 and the “estagio” apprenticeship programme in Brazil, for which 750 vacancies were created. 50% of those vacancies were mean to be filled by black candidates. In 2022, 60% of the new hires were under 35, which is 5% more than in 2021. Talentum has handed out more than 6,000 grants over its ten-year history, with 2,600 (nearly 44%) grant recipients later becoming new hires.
In 2022, we began to design a new employee assessment model based on conversations between managers and employees. The goal is to provide feedback that can boost well-being and growth for both our professionals and business. At Telefónica, we are changing our performance review model to bring it into line with the flexible work model and new professional skills.
In turn, Telefónica Spain launched a new conversations model for growth that falls under the new teleworking model agreed with the workers’ representatives. 94.7% of employees were assessed in 2022. 81.5% involved conversations with their corresponding managers aimed at boosting flexibility, trust, skill development and commitment. In order to implement this work dynamic, employees form part of a learning community that offers webinars, workshops and training pills. 81% of employees in Spain (according to our annual motivation survey) believe there is frequent dialogue between manager and employee. This is a 12 p.p increase when compared with 2021, which reflects the positive impact that the new model is having.# Consolidated management report 2022
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New employee hires
Total number and rate of new hires by age group, gender and region
| Region | Age group | Men % 2021 | Men % 2022 | Women % 2021 | Women % 2022 | Total 2021 | Total 2022 |
|---|---|---|---|---|---|---|---|
| Germany | More than 50 | 6% | 8% | 10% | 4% | 247 | 261 |
| From 35 to 50 | 21% | 25% | 24% | 17% | 717 | 978 | |
| Under 35 | 22% | 28% | 18% | 19% | 639 | 1,060 | |
| Brazil | More than 50 | 2% | 2% | 1% | 2% | 279 | 294 |
| From 35 to 50 | 15% | 15% | 12% | 15% | 2,534 | 2,402 | |
| Under 35 | 33% | 31% | 37% | 35% | 6,500 | 5,258 | |
| Spain | More than 50 | 13% | 7% | 11% | 6% | 3,571 | 1,681 |
| From 35 to 50 | 18% | 18% | 12% | 12% | 4,560 | 3,703 | |
| Under 35 | 27% | 32% | 20% | 24% | 7,142 | 6,998 | |
| Others | More than 50 | 14% | 9% | 4% | 4% | 160 | 63 |
| From 35 to 50 | 28% | 34% | 11% | 9% | 355 | 219 | |
| Under 35 | 28% | 30% | 15% | 14% | 394 | 228 | |
| Hispam | More than 50 | 4% | 2% | 1% | 0% | 207 | 120 |
| From 35 to 50 | 27% | 21% | 13% | 10% | 1,869 | 1,327 | |
| Under 35 | 34% | 41% | 23% | 25% | 2,705 | 2,807 | |
| Group Total | More than 50 | 8% | 5% | 6% | 4% | 4,464 | 2,419 |
| From 35 to 50 | 19% | 18% | 13% | 13% | 10,035 | 8,629 | |
| Under 35 | 30% | 33% | 25% | 27% | 17,380 | 16,351 |
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Employee turnover
Total number and employee turnover rate by age group, gender and region
| Region | Age group | Men % 2021 | Men % 2022 | Women % 2021 | Women % 2022 | Total % 2021 | Total % 2022 |
|---|---|---|---|---|---|---|---|
| Germany | More than 50 | 3% | 1% | 4% | 1% | 7% | 2% |
| From 35 to 50 | 7% | 4% | 7% | 3% | 14% | 8% | |
| Under 35 | 5% | 4% | 4% | 3% | 10% | 7% | |
| Brazil | More than 50 | 1% | 1% | 0% | 0% | 1% | 1% |
| From 35 to 50 | 5% | 4% | 4% | 3% | 9% | 8% | |
| Under 35 | 8% | 6% | 8% | 6% | 16% | 13% | |
| Spain | More than 50 | 7% | 10% | 6% | 5% | 13% | 15% |
| From 35 to 50 | 9% | 7% | 6% | 5% | 16% | 12% | |
| Under 35 | 14% | 13% | 10% | 10% | 24% | 23% | |
| Others | More than 50 | 24% | 3% | 12% | 1% | 35% | 3% |
| From 35 to 50 | 49% | 4% | 32% | 2% | 81% | 7% | |
| Under 35 | 45% | 4% | 33% | 1% | 77% | 5% | |
| Hispam | More than 50 | 4% | 2% | 1% | 1% | 5% | 3% |
| From 35 to 50 | 6% | 3% | 3% | 2% | 9% | 6% | |
| Under 35 | 5% | 4% | 4% | 3% | 9% | 7% | |
| Group Total | More than 50 | 4% | 4% | 3% | 2% | 7% | 6% |
| From 35 to 50 | 8% | 5% | 5% | 3% | 13% | 8% | |
| Under 35 | 9% | 7% | 8% | 6% | 17% | 13% |
The turnover percentage is calculated by dividing the number of leavers by the average workforce.
Involuntary leavers (dismissals) by gender
| Region | Men 2021 | Men 2022 | Women 2021 | Women 2022 | Total 2021 | Total 2022 |
|---|---|---|---|---|---|---|
| Germany | 408 | 121 | 305 | 45 | 713 | 166 |
| Brazil | 2,381 | 2,236 | 2,603 | 2,075 | 4,984 | 4,311 |
| Spain | 130 | 1,866 | 99 | 684 | 229 | 2,550 |
| Others | 57 | 19 | 27 | 10 | 84 | 29 |
| Hispam | 2,229 | 1,184 | 1,033 | 553 | 3,262 | 1,737 |
| Group Total | 5,205 | 5,426 | 4,067 | 3,367 | 9,272 | 8,793 |
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Involuntary leavers (dismissals) by age group
| Region | More than 50 2021 | More than 50 2022 | From 35 to 50 2021 | From 35 to 50 2022 | Under 35 2021 | Under 35 2022 | Total 2021 | Total 2022 |
|---|---|---|---|---|---|---|---|---|
| Germany | 223 | 26 | 308 | 61 | 182 | 79 | 713 | 166 |
| Brazil | 304 | 288 | 1,705 | 1,577 | 2,975 | 2,446 | 4,984 | 4,311 |
| Spain | 64 | 2,358 | 122 | 138 | 43 | 54 | 229 | 2,550 |
| Others | 27 | 13 | 33 | 11 | 24 | 5 | 84 | 29 |
| Hispam | 1,361 | 812 | 1,183 | 645 | 718 | 280 | 3,262 | 1,737 |
| Group Total | 1,979 | 3,497 | 3,351 | 2,432 | 3,942 | 2,864 | 9,272 | 8,793 |
For further information, see chapter 2.8. New ways of working.
Involuntary leavers (dismissals) by professional category
| Region | Executives 2021 | Executives 2022 | Middle Management 2021 | Middle Management 2022 | Other Professionals 2021 | Other Professionals 2022 | Total 2021 | Total 2022 |
|---|---|---|---|---|---|---|---|---|
| Germany | 3 | 5 | 39 | 11 | 671 | 150 | 713 | 166 |
| Brazil | 129 | 112 | 254 | 717 | 4,601 | 3,482 | 4,984 | 4,311 |
| Spain | 19 | 58 | 13 | 180 | 197 | 2,312 | 229 | 2,550 |
| Others | 3 | 4 | 8 | 12 | 73 | 13 | 84 | 29 |
| Hispam | 92 | 40 | 330 | 192 | 2,840 | 1,505 | 3,262 | 1,737 |
| Group Total | 246 | 219 | 644 | 1,112 | 8,382 | 7,462 | 9,272 | 8,793 |
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Voluntary leavers (resignations) by age group, gender and region
| Region | Age group | Men % 2021 | Men % 2022 | Women % 2021 | Women % 2022 | Total % 2021 | Total % 2022 |
|---|---|---|---|---|---|---|---|
| Germany | More than 50 | 0.1% | 0.2% | 0.1% | 0.2% | 0.3% | 0.4% |
| From 35 to 50 | 1% | 1.1% | 1% | 0.8% | 1% | 1.9% | |
| Under 35 | 1.0% | 1.7% | 0.8% | 0.7% | 1.8% | 2.4% | |
| Brazil | More than 50 | 0% | 0.2% | 0% | 0.1% | 0% | 0.3% |
| From 35 to 50 | 1.9% | 1.7% | 1.4% | 1.2% | 3.3% | 2.9% | |
| Under 35 | 3.3% | 2.8% | 3.3% | 2.7% | 6.7% | 5.5% | |
| Spain | More than 50 | 0% | 0.1% | 0% | 0.1% | 0% | 0.2% |
| From 35 to 50 | 0.5% | 0.7% | 0.3% | 0.3% | 1.0% | 1.0% | |
| Under 35 | 0.5% | 0.8% | 0.3% | 0.4% | 0.7% | 1.2% | |
| Others | More than 50 | 0.6% | 1.2% | 0.2% | 0.3% | 0.8% | 1.5% |
| From 35 to 50 | 1.6% | 2.7% | 0.5% | 1.1% | 2.1% | 3.8% | |
| Under 35 | 3.1% | 2.8% | 2.7% | 0.7% | 5.8% | 3.5% | |
| Hispam | More than 50 | 0.1% | 0.2% | 0.0% | 0.1% | 0.1% | 0.2% |
| From 35 to 50 | 1.1% | 1.3% | 0.5% | 0.7% | 1.6% | 2.1% | |
| Under 35 | 1.5% | 1.8% | 1.1% | 1.5% | 2.6% | 3.3% | |
| Group Total | More than 50 | 0.1% | 0.2% | 0.1% | 0.1% | 0.2% | 0.3% |
| From 35 to 50 | 1.2% | 1.3% | 0.7% | 0.8% | 1.9% | 2.1% | |
| Under 35 | 1.8% | 1.9% | 1.6% | 1.5% | 3.5% | 3.4% |
The voluntary turnover percentage is calculated by dividing the number of leavers by the average workforce.
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Turnover by type of leaver
| Region | Involuntary leavers4 2021 | Involuntary leavers4 2022 | % 2021 | % 2022 | Voluntary leavers5 2021 | Voluntary leavers5 2022 | % 2021 | % 2022 | Change of perimeter and internal movements6 2021 | Change of perimeter and internal movements6 2022 | % 2021 | % 2022 | Other leavers7 2021 | Other leavers7 2022 | % 2021 | % 2022 | Total 2021 | Total 2022 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Germany | 713 | 166 | 31.2% | 12.8% | 259 | 362 | 11.4% | 28.0% | 526 | 23 | 23.1% | 1.8% | 784 | 744 | 34.4% | 57.5% | 2,282 | 1,295 |
| Brazil | 4,984 | 4,311 | 55.6% | 57.7% | 3,489 | 3,002 | 38.9% | 40.2% | 468 | 151 | 5.2% | 2.0% | 21 | 3 | 0.2% | 0.0% | 8,962 | 7,467 |
| Spain | 229 | 2,550 | 1.5% | 18.3% | 471 | 645 | 3.2% | 4.6% | 3,863 | 163 | 25.9% | 1.2% | 10,370 | 10,553 | 69.4% | 75.9% | 14,933 | 13,911 |
| Others | 84 | 29 | 1.3% | 16.8% | 299 | 100 | 4.4% | 57.8% | 6,287 | 7 | 93.4% | 4.0% | 63 | 37 | 0.9% | 21.4% | 6,733 | 173 |
| Hispam | 3,262 | 1,737 | 43.9% | 36.0% | 1,436 | 1,761 | 19% | 36.5% | 1,848 | 210 | 24.9% | 4.3% | 890 | 1,122 | 12.0% | 23% | 7,436 | 4,830 |
| Group Total | 9,272 | 8,793 | 23% | 32% | 5,954 | 5,870 | 14.8% | 21.2% | 12,992 | 554 | 32.2% | 2.0% | 12,128 | 12,459 | 30.1% | 45.0% | 40,346 | 27,676 |
% calculated on the total number of leavers.# Consolidated management report 2022
| Region | eNPS Total | eNPS Men | eNPS Women |
|---|---|---|---|
| 2021 | 2022 | 2021 | |
| Germany | 60 | 66 | 57 |
| Argentina | 57 | 59 | 60 |
| Brazil | 80 | 84 | 77 |
| Chile | 68 | 77 | 67 |
| Colombia | 80 | 82 | 80 |
| Ecuador | 65 | 80 | 68 |
| Spain | 63 | 54 | 61 |
| Mexico | 70 | 74 | 68 |
| Peru | 39 | 49 | 37 |
| Uruguay | 63 | 83 | 56 |
| Venezuela | 86 | 69 | 83 |
| Others | 38 | 48 | 34 |
| Hispam | 63 | 67 | 63 |
| Group Total | 67 | 69 | 64 |
See definition in chapter 2.6.2. Action plan and commitments.
| Region | Training hours | Executive training hours men | Executive training hours women | Middle management training hours men | Middle management training hours women | Other professionals training hours men | Other professionals training hours women |
|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |
| Germany | 130,993 | 97,040 | 1,331 | 1,205 | 689 | 721 | 7,411 |
| Brazil | 2,562,667 | 1,868,478 | 15,187 | 17,078 | 8,379 | 10,556 | 56,275 |
| Spain | 716,580 | 865,223 | 19,173 | 24,775 | 9,345 | 14,228 | 35,184 |
| Others | 94,756 | 4,769 | 906 | 667 | 485 | 126 | 8,859 |
| Hispam | 673,669 | 767,456 | 7,382 | 10,114 | 3,386 | 4,870 | 43,142 |
| Group Total | 4,178,665 | 3,602,967 | 43,980 | 53,839 | 22,285 | 30,501 | 150,871 |
Investment in training in 2022 amounted to €25.1 million. Average investment per employee stood at €272. Ratio calculated on 93% of the Group’s workforce (FTE) at year end.
| Region | Training hours per employee | Executive training hours per employee men | Executive training hours per employee women | Middle management training hours per employee men | Middle management training hours per employee women | Other professionals training hours per employee men | Other professionals training hours per employee women |
|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |
| Germany | 17 | 13 | 8 | 7 | 12 | 12 | 14 |
| Brazil | 74 | 54 | 14 | 16 | 16 | 18 | 38 |
| Spain | 25 | 32 | 19 | 23 | 19 | 27 | 26 |
| Others | 27 | 4 | 7 | 11 | 7 | 9 | 24 |
| Hispam | 20 | 24 | 13 | 19 | 15 | 21 | 19 |
| Group Total | 39 | 35 | 15 | 18 | 16 | 21 | 25 |
The training hours calculation from 2021 was reviewed for 2022, ensuring compliance with the scope contained in this report and enabling year-on-year comparisons. Although the Group had a similar number of employees in 2022, the number of training hours fell when compared with 2021 due to the deconsolidation of the UK from the scope and the new legal entities that were incorporated but have yet to be included in the learning systems
| Type of contract | 2022 |
|---|---|
| Permanent contracts | 3,564,270 |
| Temporary contracts | 38,697 |
KEY POINTS
We have created an inclusive working environment, respecting diversity at all levels, In our annual motivational survey, 91% of our employees reported feeling included at work. For the sixth consecutive year, we formed part of the Bloomberg Gender-Equality Index. In 2022, we committed to deepening our talent pool with the objective of doubling the number of employees with disabilities in the workforce by 2024.
At Telefónica, diversity, in addition to fulfilling the principles of social justice, helps us to achieve better business results. We therefore design initiatives aimed at promoting diversity in our teams and fostering an organizational culture of equity, diversity and inclusion. Diversity management helps us to attract and retain high-potential professionals, get the best out of our employees, empathise with our customers and innovate.
We have internal bodies and roles that monitor our progress on equality, diversity and inclusion. These bodies also monitor compliance with performance indicators and alignment with strategic targets and ensure the involvement of senior management.
They govern the Company's commitment to diversity and inclusion:
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Relevant indicators
| VMED O2 UK: Leavers | VIMED O2 UK: Total leavers = 4,580; Voluntary leavers = 2,627; Involuntary leavers = 1,953 | |
|---|---|---|
| Average turnover on the average workforce by type of leaver | ||
| Region | Involuntary leavers | Voluntary leavers |
| 2021 | 2022 | |
| Germany | 9.4 | 2.2 |
| Brazil | 14.4 | 12.4 |
| Spain | 0.8 | 9.3 |
| Others | 2.4 | 2.6 |
| Hispam | 9.8 | 5.5 |
| Group Total | 8.6 | 8.6 |
| Change of perimeter and internal movements | Other leavers | Total | |
|---|---|---|---|
| 2021 | 2022 | 2021 | |
| Germany | 3.4 | 4.7 | 6.9 |
| Brazil | 10.1 | 8.7 | 1.4 |
| Spain | 2 | 2.4 | 13.5 |
| Others | 8.6 | 8.8 | 181.0 |
| Hispam | 4.3 | 5.6 | 5.6 |
| Group Total | 5.5 | 5.7 | 12.1 |
Average Turnover stands for leavers / average workforce.
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4 Dismissals.
5 Resignations.
6 Departures owing to a change to another company within the scope of consolidation of the Group or owing to a change of scope (departure to another company beyond the scope of consolidation of the Group).
7 Attrition due to leave and/or works/service contracts.
8 Several voluntary redundancy schemes came to an end in Spain over the course of 2022.
9 74% of leavers correspond to Tempotel, a human resources management company of the Telefónica Group specialised in hiring extras for audiovisual productions.These employees are contracted for ad hoc events (such as the participation in audiovisual productions) and for this reason their labour relationship frequently lasts for less than 1 month.
10 The reduction in average turnover per workforce when compared with 2021 is due to the scope changes; i.e. removal of the United Kingdom operator.
11 The total turnover percentage when excluding Tempotel (Temporary employment agency) would fall to 17.87%.
Parental leave
| Men | Women | Total | |
|---|---|---|---|
| Total number of employees who were entitled to parental leave | 17,531 | 9,880 | 27,411 |
| Total number of employees who took parental leave | 524 | 227 | 751 |
| Total number of employees who returned to work during the period subject to this report after concluding their parental leave | 521 | 244 | 765 |
| Total number of employees who returned to work after concluding their parental leave and who were still employed by Telefónica 12 months after returning to work | 468 | 209 | 677 |
| Rate of return to work by employees who take parental leave | 99% | 98% | 99% |
| Rate of retention for employees who took parental leave in the last 12 months | 92% | 90% | 91% |
The data on this indicator are based on the number of employees included within the scope for Spain. Nonetheless, it is important to clarify that all employees of the Group (regardless of where they perform their role) are entitled to parental leave, whether under the legislation of the country or the local collective bargaining agreement. We are working to obtain and report these data globally in future financial years.
Rate of return to work by employees who take parental leave: The number of employees who return to work after taking maternity or paternity leave / the number of employees who should return to work after taking such leave. Retention rate: The number of employees who remain in their post 12 months after returning to work following maternity or paternity leave / the number of employees who return to work after concluding such leave in the previous year.
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Consolidated management report 2022 l 1. Strategy and growth model 2.# Consolidated Annual Report 2022
Telefónica's strategic lines for diversity and inclusion are established globally by the Global Diversity Council. This strategy is adapted and developed locally, taking into account the business priorities and the sociocultural context of each country. Our starting point is to ensure that our workforce is representative of the diversity existing in the societies in which we operate and that it is managed with an inclusive culture and leadership style. In this way, our employees feel comfortable to be themselves and can give their best.
In order to move forward, we have made a number of commitments in the short, medium and long term. In the short term, we have set a target of attaining 33% of women directives and an adjusted gender pay gap of +/- 1% by 2024. We achieved this target ahead of schedule, in 2022. In addition, we want to double the number of employees with disabilities by the same year.
In the medium term, we aim to achieve gender parity in the Company's highest governing bodies by 2030, while in the long term our north star is to eliminate the gross gender pay gap.
For further information on Telefónica's diversity and inclusion targets: For further information, see chapter 2.5. Human capital.
The Global Diversity and Inclusion Policy ensures equal treatment and equal opportunities. It promotes working conditions that prevent workplace and sexual harassment, in both a face-to-face and a digital environment, and establishes specific procedures for its prevention. In addition, our Responsible Business Principles course, which is mandatory for all employees, includes a training module on workplace and sexual harassment. At a local level, equality plans establish protocols for action in cases of workplace and sexual harassment. Besides, the whistleblowing channel allows all employees and stakeholders to report, anonymously or personally, if they experience any form of discrimination. For further information, see chapter 2.17. Ethics and compliance.
At Telefónica, we apply the principle of equal pay for equal work or for work of equal value. That is to say, we compensate equally for equal work regardless of the employee's gender. We carry out detailed analyses of gender pay data within the Group in order to identify possible inequalities and establish measures to rectify them. We do this by considering all items related to salary, benefits and other short and long-term incentives, i.e. all payments received by the employee during the year.
Gender pay inequalities or gender pay gaps are based on a comparison between the average total pay of men versus the average total pay of women in the workforce. In making this comparison, it is important to understand the way the comparison is made, what items are included and how the difference between the average total pay of men and women is measured.
When calculating it, in addition to gender, if we take into account country, legal entity, professional category, functional area in which each employee works, seniority and working time pattern (full-time or part-time), we would be talking about an adjusted pay gap (0.74% in 2022). This concept allows us to approach pay equity: equal pay for positions of equal value.
If we only compare average total pay, without considering factors other than gender, we would be talking about the gross pay gap (which was reduced to 16.80% in 2022). Closing this gap involves structural, social and cultural changes that require a long-term commitment. Therefore, at Telefónica, we are working along five lines to pursue this ambition. The basis for moving forward is to ensure equal pay in equal circumstances, which is why we were two years ahead of schedule in meeting the target of reducing the adjusted gender pay gap to +-1% by 2024.
Telefónica is working on five lines of action to eliminate the gender pay gap
According to international estimates, equal pay between women and men will not be achieved until 21571. At Telefónica we aspire to achieve it by 2050.
In Telefónica, we encourage the recruitment of female talent, young talent and/or talented people with disabilities through “Talentum” scholarships and other initiatives. Aware of the low participation of women in digital professions, we encourage women to pursue digital and STEM careers through a number of initiatives, including our internship programmes. In addition, we develop career acceleration and visibility enhancement programmes for female employees, which aim to train them in leadership skills and enrich their network of contacts. Furthermore, we implement measures to facilitate a work- life balance and promote a cultural change with the aim of encouraging co-responsibility for care among our male and female employees, after identifying that a lack of co-responsibility hinders women's professional development. For further information, see chapter 2.8. New ways of working.
We are committed to doubling the number of employees with disabilities globally over the next two years to reach over 2,700 people by 2024.
With regard to people with disabilities, in line with the 2024 target, we support their integration through agreements with external entities specialized in the search for professionals with disabilities. In addition, we offer resources to facilitate teamwork, such as the guide “Disability at Work: Everyone’s Responsibility”. At the same time, we work to ensure the accessibility of our facilities, communication channels, products and services. For further information, see chapter 2.10. Digital inclusion.
In terms of generational diversity, we have programmes for talent development and empowerment of young professionals. We are positive that attracting the best young talent is key to driving digital transformation. Additionally, we have initiatives to promote the employability of over-50s.
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 ethnic minority professionals. We are also committed to ensuring that our LGBT+ employees work in environments where they can give their best. In this regard, we have specific initiatives to attract and promote the development and well-being of transgender people.
We have also implemented measures that have an impact on the family of our employees:
Furthermore, in relation to our supply chain, we include diversity criteria in the assessment of our high-risk suppliers through an external tool. In addition, we are increasing the range of social suppliers, particularly Special Employment Centers, in which most of the employees have a recognized disability, on our procurement platform. For further information, see chapter 2.16. Responsible supply chain management.
The value of differences, awareness of unconscious bias and prejudice, and the importance of inclusive leadership are some of the issues we address in our workshops, manuals and online courses. Besides, we offer training for departments and individuals with key roles to play in supporting the inclusion of all employees. In addition, we have conducted mandatory diversity workshops for members of the Board of Directors.
1 Global Gender Gap 2021 (World Economic Forum)# 2. Non-financial Information statement
In line with our commitment, we have joined different global initiatives which seek to promote the economic and social empowerment of diverse demographic groups, particularly in the workplace, such as:
* On a global level, the Women’s Empowerment Principles, led by UN Women and the United Nations Global Compact.
* The GSMA Principles for driving digital inclusion for people with disabilities.
* The Valuable 500 initiative, through which we made four specific commitments to raise the profile of disability on the global agenda.
* The UN Standards of Conduct for Business to protect the rights of LGBT+ people.
Locally, we have partnerships with entities such as FELGTB and REDI in Spain, Stonewall in the UK, and the Fórum de Empresas e Direitos LGBTI+ and TransEmpregos in Brazil.
* ClosinGap, the group of companies committed to close the gender gap in Spain; Yo No Renuncio, the network of companies which aim to promote a better work-life balance, in the same country; and, in Germany, the initiative to eliminate gender stereotypes in the professional world, Chefsache.
* In Brazil, we participate in Movimento Mulher 360 and the Business Coalition to End Violence Against Women and Girls. In addition, we are signatories to the Pact for Inclusion and also the Business Network for Social Inclusion, and are part of the Business Initiative for Racial Equality and the Business Coalition for Racial and Gender Equality.
* In the UK, we work with 20/20 Change to empower and boost the careers of young people from ethnic minorities.
The Company's commitment to diversity and inclusion is reflected in the fact that, in 2022, 91% of Telefónica employees said they work at a company where they feel included, and where equal opportunities are promoted, according to the annual climate survey, which is an all-time high.
In October 2022, Telefónica's Board of Directors approved the first edition of the Global Equality Policy, which acts as a framework for the development of the various equality plans in each of the companies that form part of Telefónica. In addition, in 2022, the Company's chairman signed up to the Women's Empowerment Principles, bringing a global dimension to a partnership that has so far been in place in Brazil, Mexico, Venezuela, Uruguay, Argentina, Colombia and Ecuador.
In relation to the fulfillment of corporate targets, in 2022 33.3% of members on the Board of Directors were women, and we managed to increase this percentage by 1.8 p.p., reaching a total of 31.3%2 of women directors. This brings us closer to meeting our target of 33% in 2024. The yearly achievement of this target has seen its weighting in the calculation of our employees' annual remuneration triple from 1% in 2021 to 3% in 2022. For further information, see chapter 2.16. Governance and a culture of sustainability.
In relation to the pay gap, we reduced the adjusted pay gap to 0.7%, exceeding the group-wide target of 1% by 2024. To achieve our targets in all areas of diversity, in addition to having diverse teams, an inclusive leadership style is essential. Along these lines, in 2022, the Breaking Point leadership development and training programme nurtured these skills among 900 leaders in Spain. With the aim of promoting equality at all hierarchical levels and closing the gender pay gap, in 2022 we implemented a number of initiatives to accelerate the careers of our female employees, develop the pipeline of pre-executive talent and attract female talent. We provide some examples below.
* Empowering Women, which is aimed at promoting female leadership among all the women in the Company. It addresses the key issues and barriers faced by women who want to lead. Approximately 250 women participated in 2022.
* The Futura leadership programme in Hispanoamerica, which started its second edition, involving over 230 participants.
* Programmes seeking to promote STEM positions among women. In Brazil, the Women in Technical Areas Programme grew to 300 professionals.
In addition, we strive to ensure a working environment free of sexual harassment. To achieve this, in Hispanoamerica, we implemented a tool that allows us to easily identify possible cases of harassment by using artificial intelligence (AI).
Outside the confines of the Company, we are also working to promote the presence of women and young people in STEM careers and entrepreneurship through a total of 102 programmes and initiatives. These include Mujeres4Tech, #SheTransformsIT, Girls Love Tech and the STEAM Alliance for Female Talent, promoted by the Spanish Ministry of Education and Vocational Training. Along these lines, in 2022, in addition to publishing the percentage of women in STEM positions (21%) at Telefónica, we calculated and made public for the first time the percentage of women in IT positions (25%) and in R&D (43%). We also promoted, together with ClosinGap, the report “The opportunity cost of the gender gap in digital professions”, with the aim of raising awareness and sparking the necessary debate in society, which will enable us to adopt measures to redress existing inequalities. With the same aim, we joined the “Yo No Renuncio por la conciliación” network of companies, focusing on promoting work-life balance and co- responsibility between men and women.
In terms of our approach to disability in the workplace, our Global Diversity Council approved a new, global corporate target in October 2022 to double the number of people with disabilities in the workforce by the end of 2024. In line with this target, last year we signed a number of agreements with entities that help us identify candidates with disabilities, who have skills that meet the Company's needs, with an emphasis on attracting professionals with different types of disabilities.
“For Telefónica, contributing to providing opportunities for people with disabilities is not only an ethical imperative, but also a question of talent and business. In the current context, no company can afford to do without any valuable professional”. José María Álvarez-Pallete, Chairman of Telefónica.
In Brazil, over 300 people with disabilities were hired in 2022 alone. In addition, 170 exclusive vacancies were opened for people with disabilities to work in shops and administrative positions, and, as part of the Explore+ programme, 100% of the cost of training our employees with disabilities for short-term undergraduate and postgraduate degrees was subsidized. In Spain, through the Include Programme, developed with Fundación GoodJob, we trained people with disabilities in cybersecurity, cloud, automation and robotisation. Furthermore, in 2022 we joined the Generation Valuable programme, promoted by The Valuable 500 initiative, which involves the mentoring of high-potential employees with disabilities in participating companies.
We enhanced our disability awareness programme for all employees, with information on the different types of disabilities and tools to promote equal treatment. We also provided specific sessions for team leaders, given their special responsibility. In relation to our supply chain, in 2022 we increased our selection of Special Employment Centres, suppliers that have at least 70% of employees with disabilities, reaching a total of 39, and we disseminated this figure among our buyers in Spain.
Beyond the confines of our Company, in 2022 we worked to train elderly people and people with disabilities in the digital skills required by the market. Through our foundation, we served over 88,000 people with disabilities. Further information on social action in the area of diversity, disability and universal accessibility is available in the Fundación Telefónica Annual Report located at https://en.fundaciontelefonica.com/get-to- know-us/annual-report/.
2 In 2022, minor adjustments have been implemented in the formula for calculating the percentage of women directors. Maintaining the 2021 criteria, the figure would be 31.2%.# 2. Non-financial Information statement _Helping society thrive
In terms of young talent, in 2022 we launched new programmes such as Learn 2 Grow, a transformation programme that has empowered 370 young professionals in Spain; the Digital Transformation Development Programme, which offers an individual personalized plan for young people in Germany; and Generación Movistar, which has invited 70 young people from Hispanoamerica to develop a project that will boost their careers. In the UK, we partner with Future Careers to promote the development of young talent. During the year, Telefónica also supported the Sondersland youth employability and empowerment event. In Germany, aware of the aging demographic situation in the country, we have promoted internal mobility and the inclusion of all age groups in our development programmes in order to leave no one behind and to get the best out of all our people. In addition, in Brazil, we strengthened the “+50 project”, which encourages recruitment of people over 50 to work in our shops.
With regard to diversity by origin or ethnicity, in Brazil we placed greater emphasis on our programmes and actions to promote black talent. For example, in 2022, 50% of internship grants were allocated exclusively to black people. Similarly, we reached 213 employees through our career development programme and offered 50 vacancies in leadership positions exclusively for black people. In addition, we stepped up awareness-raising among our leaders on the issue through the Raça em Foco programme. All these initiatives have resulted in us having a workforce with 33% of employees who identify themselves as black. In relation to leadership positions, the target is to increase the percentage of black employees in these roles from the current 22% to 30% by 2025. Similarly, in the UK we set ourselves targets for the next three years: 25% ethnic minority employees and at least 15% in leadership positions. In addition, we have promoted agreements, training and mentoring programmes to empower young people from ethnic minorities and boost their careers.
With regard to LGBT+ diversity, in 2022 we continued to strengthen our affinity groups. It is worth highlighting that, in Hispanoamerica, we launched our “Sostener” network, which since its creation has promoted at least one awareness-raising action per month in the region. Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 149 In addition, we continued to support the integration of transgender people into the labour market. In Spain, in addition to participating in FELGTB's YesWeTrans project, we organized employability workshops for transgender people and launched a guide to the gender transitioning process at work, which aims to guide both the transitioning employee and their manager through the whole process. In Brazil, we now employ over 70 transgender employees and expect to reach 100 by 2023. Along these lines, we signpost all our toilets to ensure that they are used in accordance with the gender with which the person identifies. We also finance 100% of the training for our transgender employees. In the UK, we have trained HR teams in the inclusion of transgender and non-binary talent, and launched a transgender and non-binary health policy.
→ For the sixth consecutive year, we formed part of the Bloomberg Gender Equality Index.
→ We endorsed our Global Equality Policy and signed up to the UN Women's Empowerment Principles globally.
→ We increased the number of employees with disabilities by 354 to 1,482.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 150
GRI 2-7, 401-1, 405-1
Members of the Board of Directors by gender and age in 2022
| Age range | Men | % | Women | % | Total | % |
|---|---|---|---|---|---|---|
| More than 50 | 10 | 77 | 3 | 23 | 13 | 87 |
| From 35 to 50 | 0 | 0 | 2 | 100 | 2 | 13 |
| Under 35 | — | — | — | — | — | — |
| Total | 10 | 67 | 5 | 33 | 15 | 100 |
Total number and distribution of employees by gender, age range, professional category and region
| GROUP TOTAL | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | |
| Executives | ||||||||
| Men | 736 | 1,013 | 1,946 | 1,793 | 139 | 133 | 2,821 | 2,939 |
| % | 4% | 5% | 6% | 6% | 1% | 1% | 4% | 5% |
| Women | 246 | 383 | 1,025 | 1,003 | 87 | 84 | 1,358 | 1,470 |
| % | 4% | 6% | 5% | 5% | 1% | 1% | 3% | 4% |
| TOTAL | 982 | 1,396 | 2,971 | 2,796 | 226 | 217 | 4,179 | 4,409 |
| % | 4% | 6% | 6% | 6% | 1% | 1% | 4% | 4% |
| Middle Management | ||||||||
| Men | 1,516 | 1,800 | 3,462 | 3,577 | 652 | 691 | 5,630 | 6,068 |
| % | 9% | 10% | 11% | 12% | 4% | 4% | 9% | 10% |
| Women | 355 | 521 | 1,602 | 1,859 | 361 | 528 | 2,318 | 2,908 |
| % | 6% | 8% | 8% | 9% | 3% | 4% | 6% | 7% |
| TOTAL | 1,871 | 2,321 | 5,064 | 5,436 | 1,013 | 1,219 | 7,948 | 8,976 |
| % | 8% | 9% | 10% | 11% | 3% | 4% | 8% | 9% |
| Other Professionals | ||||||||
| Men | 14,678 | 15,669 | 25,683 | 23,690 | 15,568 | 15,275 | 55,929 | 54,634 |
| % | 87% | 85% | 83% | 82% | 95% | 95% | 87% | 86% |
| Women | 4,951 | 5,923 | 18,075 | 17,207 | 12,852 | 12,489 | 35,878 | 35,619 |
| % | 89% | 87% | 87% | 86% | 97% | 95% | 91% | 89% |
| TOTAL | 19,629 | 21,592 | 43,758 | 40,897 | 28,420 | 27,764 | 91,807 | 90,253 |
| % | 87% | 85% | 84% | 83% | 96% | 95% | 88% | 87% |
| Total Men | 16,930 | 18,482 | 31,091 | 29,060 | 16,359 | 16,099 | 64,380 | 63,641 |
| % | 26% | 29% | 48% | 46% | 25% | 25% | 62% | 61% |
| Women | 5,552 | 6,827 | 20,702 | 20,069 | 13,300 | 13,101 | 39,554 | 39,997 |
| % | 14% | 17% | 52% | 50% | 34% | 33% | 38% | 39% |
| TOTAL | 22,482 | 25,309 | 51,793 | 49,129 | 29,659 | 29,200 | 103,934 | 103,638 |
| % | 22% | 24% | 50% | 47% | 29% | 28% | 100% | 100% |
14.213 employees under 30 years of age, of whom 6.641 are women and 7.572 are men.
64.116 employees between 30 and 50 years of age, of whom 26.529 are women and 37.587 are men.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 151
| More than 50 | From 35 to 50 | Under 35 | Total | |||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | |
| Executives | ||||||||
| Men | 65 | 92 | 93 | 91 | 6 | 2 | 164 | 185 |
| % | 5% | 6% | 4% | 4% | 0.6% | 0% | 4% | 4% |
| Women | 18 | 25 | 39 | 35 | 2 | 4 | 59 | 64 |
| % | 3% | 4% | 3% | 2% | 0.3% | 1% | 2% | 2% |
| TOTAL | 83 | 117 | 132 | 126 | 8 | 6 | 223 | 249 |
| % | 5% | 5% | 3% | 3% | 0.5% | 0.3% | 3% | 3% |
| Middle Management | ||||||||
| Men | 108 | 123 | 356 | 348 | 67 | 49 | 531 | 520 |
| % | 9% | 8% | 15% | 14% | 7% | 4% | 12% | 10% |
| Women | 33 | 34 | 99 | 112 | 24 | 20 | 156 | 166 |
| % | 6% | 5% | 7% | 7% | 4% | 3% | 6% | 5% |
| TOTAL | 141 | 157 | 455 | 460 | 91 | 69 | 687 | 686 |
| % | 8% | 7% | 12% | 11% | 6% | 4% | 9% | 8% |
| Other Professionals | ||||||||
| Men | 1,016 | 1,335 | 1,962 | 2,093 | 904 | 1,092 | 3,882 | 4,520 |
| % | 85% | 86% | 81% | 83% | 93% | 96% | 85% | 87% |
| Women | 486 | 633 | 1,352 | 1,406 | 608 | 752 | 2,446 | 2,791 |
| % | 91% | 91% | 91% | 91% | 96% | 97% | 92% | 92% |
| TOTAL | 1,502 | 1,968 | 3,314 | 3,499 | 1,512 | 1,844 | 6,328 | 7,311 |
| % | 87% | 88% | 85% | 86% | 94% | 96% | 87% | 89% |
| Total Men | 1,189 | 1,550 | 2,411 | 2,532 | 977 | 1,143 | 4,577 | 5,225 |
| % | 26% | 30% | 53% | 48% | 21% | 22% | 63% | 63% |
| Women | 537 | 692 | 1,490 | 1,553 | 634 | 776 | 2,661 | 3,021 |
| % | 20% | 23% | 56% | 51% | 24% | 26% | 37% | 37% |
| TOTAL | 1,726 | 2,242 | 3,901 | 4,085 | 1,611 | 1,919 | 7,238 | 8,246 |
| % | 24% | 27% | 54% | 50% | 22% | 23% | 100% | 100% |
| Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A.# Consolidated Annual Report 2022 | ||||||||
| ## Telefónica, S. A. |
| More than 50 | From 35 to 50 | Under 35 | Total | |
|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 |
| Executives | ||||
| Men | 128 | 175 | 836 | 840 |
| % | 7% | 8% | 8% | 8% |
| Women | 41 | 73 | 440 | 471 |
| % | 7% | 8% | 7% | 7% |
| Total | 169 | 248 | 1,276 | 1,311 |
| % | 7% | 8% | 8% | 8% |
| Middle Management | ||||
| Men | 204 | 238 | 1,006 | 1,107 |
| % | 12% | 10% | 10% | 11% |
| Women | 22 | 27 | 352 | 506 |
| % | 4% | 3% | 6% | 7% |
| Total | 226 | 265 | 1,358 | 1,613 |
| % | 10% | 8% | 8% | 10% |
| Other Professionals | ||||
| Men | 1,432 | 1,890 | 8,299 | 8,041 |
| % | 81% | 82% | 82% | 81% |
| Women | 551 | 806 | 5,502 | 5,806 |
| % | 90% | 89% | 87% | 86% |
| Total | 1,983 | 2,696 | 13,801 | 13,847 |
| % | 83% | 84% | 84% | 83% |
| Total Men | 1,764 | 2,303 | 10,141 | 9,988 |
| % | 9% | 12% | 51% | 50% |
| Women | 614 | 906 | 6,294 | 6,783 |
| % | 4% | 6% | 43% | 44% |
| Total | 2,378 | 3,209 | 16,435 | 16,771 |
| % | 7% | 9% | 47% | 48% |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
| More than 50 | From 35 to 50 | Under 35 | Total | |
|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 |
| Executives | ||||
| Men | 358 | 489 | 661 | 538 |
| % | 4% | 6% | 8% | 8% |
| Women | 133 | 201 | 368 | 330 |
| % | 4% | 6% | 6% | 7% |
| Total | 491 | 690 | 1,029 | 868 |
| % | 4% | 6% | 7% | 8% |
| Middle Management | ||||
| Men | 567 | 755 | 699 | 994 |
| % | 7% | 9% | 9% | 15% |
| Women | 175 | 289 | 394 | 598 |
| % | 6% | 8% | 7% | 12% |
| Total | 742 | 1,044 | 1,093 | 1,592 |
| % | 6% | 8% | 8% | 14% |
| Other Professionals | ||||
| Men | 7,722 | 7,462 | 6,529 | 5,026 |
| % | 89% | 86% | 83% | 77% |
| Women | 2,790 | 3,157 | 5,095 | 4,010 |
| % | 90% | 87% | 87% | 81% |
| Total | 10,512 | 10,619 | 11,624 | 9,036 |
| % | 90% | 86% | 85% | 79% |
| Total Men | 8,647 | 8,706 | 7,889 | 6,558 |
| % | 46% | 50% | 42% | 37% |
| Women | 3,098 | 3,647 | 5,857 | 4,938 |
| % | 30% | 37% | 57% | 50% |
| Total | 11,745 | 12,353 | 13,746 | 11,496 |
| % | 41% | 45% | 47% | 42% |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
| More than 50 | From 35 to 50 | Under 35 | Total | |
|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 |
| Executives | ||||
| Men | 170 | 229 | 329 | 291 |
| % | 3% | 4% | 3% | 3% |
| Women | 50 | 78 | 167 | 159 |
| % | 4% | 5% | 2% | 2% |
| Total | 220 | 307 | 496 | 450 |
| % | 3% | 4% | 3% | 3% |
| Middle Management | ||||
| Men | 606 | 625 | 1,353 | 1,034 |
| % | 12% | 11% | 13% | 11% |
| Women | 113 | 151 | 736 | 606 |
| % | 9% | 10% | 11% | 9% |
| Total | 719 | 776 | 2,089 | 1,640 |
| % | 11% | 11% | 12% | 10% |
| Other Professionals | ||||
| Men | 4,408 | 4,860 | 8,625 | 8,208 |
| % | 85% | 85% | 84% | 86% |
| Women | 1,089 | 1,282 | 6,028 | 5,877 |
| % | 87% | 85% | 87% | 88% |
| Total | 5,497 | 6,142 | 14,653 | 14,085 |
| % | 85% | 85% | 85% | 87% |
| Total Men | 5,184 | 5,714 | 10,307 | 9,533 |
| % | 25% | 28% | 50% | 48% |
| Women | 1,252 | 1,511 | 6,931 | 6,642 |
| % | 11% | 13% | 60% | 58% |
| Total | 6,436 | 7,225 | 17,238 | 16,175 |
| % | 20% | 23% | 54% | 51% |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
| More than 50 | From 35 to 50 | Under 35 | Total | |
|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 |
| Executives | ||||
| Men | 15 | 28 | 27 | 33 |
| % | 10% | 13% | 8% | 7% |
| Women | 4 | 6 | 11 | 8 |
| % | 8% | 8% | 8% | 5% |
| Total | 19 | 34 | 38 | 41 |
| % | 10% | 12% | 8% | 7% |
| Middle Management | ||||
| Men | 31 | 59 | 48 | 94 |
| % | 21% | 28% | 14% | 21% |
| Women | 12 | 20 | 21 | 37 |
| % | 24% | 28% | 16% | 24% |
| Total | 43 | 79 | 69 | 131 |
| % | 22% | 28% | 15% | 22% |
| Other Professionals | ||||
| Men | 100 | 122 | 268 | 322 |
| % | 68% | 58% | 78% | 72% |
| Women | 35 | 45 | 98 | 108 |
| % | 69% | 63% | 75% | 71% |
| Total | 135 | 167 | 366 | 430 |
| % | 69% | 60% | 77% | 71% |
| Total Men | 146 | 209 | 343 | 449 |
| % | 22% | 23% | 52% | 49% |
| Women | 51 | 71 | 130 | 153 |
| % | 21% | 21% | 53% | 45% |
| Total | 197 | 280 | 473 | 602 |
| % | 22% | 22% | 52% | 48% |
| Nationality | Employees (%) |
|---|---|
| Brazilian | 34% |
| Spanish | 26% |
| Argentinean | 11% |
| German | 7% |
| Colombian | 6% |
| Peruvian | 4% |
| Chilean | 4% |
| Venezuelan | 2% |
| Mexican | 2% |
| Ecuadorian | 1% |
| Uruguayan | 1% |
| Other nationalities | 3% |
The figure of 3% for Others is made up of 96 nationalities.
| Nationality | Professional Category | Employees |
|---|---|---|
| Brazilian | Executives | 1,722 |
| Middle Management | 2,606 | |
| Other Professionals | 30,881 | |
| Spanish | Executives | 1,531 |
| Middle Management | 2,738 | |
| Other Professionals | 22,624 | |
| Argentinean | Executives | 186 |
| Middle Management | 1,035 | |
| Other Professionals | 9,908 | |
| German | Executives | 205 |
| Middle Management | 618 | |
| Other Professionals | 5,992 | |
| Colombian | Executives | 177 |
| Middle Management | 387 | |
| Other Professionals | 5,955 | |
| Peruvian | Executives | 137 |
| Middle Management | 260 | |
| Other Professionals | 4,256 |
| Indicators | 2021 | 2022 |
|---|---|---|
| Women in the workforce | 38.1% | 38.6% |
| Women on the Board of Directors | 33.3% | 33.3% |
| Women in all management positions³ | 30.3% | 32.7% |
| Women directors | 29.5% | 31.3%⁴ |
| Women in middle management positions | 29.2% | 32.4% |
| Women hired under 35 years of age | 45.7% | 45.0% |
| Indicator | 2021 | 2022 |
|---|---|---|
| People on the staff with disabilities⁵ | 1,128 | 1,482 |
| Indicator | 2021 | 2022 |
|---|---|---|
| Under 35 | 29% | 28% |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
³ Executives (executive and management positions) and middle management.
⁴ In 2022, minor adjustments have been implemented in the formula for calculating the percentage of women directors. Maintaining the 2021 criteria, the figure would be 31.2%.
⁵ Correction applied due to error in the reporting of the data in the 2021 Consolidated Annual Report.
| Region | Employees | Nationalities | Women | Men |
|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | |
| Germany | 7,238 | 8,246 | 75 | 79 |
| Brazil | 34,746 | 35,241 | 25 | 27 |
| Spain | 28,949 | 27,411 | 51 | 54 |
| Others | 910 | 1,257 | 29 | 49 |
| Hispam | 32,091 | 31,483 | 37 | 35 |
| Group Total | 103,934 | 103,638 | 99 | 107 |
Cultural diversity represents the number of different nationalities that make up the workforce in the region. This figure is also given as a breakdown of the number of male and female employees
| Professional Category | Age range | 2021 | 2022 | Base Salary (%) | Total Remuneration (%) |
|---|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | ||
| Group | 30,831 | 33,372 | 39,422 | 42,631 | |
| Executives | More than 50 | 142,911 | 163,410 | 178,565 | 197,650 |
| From 35 to 50 | 91,733 | 97,592 | 103,279 | 111,352 | |
| Under 35 | 51,029 | 63,987 | 55,798 | 64,820 | |
| Middle Management | More than 50 | 65,096 | 70,969 | 59,357 | 67,178 |
| From 35 to 50 | 43,403 | 49,005 | 44,028 | 52,424 | |
| Under 35 | 26,126 | 28,869 | 27,573 | 34,598 | |
| Other Professionals | More than 50 | 48,718 | 49,308 | 52,205 | 53,152 |
| From 35 to 50 | 29,126 | 29,904 | 32,398 | 33,968 | |
| Under 35 | 14,714 | 17,153 | 18,126 | 21,316 |
Following our commitment to transparency of previous years, we publish results taking into account all salary concepts paid during the year.
⁶ For the purposes of reporting the average total remuneration of all Telefónica employees, all executive positions of the Company have been grouped under the same category, “Executives”. This includes senior managers and managers, given that the structure of the remuneration mix of both groups (fixed remuneration, annual variable remuneration, eligibility for the long-term incentive plan and other concepts) is aligned with the Telefónica Group's Global Remuneration Policy. The policy's main aim is to promote the achievement of the financial business, value creation and sustainability indicators. The average total remuneration includes all salary items paid during 2022, where applicable.These concepts are total base salary, bonuses, commissions and commercial incentives paid, long-term incentives paid and benefits in-kind, including social benefits, accrued over the year. 7 The calculation methodology has been changed in 2022 to take into account the different socio-economic realities of the countries that make up the group. Reported data in 2021: 21.79%.
| Executive Chairman (CEO) | Total average remuneration ratio |
|---|---|
| 2022 | 103:1 |
The ratio of the total annual remuneration of the Executive Chairman (CEO) and the average total remuneration of all employees based in Spain during is 103:1. This analysis takes into account the total remuneration accrued by the Executive Chairman in 2022, which includes the sum of the fixed remuneration, short-term variable pay, long-term incentive and benefits; the same elements have been considered for all active employees based in Spain as of 31 December 2022.
| 2021 | 2022 | 2021 | 2022 | |
|---|---|---|---|---|
| Directors | 140,577 | 223,863 | 1,504,502 | 1,525,319 |
| Women | ||||
| Men |
More complete and detailed information can be found in chapter 5 of this report (Annual Report on Remuneration of the Directors) and on the Telefónica website.
| Country | Women | Men |
|---|---|---|
| Germany | 1.00 | 1.00 |
| Argentina | 2.03 | 2.66 |
| Brazil | 1.09 | 1.09 |
| Chile | 1.21 | 1.15 |
| Colombia | 1.09 | 1.09 |
| Ecuador | 1.16 | 1.16 |
| Spain | 1.00 | 1.00 |
| Mexico | 1.18 | 1.18 |
| Peru | 1.00 | 1.00 |
| Uruguay | 1.32 | 1.23 |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 159
| Country | Employees | % Men | % Women | Gross Gap | Adjusted Gap8 | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | ||
| Group Total9 | 101,520 | 101,227 | 62% | 62% | 38% | 38% | 17.49% | 16.80% | 1.18% | 0.74% | |
| Germany | 7,094 | 7,544 | 63% | 64% | 37% | 36% | 21.03% | 20.19% | 4.28% | 2.11% | |
| Argentina | 12,267 | 11,206 | 67% | 67% | 33% | 33% | 7.18% | 6.00% | -0.41% | 0.04% | |
| Brazil | 34,368 | 34,823 | 58% | 57% | 42% | 43% | 24.55% | 23.37% | 2.71% | 0.85% | |
| Chile | 4,053 | 4,181 | 70% | 71% | 30% | 29% | 14.93% | 10.31% | 2.32% | 0.80% | |
| Colombia | 5,730 | 6,236 | 58% | 59% | 42% | 41% | 13.94% | 13.00% | -0.80% | 0.26% | |
| Ecuador | 922 | 961 | 62% | 61% | 38% | 39% | 17.51% | 20.16% | -0.14% | -0.41% | |
| Spain | 28,943 | 27,404 | 65% | 64% | 35% | 36% | 15.08% | 14.42% | 2.43% | 1.87% | |
| Mexico | 2,096 | 1,797 | 66% | 63% | 34% | 37% | 14.39% | 16.68% | 0.08% | -0.69% | |
| Peru | 4,559 | 4,615 | 65% | 66% | 35% | 34% | 7.82% | 7.72% | 2.32% | 0.74% | |
| Uruguay | 580 | 606 | 49% | 50% | 51% | 50% | 31.88% | 33.35% | -0.94% | 1.89% | |
| Others11 | 908 | 1,854 | 73% | 69% | 27% | 31% | 20.98% | 30.97% | 0.00% | 0.00% |
In order to calculate the gender pay gap in each of the countries, we have taken into account the total average remuneration from men minus total average remuneration from women divided by total average remuneration from men. The total average remuneration includes all salaries received by the employee for one year. These concepts are:
The scope of this analysis includes all the employees in Telefónica Group up to 31 December of the analyzed year. In the case of the global gross pay gap, a weighted average of the gross pay gaps of each country according to the total number of employees in each country has been applied.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 160
8 The adjusted gender pay gap is calculated using a mathematical regression model that relates average total pay to other factors as well as gender. Factors such as country, professional category, functional area in which the employee works, seniority, legal entity and working hours (full-time or part-time).
9 Information of all Telefónica Group countries except Venezuela, due to its hyperinflation economic situation.
10 The calculation methodology has been changed to take into account the different socio-economic realities of the countries that make up the group. Reported data in 2021: 21.79%.
11 Remainder includes other countries such as: Bolivia, Belgium, China, Denmark, Estonia, France, Greece, Hungary, Ireland, Italy, Luxembourg, Netherlands, Poland, Portugal, Puerto Rico, Romania, Sweden, Switzerland, and the United States.
The pandemic has unquestionably produced a new reality in the labour market worldwide. Nonetheless, physical presence at the office and personal contact between team members also brings added value. With that in mind, Telefónica is committed to a hybrid working model (on- site and remote) across the Group that combines the best of both working models. In general, we establish a minimum percentage of face to face time and a maximum percentage of remote time, which differs in the countries in which we operate and can change depending on the nature of the position whenever possible. Our hybrid, flexible and digital work model seeks to boost team commitment and satisfaction while preserving the corporate culture and maintaining professional ties.
A key target for this new way of working is to boost employee commitment and loyalty, as well as to evolve towards a simpler and more flexible organisation. We therefore promote skills based on a culture of flexibility, trust and commitment, as well as the necessary skills required for a collaborative and dynamic work environment based on project management, autonomy and teamwork. We want to continue being a driving force behind new working models where values such as well-being, flexibility, work-life balance, co-responsibility and equal opportunities are paramount.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 161
Our flexible work models are a valuable tool for attracting and retaining talent, as well as for giving us access to new professionals located all over the world.
For more information, see section 2.6.5.2. Diversity and inclusion. The new agile ways of working are much more than a methodology for Telefónica; they are a means of boosting a cultural transformation underpinned by the various local Agile offices. These offices combine Business, Transformation and People teams to align work frameworks to the specific characteristics of each business and the strategic priorities of each unit. We continue to work on the implementation of more liquid and flexible organizational models that can help to empower teams and support business activity, within a context of process simplification based on an e2e and project-based work approach.
How we lead
This new hybrid and flexible context has led to far-reaching changes in our leadership and our culture, changes that are highly necessary for achieving the best results. We are therefore undertaking an unprecedented cultural transformation to help us obtain an effective and sustainable employment experience that can evolve the relationship model between managers and their teams. We are fully aware that we need new ways of leading to help us adapt to these new paradigms. As a result, in the various countries where we operate we are working to reorganize the skills of our leaders so they can be a source of inspiration and transformation within this new hybrid context. We also want them to promote a culture of confidence, conversations and productivity. At Telefónica, we inclusively lead teams of a diverse nature.# Consolidated management report 2022
Digitalized environment
With a hybrid work model, the office becomes less of a place to perform a task and more of a space for inspiration, co-creation and networking between colleagues. Telefónica’s workspaces are therefore open and shared, and are technologically equipped for the hybrid model. We also have space management tools that are either up and running already or undergoing a trial period, depending on the location.
New Universitas Campus Located at Telefónica District (Madrid), within the Innovation and Talent Hub, it boasts 2,000 square metres of the latest technology for in-person and remote training, including live-streaming services, multi- purpose spaces and recording studios. Furthermore, we strive to enrich the vending areas and relaxation spaces at our offices to provide a cozy atmosphere that lets us network within our work environment while enjoying a nice break.
Collaborative technology, such as Microsoft Teams and the Workplace corporate social network, encourages interaction between employees and helps them to stay on top of the latest news and to share inspiring ideas and content. Depending on the geographical area where we operate, we provide our professionals with ergonomic chairs, mobile telephones with unlimited data tariffs, and the option to buy office furniture under good terms and conditions. Additionally, we create spaces to promote emotional well-being with virtual cafés where we encourage networking. In Spain, we also provide our employees with various tools so that they can record the start and end of their working day from any location, as required by current local labour legislation.
Work-life balance
We develop the hybrid model by focusing on the employee and his or her family and by taking care of their digital health. Reinforcing the digital disconnection agreement that the Company signed in 2019, we deliver courses including new routines and tips on how to maintain a healthy balance between work and free time, and organize teamwork in the best possible way. We encourage co-responsibility of care between our male and female employees through awareness initiatives, because it has been demonstrated that a culture in which the weight of family and domestic responsibilities falls mainly on women is detrimental to their development and prevents the gender pay gap from being closed.
We foster measures that guarantee digital disconnection based on a commitment to “disconnect to reconnect”. A combination of company, team and individual agreements is essential to achieving this goal. Such agreements regulate times at which communications should not be sent and at which replies are not expected (except under exceptional circumstances), as well as guidelines on the planning and organisation of meetings. We complement all this with training resources on disconnecting and relaxing, reasonable use of technology, and awareness about respecting personal relaxation time. For further information, see Chapter 2.9. Occupational health, safety and well-being.
We have measures and initiatives in place which help our employees to achieve work-life balance and ensure their well-being: flexible working hours, part-time work, reduced working hours, subsidized flexible working week, paid and unpaid leave, extended leave for personal reasons and hybrid working. For further information, see Chapter 2.6. Attraction, retention and skill development.
At the Telefónica Group, we are fully aware of the context of high uncertainty and volatility that has been accentuated by various overlapping crises (health, social, energy, political and economic). These situations have caused inflation and interest rates to rise, thus impacting negatively on the economy. We are therefore adopting measures in the territories where we do business (internally and always based on collective bargaining) to help our employees withstand the effect that this exceptional situation is having on them and their families.
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 regarding freedom of association and the right to collective bargaining. We ensure that worker representatives receive fair and free of discrimination treatment, and that all the tools they need 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 also 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 matter of any significant organizational changes, Telefónica respects the period of prior notice set by the legislation of the countries where we operate, as well as those prior notice periods defined by collective bargaining agreements or policies.
Trade union activity
As a company, we reaffirm the important role played by trade unions in defending the interests of workers and we recognize UNI (Global Union) and the European Works Council as key partners in worldwide labour management. At a local level, we also understand that works council management is steered through policies and rules established by the legal entity. Therefore, the procedures on reporting, consultation and negotiation have different meanings but are always in line with Telefónica’s guiding principles.
Maintaining a neutral position on trade union activity is essential to ensuring a free and open environment that enables exercise of the right to free association. If workers wish to become members of a trade union, Telefónica will recognize trade unions that meet the terms and conditions set by ILO Convention 87, and always in accordance with local legislation.
Voluntary redundancy programme
With the intention of adapting our workforce to the needs of the business, several voluntary redundancy schemes were activated in 2022. All of them were based on the premise of being voluntary, universal and non- discriminatory. A voluntary redundancy plan known as the Plan de Desvinculación Voluntaria (PDV) was launched in Hispanoamerica. A total of 1,029 people took part in the scheme, among which 93% corresponded to our operation in Argentina.
At Telefónica Spain, as part of the Social Pact for Employment signed by the Company and backed by the main trade unions, an Individual Suspension Plan (PSI from its Spanish initials) to suspend employment relations and encourage incentivized redundancies -based on voluntary action, non-discrimination and social responsibility- was approved in 2022. This plan helped to adjust the size of the workforce to the new reality of the Company, thus becoming a fundamental lever in the transformation process. The total number of employees affected in Spain stands at 2,347. The Individual Suspension Plan (PSI) was aimed at employees born in 1967 or earlier who had been with the Company for at least 15 years. One factor that makes these initiatives stand out from other similar measures in our business environment is that they are socially responsible, since they do not require any expenditure from the state treasury.
Outplacement programmes
Since the beginning of 2016, we have been running an outplacement service to help relocate employees who leave the Company as a result of redundancy or voluntary redundancy plans. For six months, we offer:
* Individual work sessions.
* Group sessions and workshops.
* A technology platform to find new opportunities.
The main purpose of all these actions is to help employees find new opportunities at other companies or in their own businesses.
New work model
In 2022, 66% of our employees took advantage of the hybrid work model. This model is flexible, adapted to both the needs of the team and the Company, and allows people to work from anywhere in the country. The model can be reversed by either of the two parties (employee or Telefónica). This percentage is lower than in 2021 due to the impact that COVID-19 had at the end of that year.
Approximately 6,000 leaders took part in various leadership programmes that are helping to evolve our leadership model by adapting to the challenges posed by the new ways of working:
* Brazil - Leader Academy - leadership programmes for developing the skills needed to manage teams, boosting trust, autonomy and collaboration.
* Spain - Breaking Point - enhancing the role of people and team managers in more agile and flexible hybrid working environments. We also ran team leadership programmes in different areas of the Company (CTO, Movistar Plus+, etc.).
Local efforts were complemented by a new global learning ecosystem led by Universitas aimed at boosting skill-building and reinforcing our growth mentality culture.
In 2022, 100% of our employees had access to Office 365 and Microsoft Teams to facilitate collaboration in a digital environment. Furthermore, 100% of the workforce had a laptop computer. In terms of our corporate social network (Workplace), 60% of employees were active on this platform in 2022.
In early 2022, we signed an extension agreement regarding the II Collective Bargaining Agreement between Telefónica Spain, Telefónica Móviles and Telefónica Soluciones (CEV) and the leading trade unions, UGT and CCOO.
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| Percentage of all employees covered by collective bargaining agreements | ||
|---|---|---|
| Country | 2021 | 2022 |
| Germany | 97.6% | 85.9% |
| Argentina | 76.4% | 79.8% |
| Brazil | 94.3% | 94.1% |
| Chile | 88.0% | 72.3% |
| Spain | 60.5% | 54.3% |
| Peru | 36.6% | 30.1% |
| Total Group | 69.3% | 66.3% |
100% of Telefónica’s employees were covered by a labour framework regulating their working conditions. The data from Germany on 2021 has been corrected given that workers councils have been included under collective bargaining agreements. The indicator has decreased due to the voluntary redundancy programs (which have been joined mainly by employees under a collective agreement), to the increase in the recruitment of employees in areas with a lower percentage of employees under a collective agreement and, in specifically in Germany, to the acquisition of companies that do not have legal representation of their employees or their own collective agreement.
→ We have increased the percentage of employees who use an agile working framework by 6 p.p., to 44%.
→ According to the Annual Climate Survey, the opinion of our employees on their work-life balance has improved by 4 p.p. to 78%.
→ For yet another year, the perception among our employees regarding the hybrid work model remained highly positive.
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At Telefónica, we continue to make progress on positioning ourselves as a global benchmark for business well-being and renew our commitment to employee good health and well-being year after year. We are aware that we still live in a situation of uncertainty and that the recent health, social, political and economic crises increase the risk of health-related tensions, especially of a psychological nature. Furthermore, we are encountering new ways of organising work, which are characterised by flexible models encompassing on-site working, remote working and working from home. Preventive management therefore requires this to be adapted to the new environments and risks that emerge in those new models.
As a result, we continue to build a solid culture of health and safety focused on people at all levels: work environment, mental well-being, the promotion of health, physical activity and healthy eating, and personal environment. Our goal is to be capable of generating confidence and optimism in the future, and this means managing and improving individual psycho-social health by offering psycho-social risk response and prevention programmes that can guarantee a preventive response to any health issues.
We have therefore begun conducting psycho-social risk assessments that will provide us with a psycho-social diagnosis, to enable us to define improvement measures that are appropriate to the risks identified and the environment in which these measures should be adopted. We also want to be a zero-accident company. This is why we place so much importance on reducing the accident rate and not exposing our employees to unnecessary risks. Our major operators therefore have targets based on the health and safety incident index. For example, at Telefónica Spain, the Frequency Index in the annual Prevention Plan is set to <5.
The Quality and Sustainability Committee is responsible for promoting the development of the Global Responsible Business Plan, which was approved by the Board of Directors and places emphasis on safeguarding and promoting the Health, Safety and Well-being (HSW) of our employees in the workplace.
At a global level, we draw up a shared approach to this issue via our Health, Safety and Well-being Policy, and actions are taken at a local level according to the reality in each country.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 166
We are committed to:
GRI 3-3, 403-1, 403-2, 403-3, 403-4, 403-5, 403-6, 403-7
We establish procedures to identify hazards and assess risks in order to prevent work-related accidents and occupational diseases, ensuring compliance with the legal requirements in force in each country. On a complementary basis, and in accordance with the principle of prevention, we also adopt other requirements based on local regulations and international standards. Each one of our operators has occupational health and safety guidelines in place for the management of risks faced by engineers and office staff. 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.
In Spain, risk identification is carried out in various ways: specific reports are produced to analyse a given situation; risk assessments are conducted in workplaces; and accident investigations are carried out. The results of this technical activity are included in the so-called "Prevention Plan", which is sent to the corresponding management units so they can plan and develop the necessary corrective actions. In Brazil, we have an identification and assessment platform for hazards and risks called the SOGI PRSSO (Occupational Hazards and Risks) module. In Germany, we have an accident-reporting process: accidents are registered in the accident database and they are analysed by occupational safety specialists using a checklist. We also have processes in place to investigate work- related accidents at each operator. In Spain, once the accident has been investigated by the occupational doctor, the result is reported to the Prevention Service and a prevention officer is assigned to determine the causes of the accident. The investigation report includes a series of conclusions and recommendations of which the employee and his or her immediate superior are informed. If any additional action is required, this is also communicated to the management unit so that the identified incident can be remedied or adaptations can be made. In Brazil, we have a Technical Instruction for the Management of Workplace Incidents and Accidents, and a standard form for the recording and investigation of accidents at work. In Germany, the key problems that are identified via this process are discussed by occupational safety committees and measures are proposed.
We have health services with essentially preventive and health-promoting functions in every country.# Consolidated Annual Report 2022
In some countries, they are provided by in-house staff:
* In Spain, via the Joint Service for Occupational Risk Prevention.
* In Brazil, via specialised providers that we contract for acupuncture programmes, mental health (psychologists), nutrition, physiotherapy, meditation, primary healthcare (Einstein Clinic), pregnancy programmes, exercise in the workplace, chronic disease management, telemedicine, executive health check-ups, etc.
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2. Non-financial Information statement _Helping society thrive
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4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
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Most of our workplaces have an on-site medical service, and wherever this is not available, employees have access to medical services under the various health plans that are in place. 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.
Training and worker representation
Training and awareness-raising
All employees have online courses available to them on occupational health, safety and well-being. Ongoing and specific training is also undertaken with the local teams in the various countries on the implementation of health, safety and well-being management systems, as well as numerous health and awareness-raising campaigns.
Worker representation and participation
We promote information, consultation and participation for workers and other stakeholders to ensure safe and healthy workplaces. Worker representation on joint health and safety committees is the established model in the countries where we operate and 90% of our employees are represented on these committees. In Spain, we have a central Health and Safety Committee that meets on a monthly basis, and we support that committee with provincial committees that meet every three months. In Germany, our occupational safety committee meets every quarter.
At Telefónica, we encourage and promote the physical and mental health of our employees, both in the workplace and in their personal and family environments.
l l l
Promotion of employees’ health
In line with our target to be a benchmark for corporate well-being with a positive impact on our employees, partners, the environment and the organisation, we implement initiatives that promote a culture of well-being at all levels of the organisation. Furthermore, we offer digital disconnection measures and seek to guarantee work-life balance for our employees.
For further information, see Chapter 2.8. New ways of working.
We know that employees value the right to a safe and healthy work environment. We therefore base our action on communication and open dialogue while seeking to make employees feel comfortable in sharing their incidents and concerns. This is reflected in the annual climate survey, in which 78% feel that Telefónica supports employee well-being. This recognition is a product of our perseverance. Since 2015, we have had global guidelines for local implementation based on programmes that are adapted to the reality in each country where the individual lives and works, both in the work environment and outside of it, while also dealing with both physical and mental issues.
We believe that we are responsible for preventing and responding to the present and future psycho-social risks that may jeopardise the health of our employees. We have therefore begun to assess psycho-social risks throughout the Company. The goal is to use these assessments as a tool for identifying and monitoring those working conditions that might affect physical and mental health. At the same time, we continue to promote emotional well- being and the psycho-social environment in the workplace in order to reduce emotional and mental stress. This has become a priority for our Company following recent global events (war in Ukraine, energy crisis, inflation, COVID-19).
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We can highlight the following programmes in this regard:
| Psycho-social health programmes | Country | Programme |
|---|---|---|
| Brazil | Conte Conmigo Support from social workers and psychologists, with free sessions about social, psychological, psycho-pedagogical, legal and financial help, both in-person and online. | |
| Spain | Programa de Salud y Bienestar. Atam clinical team This covers the mental/ emotional/psycho- social health of our people based on specific actions for looking after these areas of health and well-being. | |
| Germany | Feel Good Balance This includes relaxation, stress management and resilience courses. | |
| Hispam | Colombia A psycho-social risk programme is in place. Employees also have access to guidance and support from psychologists through the 1DOC3 service. | |
| Perú | A psycho-social monitoring and assessment programme is in place. When issues are identified, talks are provided on managing stress and emotions, ongoing support is provided by social workers and constant monitoring takes place. |
Through all these programmes, we promote initiatives that aim to raise awareness on nutrition, health, physical activity and emotional issues while helping us to implement corrective and preventive measures in each country. We offer a portfolio of social benefits tailored to local practices in the markets where we operate, including universal health insurance for all employees, which includes psychiatric and psychological care cover, and a support service for people with disabilities aimed at employees and their families.
Our social benefits include the care of mental health as a cornerstone for the well- being of our employees. We facilitate workers’ access to these wellness services and programmes through comprehensive communication campaigns. We also run training courses on emotional health, stress management, time management, leadership style and suicide prevention, among others.
We have platforms that help us promote physical activity in most countries, such as Gympass. In addition, we are transforming our relaxation spaces and catering areas to provide our employees with healthy products and other healthy ideas. We are also engaged in various nutrition programmes with nutritionists who draw up a dietary plan tailored to each person who takes part. To complement these activities, we help to build environments that promote a higher quality of life and greater comfort by creating breastfeeding rooms, bicycle parking and changing rooms on our premises. We strive to foster accessibility to our spaces and thereby guarantee barrier-free environments for our employees with disabilities.
Commitment to our suppliers
We foster best practices in health, safety and well-being in our supply chain and with our partners. All our suppliers accept the Supply Chain Sustainability Policy, which sets out compliance obligations in this area. Our suppliers’ activities involve greater risk of suffering an occupational accident, and therefore we focus on promoting and reinforcing best practices in occupational health, safety and well-being when working with them. This is reflected in the Proyecto Aliados (Allies Project), under which audits are conducted with a focus on occupational health and safety. These are accompanied by meetings with contractors and the development of improvement schemes.
The Telefónica Integrated Prevention and Sustainability Plan that was drawn up to develop an exceptional benchmark standard in our sector and the industry as a whole has three key pillars:
* The Responsible Business Principles, which not only contain our code of ethics but also our responsibility policy vis-à-vis stakeholders and society in general.
* The importance of sustainability for progress by society and reducing the impact from our activity and from our customers and suppliers.
* Our commitment to Occupational Risk Prevention, tied to well-being and the protection of our employees, joint companies and supply chain.
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Supplier management
Step 1 Our suppliers must accept and sign our minimum standards on occupational health and safety.
Step 2 Risk analysis and identification of high-risk suppliers.
Step 3 Audits (administrative or on-site) of high-risk suppliers.
Step 4 Engagement with suppliers to improve the health and safety of those who work with us in our supply chain.
For further information, see Chapter 2.20. Responsible supply chain management.
Employee health and safety: management of the COVID-19 crisis
Our management, in response to the coronavirus, was focused on maintaining the safety of our employees, customers and partners. The formula that has allowed us to deal with this pandemic is a balanced mix of data analysis, active participation in international forums (WHO and United Nations) and daily interpretation of qualitative information (press, trends, news agencies, specialised studies). With minor adaptations to existing tools, we have harnessed the full potential of the data and made safe progress on both health protection objectives and business challenges.
GRI 403-8
96% of our employees are currently covered by a health, safety and well-being management system.Of those, 40% are covered by a certified system (based on ISO 45001 or OHSAS 18001 standards)1. Argentina certifies its ISO 45001 Management System at 10 buildings which contain all the operations for the Group in Argentina and account for 70% of the total country allocation. Colombia renewed its ISO 45001 certification in November 2022.
Awareness and prevention
We organized Well-being Week in several countries in 2022, during which we shared content on emotional health, physical activity, healthy eating, self-knowledge and happiness. We also organized a month focusing on mental health.
* In Spain, we organized the fourth Health and Safety Conference with our supply chain, the Orange, MásMóvil and Vodafone operators, representatives from society and ADEMI (the sector employers’ association). We all share the goal of achieving #zeroaccidents in the sector.
* Argentina held its four-monthly Health and Safety Committee meetings with its contractors in the segment with the greatest risk to the operation in order to promote best practice in prevention and to generate commitments to improve. This space allowed us to share experiences, align our suppliers with Company targets and move together towards a culture of prevention.
* The good health and well-being channel in Spain has over 2,000 members and offers numerous activities and talks on well-being and emotional, physical and nutritional health to our employees. Some examples in the field of mental health are “the psychologist replies”, “the effect of laughter”, “managing uncertainty and techo-stress”, and “healthy habits for a good night’s sleep”. We provided various webinars on nutritional health, including “nutritional labelling”, “healthy lunch boxes” and “healthy eating at Christmas”. In terms of physical health, we organised active breaks at work every week led by expert physiotherapists. We also arranged various motivational talks from experts, including Olympic medallists. More than 8,000 people participated in the live events and we also achieved over 14,958 views, with an average rating for the initiatives of 4.87 out of 5. The highest rated by our employees were active breaks at work, virtual Pilates sessions and the first aid workshop.
* As part of Brazil’s commitment to maintaining a well- being culture and from among all the activities within its Vivo Bienestar programme, it is worth noting the 3,349 sessions provided under its nutrition programme and 8,651 sessions under the Cuenta Conmigo programme to promote emotional health. The Gaming House programme also stands out in 2022, as a way to boost well-being and entertainment for employees. This space is used exclusively for gaming and is equipped with next-gen devices, such as Notebook Gamer, Cockpit and Xbox. A first “FIFA” games championship was organised alongside the World Cup. This space has been visited by more than 1,000 employees since it was opened in August.
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1 Both indicators have decreased slightly due to the changes in perimeter experienced in the year. The departure of United Kingdom from the scope of calculation is especially significant.
* Germany used a health app for the first time as part of a pilot scheme. The app lets employees easily access the Feel Good programme and was used for the first time at the O2 Telefónica Run + Challenge 2022 and the Feel Good Nutrition Challenge. In each case, more than 30% of the workforce took part in the challenges. Furthermore, it once again offered training to its executives on mental health in the hybrid working environment.
* In 2022, awareness and prevention activities on various diseases (menopause, and prostate and testicular pathologies) were provided in Spain, Brazil, Germany and Hispanoamerica.
* The issue of addictive behaviours was approached in most countries under the various prevention programmes in place through talks, conferences and workshops given by specialists on the topic. Chile and Colombia stand out in this regard, the former with a specific policy on the issue and the latter with a policy against the consumption of alcohol and drugs.Work-life balance
In terms of work-life balance, we are engaged in initiatives in several countries. For example, in Germany, we offer virtual coaching and advice on looking after children and the elderly; in Brazil, we have the Vivo más familia parental support programme relating to the arrival of a new member of the family, with clinical, psychological and nutritional support for mothers, as well as skill development during pregnancy and the post-partum period extended to the support network. The programme includes support for parents during adoption procedures. We also have various suppliers offering solutions that improve work-life balance for our employees, making day- to-day life easier through such services as legal, financial and tax advice, travel and hotel advice and even help finding domestic services, among other things.Healthy spaces
At Telefónica, we are committed to a hybrid work model. For that commitment to be successful, it is essential for the work spaces both in the workplace and in the home to meet certain minimum health criteria in terms of ergonomics, well-being and environmental quality. Although each country manages this issue separately, all of them establish recommendations and offer support on ergonomic aspects and occupational health and safety. Germany has a procedure for risk assessments for teleworking situations, training on health and safety in remote working environments and an online offer through the Feel Good programme, as well as the family service. In Spain, we have provided training courses on ORP to the entire workforce opting for teleworking and recommendations have been issued on working from home safely (physical and mental). Ergonomics kits were issued in Chile and disconnection campaigns were carried out.COVID-19
We have specific COVID-19 monitoring committees at a local level to ensure that prevention and health surveillance actions are adopted with full participation from the workers’ representatives.
Recognition
* Brazil earned third place at GPTW for health management.
* Germany was included in the “Excellence Category” for the fourth time at the Corporate Health Awards.
MILESTONES
→ We began to conduct psycho-social risk assessments at all our operators.
→ We shared the #zeroaccidents goal with the sector at the fourth Health and Safety Conference.
→ We remained committed to well-being and emotional health through initiatives for employees in all our operators.
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| Germany | Brazil | Spain | Hispam3 | Others | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | |
| Number of hours worked (TOTAL) | 13,909,860 | 14,602,833 | 62,957,490 | 65,516,000 | 54,162,018 | 54,487,829 | 61,617,883 | 61,166,302 | 5,448,243 | 2,123,004 |
| Number of hours of absenteeism (men) | 378,696 | 524,902 | 1,767,032 | 745,168 | 618,168 | 1,248,794 | 784,838 | 959,848 | 148,400 | 5,600 |
| Number of hours of absenteeism (women) | 381,496 | 413,598 | 2,110,544 | 940,176 | 902,192 | 1,375,797 | 574,964 | 958,072 | 190,584 | 3,272 |
| Number of hours of absenteeism TOTAL | 760,192 | 938,500 | 3,877,576 | 1,685,344 | 1,520,360 | 2,624,591 | 1,359,802 | 1,917,920 | 338,984 | 8,872 |
| Absenteeism rate (men) | 0.04 | 0.05 | 0.05 | 0.02 | 0.02 | 0.04 | 0.02 | 0.02 | 0.04 | 0.00 |
| Absenteeism rate (women) | 0.08 | 0.08 | 0.08 | 0.03 | 0.05 | 0.07 | 0.03 | 0.04 | 0.09 | 0.01 |
| Absenteeism rate TOTAL4 | 0.05 | 0.06 | 0.06 | 0.03 | 0.03 | 0.05 | 0.02 | 0.03 | 0.06 | 0.00 |
| Lost day rate / severity (men) | 12.13 | 9.43 | 3.04 | 19.68 | 45.99 | 15.84 | 82.01 | 75.33 | 0.00 | 0.00 |
| Lost day rate / severity (women) | 8.18 | 5.87 | 0.41 | 2.91 | 8.26 | 10.55 | 19.76 | 12.58 | 10.47 | 0.00 |
| Lost day rate / severity TOTAL5 | 10.77 | 8.20 | 1.97 | 12.72 | 32.73 | 13.95 | 59.13 | 52.39 | 3.93 | 0.00 |
| Lost day rate / severity (men) | 12.13 | 9.43 | 3.04 | 19.68 | 45.05 | 15.59 | 179.00 | 82.11 | 0.00 | 0.00 |
| Lost day rate / severity (women) | 8.18 | 5.87 | 0.41 | 2.91 | 8.26 | 10.55 | 112.16 | 34.20 | 10.47 | 0.00 |
| Lost day rate / severity TOTAL6 | 10.77 | 8.20 | 1.97 | 12.72 | 32.12 | 13.79 | 154.44 | 64.59 | 3.93 | 0.00 |
| Accident frequency rate (men) | 0.37 | 0.46 | 0.40 | 0.50 | 0.24 | 0.68 | 1.50 | 2.05 | 0.00 | 0.00 |
| Accident frequency rate (women) | 0.33 | 0.60 | 0.14 | 0.19 | 0.16 | 0.46 | 0.36 | 0.62 | 0.00 | 0.00 |
| Accident frequency rate TOTAL7 | 0.36 | 0.51 | 0.30 | 0.37 | 0.21 | 0.60 | 1.08 | 1.52 | 0.00 | 0.00 |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 172
2 The variations between 2021 and 2022 are mainly due to the impact of COVID-19, changes in the scope (such as the exit of Telefónica UK), and the implementation of improvements in the information reporting processes.
3 Hispam comprises: Argentina, Chile, Colombia, Ecuador, Mexico, Perú, Uruguay, and Venezuela.
4 Absenteeism rate = total number of days lost due to absence / total days worked per year.
5 Based on the list of occupational diseases from the International Labour Organization. Lost day rate (severity) = total number of days lost due to accidents in the workplace with leave and occupational disease / total hours worked per year) x 200,000.
6 Based on the list of occupational diseases in local legislation, regulations and rules.Lost day rate (severity) = total number of days lost due to accidents in the workplace with leave and occupational disease / total hours worked per year) x 200,000.
Accident frequency rate = (total number of accidents in the workplace with leave / total number of hours worked per year) x 200,000.
| Germany | Brazil | Spain | Hispam3 | Others | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | |
| Occupational disease rate (men) | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.03 | 0.00 | 0.00 |
| Occupational disease rate (women) | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.04 | 0.00 | 0.00 |
| Occupational disease rate TOTAL⁸ | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.04 | 0.00 | 0.00 |
| Occupational disease rate (men) | 0.00 | 0.00 | 0.12 | 0.00 | 0.00 | 0.38 | 6.61 | 0.36 | 0.00 | 0.00 |
| Occupational disease rate (women) | 0.00 | 0.00 | 0.17 | 0.00 | 0.00 | 0.61 | 6.86 | 0.87 | 0.00 | 0.00 |
| Occupational disease rate TOTAL⁹ | 0.00 | 0.00 | 0.14 | 0.00 | 0.00 | 0.46 | 6.71 | 0.55 | 0.00 | 0.00 |
| Total number of occupational injuries with major consequences (Men) | 0 | 0 | 0 | 0 | 0 | 0 | 8 | 2 | 0 | 0.00 |
| Total number of occupational injuries with major consequences (Women) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 2 | 0 | 0 |
| Total number of occupational injuries with major consequences TOTAL¹⁰ | 0 | 0 | 0 | 0 | 0 | 0 | 8 | 4 | 0 | 0 |
| Rate of occupational injuries with major consequences TOTAL¹¹ | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 8.00 | 4.00 | 0.00 | 0.00 |
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 173
⁸ Based on the list of occupational diseases from the International Labour Organization. Occupational disease rate = (total number of occupational diseases / total number of hours worked per year) x 200,000.
⁹ Based on the list of occupational diseases in local legislation, regulations and rules. Occupational disease rate = (total number of occupational diseases / total number of hours worked per year) x 200,000.
¹⁰ Not including deaths.
¹¹ Not including deaths. Rate of occupational injuries with major consequences = (number of occupational injuries with major consequences (excluding deaths) / Number of hours worked) × 200,000.
| Germany | Brazil | Spain | Hispam3 | Others | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | ||
| Total number of recordable occupational injuries (Men) | 11 | 15 | 0 | 1 | 49 | 50 | 419 | 368 | 0 | 2 | |||||
| Total number of recordable occupational injuries (Women) | 4 | 9 | 0 | 0 | 37 | 24 | 58 | 85 | 0 | 0 | |||||
| Total number of recordable occupational injuries TOTAL | 15 | 24 | 0 | 1 | 86 | 74 | 477 | 453 | 0 | 2 | |||||
| Rate of recordable occupational injuries (TOTAL)¹² | 0.22 | 0.33 | 0.00 | 0.00 | 0.32 | 0.27 | 1.55 | 1.48 | 0.00 | 0.19 | |||||
| Number of deaths resulting from an occupational injury (Men) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||
| Number of deaths resulting from an occupational injury (Women) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||
| Number of deaths resulting from an occupational injury (TOTAL) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||
| Rate of deaths resulting from an occupational injury TOTAL¹³ | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||
| Number of deaths resulting from an occupational disease or illness (TOTAL) | 0.00 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
To improve the quality of the data, we have reported data related to occupational diseases based on two criteria:
1. On the basis of a global definition based on the list of occupational diseases from the International Labour Organization (ILO).
2. On the basis of local legislation, regulations and rules, as in previous years.
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 174
¹² Rate of injuries due to recordable occupational accidents = (number of injuries due to recordable occupational accidents / Number of hours worked) × 200,000
¹³ Death rate as a result of occupational accidents = (Number of deaths resulting from injuries due to occupational accidents / Number of hours worked) × 200,000.
| Germany | Brazil | Spain | Hispam | Others | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | |
| Number of employees covered by the Health and Safety Management System | 7,368 | 7,099 | 33,072 | 33,466 | 27,271 | 26,826 | 28,042 | 30,848 | 2,932 | 775 |
| % of employees covered by the Health and Safety Management System | 100% | 86% | 97% | 95% | 100% | 97% | 88% | 98% | 99% | 65% |
| Number of employees covered by the Health and Safety Management System subject to internal audit¹⁴ | 0 | 7,099 | 32,761 | 33,447 | 26,332 | 26,283 | 27,403 | 23,259 | 2,884 | 775 |
| % of employees covered by the Health and Safety Management System subject to internal audit¹⁵ | 0% | 86% | 97% | 95% | 96% | 95% | 86% | 74% | 98% | 65% |
| Number of employees covered by the Health and Safety Management System subject to third party certification or auditing | 7,368 | 7,099 | 0 | 285 | 24,193 | 24,577 | 31,125 | 23,141 | 2,884 | 166 |
| % of employees covered by the Health and Safety Management System subject to third party certification or auditing | 100% | 86% | 0% | 1% | 89% | 89% | 98% | 74% | 98% | 14% |
VMED O2 UK¹⁶
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 175
¹⁴ Annual reviews are carried out both externally and internally under the supervision of Occupational Risk Prevention Services, within the context of the Joint Prevention Service of the Telefonica Group.
¹⁵ Annual reviews are carried out both externally and internally under the supervision of Occupational Risk Prevention Services, within the context of the Joint Prevention Service of the Telefonica Group.
¹⁶ Absentee rate: Total number of working days lost due to absenteeism of any cause against the total available annual workdays. This excludes contractors and temporary staff. The total available annual work days include all annual working days excluding bank holidays. For 2022, the total annual work days calculation was, the average number of employees x 255 working days. "Any cause" refers to the total number of days lost due to occupational accident needing sick leave, non-occupational accident, occupational disease, common disease, and unapproved absences. Unapproved absences are those captured on the system as being “absent without authorisation” or “unauthorised”. This does not include approved absences such as holidays, study leave, maternity or paternity leave and days off. Injury rate: Total no. of occupational accidents with sick leave / Hours worked annually) * 200,000. The hours worked annual calculation is, average no. employees x 40 hours per week x 50 weeks per year. occupational accidents in the workplace needing sick leave. This excludes contractors and temporary staff. Occupational Disease Rate Total number of occupational illnesses / total number of hours worked) * 200 000. Total number of hours worked = Average No. employees x 40 hours per week x 50 weeks per year. Occupational disease definition used from the International Labour Organisation’s list of Occupational diseases. Common diseases are not considered occupational diseases.
KEY POINTS
Digital inclusion is the core pillar of our Company. Through the rollout of connectivity and the services we offer, we contribute to the socio-economic development of the regions in which we operate. The World Benchmarking Alliance has recognised Telefonica for the 2nd year running as the world’s leading company in the ICT sector for digital inclusion. We promote the economic and social integration of persons with disabilities through technology by developing products and services that are accessible to all.
In 2016, the United Nations listed digital inclusion as one of the fundamental human rights, considering it a basic service to help close the digital divide, and thereby highlighting the social, cultural and economic inequalities that can result from a lack of internet access. The most vulnerable groups in society are particularly affected by difficulties in gaining access to digital technologies, especially those with some form of disability, the elderly and rural populations Digital solutions can also eliminate seemingly insurmountable barriers by creating positive impacts, enabling the transformation of communities and boosting local economies. Our goal is to bring technology to people so they can benefit from all the opportunities offered by digitalisation and therefore build fairer, more prosperous and more sustainable societies. More specifically, we seek to connect the unconnected, provide access to new digital services for vulnerable groups in society, train and educate people in digital skills, and develop services that can generate social value and help protect our environment.
Our Responsible Business Principles (the Company’s code of ethics) provide the most important guidelines which frame our commitment to digital inclusion. The various sections of these principles reflect the importance we assign to such issues as digital rights, innovation, the development and responsible use of technology, and our commitment to the societies in which we operate. In this context, digital inclusion is a cross-cutting process that takes place throughout the organisation. Internal organisational structures are in place to promote and lead the various key issues. Those structures include: the Responsible Business Office, the Global Sustainability Unit, the network operations areas for the roll-out of infrastructure, and Fundación Telefónica for topics related to digital skills development.# Consolidated Annual Report 2022
Our Company’s firm commitment to responsible use of technology in protecting children and teenagers is also reflected in the Responsible Business Principles and various other corporate policies, such as the Diversity Policy, the Responsible Communication Regulations, and the Supply Chain Sustainability Policy. In turn, Telefonica's Sustainability and Quality Board Committee oversees the Global Responsible Business Plan, which covers all issues including the responsible use of technology, with a special focus on one of the most vulnerable groups in society: children.
Consolidated management report 2022 | 1. Strategy and growth model | 2. Non-financial Information statement _Helping society thrive | 3. Risks | 4. Annual Corporate Governance Report | 5. Annual Report on Remuneration of the Directors | 6. Other information
Our strategic lines of action are divided into 4 pillars:
| Inclusive access | Digital skills training | Innovation and relevant services | Secure and responsible use of technology |
|---|---|---|---|
| → Rollout of connectivity Guaranteeing that everyone has access to broadband communication networks in all regions, both urban and rural. |
→ Basic digital skills Offering our knowledge and skills to improve the digital skills of those people who need them most. |
→ Sustainable innovation: new services with an impact on society Developing new solutions and innovative services that can improve people’s lives and be useful and relevant. |
→ Privacy and security Ensuring that our products and services meet the strictest privacy and security standards in order to generate trust in the use of new technologies. |
| → Accessibility and technologies working for people with disabilities Ensuring that our digital services can be accessed by all and to guarantee technology can become a key tool for improving the lives of people with different abilities. |
→ Intermediate digital skills In line with our goal, training people on programming tools and technologies in order to improve the skills of the entire population. |
→ Responsible use of technology Protecting and fostering responsible use of technology. |
|
| → Affordability Endeavouring to ensure that cost is not a barrier to using new technologies by offering options and tariffs that the entire population can afford. |
→ Employability and training in advanced digital skills Training young people in the professions of the future that will require advanced knowledge of technology and communications. |
Consolidated management report 2022 | 1. Strategy and growth model | 2. Non-financial Information statement _Helping society thrive | 3. Risks | 4. Annual Corporate Governance Report | 5. Annual Report on Remuneration of the Directors | 6. Other information
| 2021 | 2022 | |
|---|---|---|
| Digital Inclusion Benchmark (WBA) Ranking position | 1º | 1º |
| Connectivity | ||
| Premises reached by UBB own and third parties | 159,841,086 | 168,057,417 |
| Percentage of mobile coverage in rural areas | 77% - 94% | 80% - 99% |
| LTE/4G coverage | 87% | 90% |
| Spain | ||
| Percentage of mobile coverage in rural areas | 91% | |
| 4G rural coverage | 20% | |
| 5G rural coverage | 94% | |
| Percentage coverage 4G | 98% | 98% |
| Percentage coverage 5G | 1 Not available | 85% |
| Germany | ||
| Percentage of mobile coverage in rural areas | 94% with 50 Mbps | 99% |
| Percentage coverage 4G | 100% | 100% |
| Percentage coverage 5G | 2 Not available | 80% |
| Brazil | ||
| Percentage of mobile coverage in rural areas | 77% | |
| rural population with 4G/5G | 80% | |
| Percentage rural coverage 4G | 94% | 96% |
| UK | ||
| Percentage of mobile coverage in rural areas | Not available | >99% |
| Percentage coverage 4G | 99% | 99% |
| Percentage coverage 5G | Not available | 43% |
| Product and service accessibility | ||
| Number of products and services with accessibility criteria | Not available | Implementation in 2022 40 |
| Affordability | ||
| - Universal Service | Millions of euros 169 | 212 |
| Digital skills training | ||
| Beneficiaries of digital skills development programmes³ | 1,212,765 | 1,305,715 |
| Beneficiaries of basic digital skills development programmes | Not available | 1,779 |
| Beneficiaries of intermediate digital skills development programmes | Not available | 1,299,086 |
| Beneficiaries of advanced digital skills development programmes | Not available | 4,850 |
Consolidated management report 2022 | 1. Strategy and growth model | 2. Non-financial Information statement _Helping society thrive | 3. Risks | 4. Annual Corporate Governance Report | 5. Annual Report on Remuneration of the Directors | 6. Other information
1 Spain technical criteria
61%
2 Germany technical criteria
69,1 %
3 A total of 1,305,718 people have been trained within the projects: "Lanzaderas", "Conecta Empleo", "Piensa en Grande" and "Escuela 42".
Although the roll-out of telecommunications infrastructure in recent years has connected a large part of the world’s population to the internet and new digital services, challenges and barriers still exist that need to be overcome in order to close the digital divide. There are five main barriers according to studies conducted by the Global System for Mobile Communications (GSMA), the international association of mobile operators:
Besides these barriers, we should also consider the risks associated with regulations, because these rules shape the context in which we operate. However, and despite the complex nature of some of these challenges, the opportunities offered by digitalisation are key to economic and social development. In this regard, companies in the telecommunications sector have become central to society’s ‘nervous system’ by keeping enterprises and communities active and connected, and delivering solutions capable of addressing the major challenges contained in the United Nations Sustainable Development Goals (SDGs). As a result, not only can we make a positive contribution to social development, but a growth opportunity for our business clearly stands before us. Connecting new population segments or regions and developing new digital services will enable us to guarantee a bright future for the Company.
As part of our purpose to “make our world more human by connecting people’s lives”, we are committed to bringing the best connectivity and the latest technology to everyone while leaving no one behind and advocating for ethical, people-centred digitalisation.
Internet access and new digital services are a cornerstone in achieving the United Nations Sustainable Development Goals (SDGs) of the 2030 Agenda. To ensure that everyone has access to digitalisation, we are working on the following lines of action:
Roll-out of connectivity
Our next-gen broadband networks are rolled out alongside measures to boost digitalisation, with a direct impact on socio-economic development and on the lives of many people. We work on the following initiatives to achieve this:
We connect the unconnected
Millions of people around the world still have no internet access at the moment, or the connectivity available to them is very limited, especially in rural or hard-to-reach regions. We therefore promote the roll-out of new communications networks in all regions, with a particular focus on rural areas. In such countries as Brazil, Peru, Colombia, Spain and Germany, we have announced plans to extend coverage and infrastructures under agreements with third parties that will enable us to provide mobile broadband and fibre services in rural areas.
We improve and modernise our networks and infrastructure in response to new social demands.
We evolve and upgrade communications networks to provide the capacity needed for an increasingly more digitalised economy. New digital services require new advanced infrastructure capable of guaranteeing sufficient capacity for its use. For this reason, we are upgrading and expanding our networks to use next-gen technologies that offer ultra- broadband services (5G and fibre optics).
Consolidated management report 2022 | 1. Strategy and growth model | 2. Non-financial Information statement _Helping society thrive | 3. Risks | 4. Annual Corporate Governance Report | 5. Annual Report on Remuneration of the Directors | 6. Other information
To continue our rollout of the best and most efficient connectivity, we have set the following targets:
This will help the Government of Colombia with its intention to connect 70% of all homes and, above all, to improve connectivity speed in the country which, in turn, will advance progress toward the goal of eliminating inequality in the digital transformation.
Internet for All project that was launched in 2018 and jointly developed with Facebook, IDB Invest and the Development Bank of Latin America (CAF); we are committed to democratising internet access by rolling out coverage in remote regions of the country.In the framework of the Mobile World Congress 2022, Telefónica presented its "Rural Manifesto, a proposal to develop inclusive and sustainable rural networks", a document that proposes a new route to connect the inhabitants of Latin America who do not have Internet access, most of whom live in rural areas.
Bridging the digital divide in Latin America means defining new solutions that meet the specific needs of rural areas. For this reason, the company proposes a new model that revolves around three axes: innovation, cooperation and sustainability.
Telefónica has continued its efforts to build networks that are increasingly primed to offer the best service to customers and manage growing traffic volumes. In terms of fibre, we continue to maintain our global leadership, of which more than half of the networks are owned by the company. In turn, 5G technology now covers most of the population in Germany and Spain, as well as more than 30 cities in Brazil. We also continue to expand 5G coverage in other operations.
A portion of the funds from our sustainable bonds (€2.8 billion up to 2022) has been allocated to bringing connections to unconnected areas and improving internet access in rural areas as a way to help close the digital divide.
l l l
We have been recognised by the World Benchmarking Alliance (WBA), an international organisation that assesses the top 150 companies in the technology and communications sector, as the world's leading company for our commitment to digital inclusion.
We have been recognised by Omdia as a European leader in the private LTE and 5G networks market.
Alongside Liberty Global and InfraVia CP, we have set up a joint company to build a new fibre optic network in the United Kingdom.
We have confirmed our partnership with the CAF under a new Framework Cooperation Agreement that will enable digitalisation in the region to be further accelerated through cooperation aimed at progressing towards a more inclusive and sustainable society. This partnership will help reach milestones linked to SDG 9 of the 2030 Agenda.
Together with the efficient high-performance satellite service from OneWeb, we will support connectivity expansion in Europe and Latin America by complementing the current offer and allowing ourselves to reach remote regions where we were unable to provide a service before.
We continue to have 4G/LTE coverage of more than 90% of the population in the four main countries where we operate. Furthermore, we successfully brought 5G to more than 80% of the population in Spain and are developing projects in Germany, Brazil and Colombia to cover all rural areas with broadband technology.
People-centred digitalisation should take place from an inclusive perspective to ensure that no one is left behind, regardless of their personal, economic or social situation. At present, many people with disabilities have difficulty accessing the advantages offered by the increasingly wider digital world in such areas as e-commerce, financial solutions, health services and entertainment, etc. For this reason, technology has become a key ally for people with disabilities due to its potential to break down barriers and thereby make their social and economic integration easier.
Aware of this problem, we endeavor to make technology work for persons with disabilities and therefore ensure that everyone can access the advantages brought by the digital transformation. With that in mind, we consider accessibility criteria whenever we start developing our products and services, as well as in the channels and facilities we use to engage with our stakeholders. Furthermore, we have aligned this target with our corporate commitment to diversity and inclusion, and we have adhered to the Principles for Driving the Digital Inclusion of Persons with Disabilities promoted by the GSMA, which provide a specific action framework for telecommunications operators.
This commitment is reflected in the development of products and services adapted to the needs of people with disabilities and in actions aimed at improving the accessibility of customer service and communication channels. In the same vein and in line with the Responsibility by Design project, we seek to integrate accessibility from the outset when developing our products and services. We have therefore included accessibility as a requirement for our online developments as well, following the guidelines defined by the Web Accessibility Initiative (WAI) of the World Wide Web Consortium (W3C).
In terms of products and services, besides guaranteeing accessibility criteria by design, we endeavor to develop innovative solutions that can improve the life quality of people with disabilities. These include:
To support achievement of our targets, we raise awareness and train the departments responsible for developing solutions. We also have a catalog of handbooks and training sessions on accessibility which are available to the entire workforce in order to guarantee accessibility in the main platforms and channels we use to engage with our stakeholders.
We work with benchmark associations to gain a better understanding of the needs and demands from this segment. In Spain, we work with the ONCE Foundation, Ilunión and CNSE, among others. At a global level, we take inspiration from such significant initiatives as The Valuable 500.
At the same time, we endeavor to ensure an equal user experience for all our customers by improving the accessibility of our customer service and communication channels, both online and offline. As far as our stores are concerned, we offer video interpreting services in such countries as Chile, Uruguay and Brazil, and audio induction loop services for the hearing-impaired in markets such as Spain and the United Kingdom. In Argentina, we have developed and implemented the inclusive customer service API tool, which reduces barriers in face-to-face communication with our customers by using an app. In terms of terminals, we work with mobile device manufacturers to enhance new capabilities that make them more accessible and easier to use for persons with different disabilities.
Our goal is to guarantee the accessibility of our digital solutions so that they can be used by everyone, regardless of their capabilities.
Over the course of the year, we enhanced our flagship solutions to address the needs of people with disabilities and the elderly:
The roll-out of connectivity always entails a cost that is passed on in the prices of the services offered. Although the uptake costs of fixed broadband and especially mobile broadband have fallen over the last decade, we are continuing to work on new business models that will allow us to offer increasingly affordable tariffs aimed at ensuring universal access to communications services. The pay-as-you-go mobile service, specific broadband packages, and the services for small businesses and entrepreneurs, are just some of the key tools we use at Telefónica to facilitate access to telecommunications services.
Our goal is to guarantee that all segments of the population can enjoy access to basic communications services. In each of the countries where we offer our services, we analyse and seek business models that facilitate access by all segments of the population. In some of these countries, we specifically contribute towards achieving this goal through the Universal Service Fund or collaborate with the public authorities to offer subsidised or regulated services. The Universal Service Fund is a public investment fund whose objective is to guarantee the provision of services for all users regardless of their geographical location, while meeting quality standards and maintaining an affordable price. The investment is controlled by the public bodies designated for this purpose in each country.
Over the last year, our commercial brand O2 in Spain joined the European Union digital connectivity discount programme for vulnerable groups. Beneficiaries of this programme can receive a €20 discount each month on O2 tariffs for connectivity in the home until December 2023. This initiative forms part of the general global commitment framework of the Telefónica Group to close the digital divide in Spain by enabling more homes to access the internet, something of great importance for social and professional development and integration.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 182
We also invested in the Universal Service in seven countries in 2022:
| Universal Service (millions of euros) | 2021 | 2022 |
|---|---|---|
| Argentina4 | 47 | 38 |
| Brazil5 | 62 | 75 |
| Colombia6 | 36 | 67 |
| Ecuador7 | 3 | 4 |
| Spain8 | 8 | 13 |
| Peru | 11 | 12 |
| Venezuela9 | 2 | 3 |
| Total | 169 | 212 |
We are committed to making the enormous opportunities brought by the technological revolution work for as many people as possible, and we know that a key part of that goal is to ensure the digital skills needed to make effective use of digital services. Changes are also taking place in the labour market due to the digital revolution and those changes are leading to new needs, as well as a demand for new profiles and professional skills. Mainly through the Fundación Telefónica and our Telefónica Educación Digital business unit, we help people to acquire the digital knowledge and skills necessary to access the internet and make use of new services, facilitating education at several levels:
We want everyone to have technology know-how at their fingertips
Offering our knowledge and skills to improve the digital skills of those people who need them most. Training people in programming tools and technologies in order to improve the skills of the entire population. Training young people in the professions of the future that will require advanced knowledge of technology and communications.
We work on initiatives, both our own and in partnership with third parties, to help people with no basic knowledge of new technologies learn how to use them. The following programmes can be highlighted in this regard:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 183
4 Argentina: the value reported for 2021 only includes figures from the January-November period. November and December estimated.
5 Brazil: 2022*: FUST 272,086,640.54 and FUNTTEL 136,043,320.75.
6 Colombia: includes the figure paid in 2022. Exchange rate COP$ $4.421/€ average in 2022.
7 Ecuador: the payments correspond to 1% of Universal Service (FODETEL, payment made quarterly, based on the previous quarter's income). Includes payments by SMA, LDI, Portador and internet access.
8 Spain: the data corresponding to the 2021 and 2022 financial years include adjustments for income provisions from previous years to that date, in accordance with the final rulings received from the CNMC.
9 Venezuela: estimated in the last quarter.
At this training level, we can highlight Conecta Empleo (Connect Employment), one of the most renowned employability programmes run by Fundación Telefónica: it offers free online courses and digital tools to help train people for the jobs in highest demand. Aware that digital skills are essential for gaining access to the modern labour market, through Conecta Empleo we have launched Profesionales 4.0, an initiative in partnership with the Spanish Confederation of Business Organisations (CEOE) to encourage the digitalisation of productive sectors in Spain based on cross-cutting and sector-specific training programmes. This initiative has been run four times already since 2020. The Conecta Empleo programme also has two tools aimed at facilitating the user’s decisions: the "Job Map", which helps choose courses by showing the most highly in-demand digital jobs; and the Virtual Career Advisor, a chatbot based on artificial intelligence and big data that advises participants on designing the most suitable professional path for themselves. Finally, the programme includes the Lanzaderas Conecta Empleo, which encompass the schemes Lanzadera Conecta Empleo, Satélites de Empleo and Alfabetización Digital. Their goal is to adapt career guidance to the challenges of the digital age and the ever-changing labour market. A total of 193 projects will be carried out by 2023.
Fundación Telefónica is promoting "42: Campus de Programación" under an agreement with the international organisation l’École 42. This initiative aims to make digital training an attractive and accessible educational option for many young people. Based on an innovative methodology of proven effectiveness in other countries, "42" offers free and open training. Its educational model is based on peer-to-peer learning. It is participatory and gamified, and developed through the implementation of projects in different branches of programming. Each student sets his or her own pace of learning and the emphasis is on collaborative work in order also to teach such values as effort, tolerance of frustration, the ability to improve, and teamwork.
Our main target is to ensure that everyone has the necessary knowledge to be able to access and harness the advantages offered by the digital world.# 2. Non-financial Information statement _Helping society thrive
The “Digital Leaders” initiative was implemented in 2022. It consists of training workshops aimed at working on digital intelligence throughout the entire education community with a focus on digital skills and boosting positive use of technology in children and young adults. Eight Renacer Digital workshops were organised in Spain, two of them at our two leading Movistar stores: Gran Vía in Madrid and Movistar Centre in Barcelona. We launched the new Universitas Telefónica campus in Madrid, a new ecosystem for innovation in learning and a key part of the global Innovation and Talent Hub, with more than 2,000 square metres of space equipped with the most cutting-edge technology. Fundación Telefónica has joined the Pact for the Digital Generation, an initiative by the Spanish Ministry of Economic Affairs and the Digital Transformation to provide the right tools and systems for training Spaniards in digital skills. The Manifesto for the Improvement of Digital Skills in the Spanish Population (Pact for the Digital Generation) seeks to offer a core set of areas, abilities, key skills and performance levels so the public can have the chance to acquire, develop and improve their digital skills, based on a holistic and equal approach aligned with the European Digital Competence Framework for Citizens. Together with nearly 50 Spanish entities, Fundación Telefónica is committed to moving forward on projects that can help to build a digitally competent society in which no one gets left behind.
Spain: The Official Chamber of Commerce of Spain in France (COCEF) awarded the 2022 CSR/Sustainability/ Social Award to our "42 Spain" project. Each year, these awards recognise organisations and individuals who play a fundamental role within the framework of relations between the two countries.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 184
Miríadax is a platform that has been recognised as one of the five most important e-learning platforms in the world. It currently has over 7.6 million registered students, over 100 education partners and a teaching community made up of over 3,500 teachers. More than 30 new specialised courses have been added to its portfolio, on education trends, political communication, technology and programming, among others.
The Profuturo programme was created in 2016 and seeks to help improve universal and quality education by offering training and mentoring to teachers, as well as access to digital resources for children in the most vulnerable environments of countries in Latin America, Africa and Asia.
In 2022 Profuturo direct and indirect benefited 7.2 million children around the world and more than 400,000 teachers.
l l l Since the programme was launched, it has benefited a total of 27 million children and 1.3 million teachers.
In 2022, we received more than 1.1 million visits to open education resources from more than 250,000 users.
In 2022, €38.6 million was made available to the programme, including contributions from the founders, private contributions and reserves. The programme involves work from 44 professionals, of whom 66% are women.
Apart from that, we also partner with the COCEDER initiative (Confederation of Rural Development Centres) to:
– Promote entrepreneurship and reduce the digital divide among women in rural environments in order to boost employability.
– Provide training and economic resources aimed at improvements in digital skills among rural women.
Having access to networks or ensuring that people have the necessary skills and knowledge is fundamental, but not enough to make sure they make use of new digital skills. Solutions, services and content also need to bring added value to their daily lives. The development of such solutions and content also allows us to respond to social challenges tied to health, education, rural economic development and security, among others. Therefore, we innovate in new ranges of services, on the one hand, and, on the other, we encourage technology to become a key tool in the development of a more inclusive society.
Sustainable innovation: new services with an impact on society
We work on developing new products and services that can help to close the digital divide and foster a social impact. These services range from health solutions to services capable of facilitating digital inclusion and technological development in rural regions. Given the relevance of these issues, these products and services will be discussed in more detail in a separate chapter of this Report. For further information, see chapter 2.13. Sustainable innovation.
Closing the digital divide is key to generating trust: concerns and hesitancy over security and privacy risks must be minimised. We adopt a holistic approach to this problem in order to offer a response to these risks and foster responsible use of new technologies, mainly by such vulnerable groups in society as children.
We guarantee the privacy and security of people accessing digital services
These are two strategic factors at our Company, so specific policies and commitments have been put in place. We encourage everyone in society to use technology responsibly through a number of awareness initiatives and digital skills training. We are also aware of the need to have the necessary information and tools that enable users to know how to properly respond to any attempted fraud or breach of the privacy and security they enjoy in the products or services they use. For further information, see the chapters on "Privacy and security" and "Responsibility in our products and services". For further information, see chapter 2.19. Privacy and security.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 185
Responsible use of technology
At Telefónica, we are convinced that meaning is given to technology by people, not the other way around. For that reason, we are firmly committed to promoting responsible use of technology and the protection of children on the internet. These efforts can be summarised into six lines of action:
Partnerships with stakeholders
Ensuring a more secure internet is a task we cannot tackle alone. At Telefónica, we work with partners in the sector and civil society to ensure all of us - children, young people and adults - remain aware that, although the internet is an open window to the world, it depends on us and our behaviour on the internet to ensure that the experience is healthy, safe and enriching. In this regard, we can highlight our collaboration with:
Telefónica is also part of the following partnerships in order to promote the exchange of best practice and the promotion of specific actions around good use of the internet and technology at a global level: ICT Coalition and the Alliance to Better Protect Minors Online.# 2. Non-financial Information statement
In the proactive fight against content with images showing the sexual abuse of minors on the internet, Telefónica blocks these materials based on the guidelines and lists provided by the Internet Watch Foundation in the following countries: Ecuador, Spain, Mexico, United Kingdom, Uruguay and Venezuela. Telefónica Colombia does the same based on the URL lists provided by MINTIC, DIJIN, Coljuegos and legal authorities. This procedure always complies with network neutrality, the right to freedom of expression and, above all, current regulations at all times, and the blocking of content is also coordinated with the corresponding police forces and other public bodies.
The way we consume television has changed. However, children and teenagers are making increasingly intensive use of audiovisual content. Screens also play a fundamental role in their personal, social and civic development, which is why we believe it is vital to:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 186
That is why we have included the following initiatives in our operations:
Although we at Telefónica believe that nothing can replace the role of an adult when it comes to educating children and young people on healthy and safe use of screens, whenever this is impossible we offer our customers various products and services that can help them:
We assess the implementation of basic child protection parameters alongside our suppliers (especially in the field of security), from the design of terminals to the operating systems installed on them. We ask device manufacturers and operating system providers to include the following:
We are continually talking about the challenge of keeping up to date with developments in technology and having the necessary knowledge to live in an increasingly digitalised society in a conscious, responsible and safe manner. Every technological breakthrough places a new educational challenge before us all, both adults and children, that we should know how to harness to its best effect. Fully aware of this situation, Telefónica is committed to developing training and awareness-raising initiatives for all our audiences.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 187
We endeavour to make the internet a safer place by promoting awareness-raising and training initiatives in which children and adults can learn to make the most of the potential from digital tools. At Telefónica, we are also committed to promoting and developing products and services that help families to successfully tackle the challenge of the digital world.
Throughout the year, numerous awareness-raising initiatives were carried out on the following topics: grooming, sexting, cyberbullying, digital divide, digital violence, tolerance on the Internet, digital well-being, responsible driving, online fraud, data privacy, digital identity, fake news, eSports and gaming, digital leisure, etc., with 9,902,501 people impacted. The following organisations, among others, supported us in these actions: Club de Malasmadres, FAD, iWomanish, Movistar Riders, Faro Digital, RedPapaz, Sin Trata A.C., Internet Matters, Fundación Habla and Circuito radial 'FM Center'. Awareness-raising initiatives, such as #MyGameMyName2022, to combat male chauvinism in gaming demonstrate the need to continue educating people on the responsible, healthy and positive use of technology.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 188
At Telefónica, through our Voice of the Customer programme we actively listen to our customers in order to improve processes and build a stable relationship based on trust. Telefónica has launched a new transformation project to evolve our networks and operations using artificial intelligence to improve both our management and the customer experience. The resilience of our network, customer service channels and tailored offer have led to an increase in the willingness of customers to recommend the Company once again this year, bringing the NPS to 30 points.
GRI 2-29, 3-3
The pandemic has changed, and led to the acceleration of certain initiatives that would have taken years to arrive at had it not been for the health crisis and its effects. The new landscape in which we find ourselves has resulted in an increase in e-commerce, teleworking, distance learning, etc. – in short, the need for more and better connectivity. On top of this, there is the current geopolitical crisis that has entailed, among other things, a shortage of resources, a rise in prices and an environment in which cybersecurity is becoming increasingly important. Telefónica plays a leading role in relation to all these aspects and strives to address these needs.# Consolidated Annual Report 2022
Customers are one of our main stakeholders and at Telefónica we work to offer them a unique experience, acting with integrity, commitment, simplicity and transparency in order to build relationships based on trust. Values of our Customer Promise:
Our customers’ experience, the quality plans designed to improve this and customer satisfaction measurements are strategic issues for Telefónica. One of the most important issues in our materiality analysis is to ensure responsible conduct towards customers. In this analysis, we have identified, among other aspects, customer relations and adaptation to customer needs as issues that have a double impact on society and on Telefónica's image. We must always meet our customers' expectations and build a relationship based on trust. Throughout this chapter, we set out how we approach this challenge based on our customers' experience, which we measure through reputation and quality indicators. For further information, see chapter 1.4. Materiality.
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When addressing customer issues, we do so with a two- way dialogue, globally and locally, to ensure a company- wide commitment and a common strategy:
| Body Functions | Frequency |
|---|---|
| Board of Directors | Approval of strategic plan including Net Promoter Score (NPS) targets |
| Board Committees | Sustainability and Quality Committee: Monitoring of results and quality plans at a global and local level |
| Audit and Control Committee: Overseeing and reviewing of Responsible Business Plan | |
| Appointments, Remuneration and Corporate Governance Committee | Approval of variable remuneration linked to NPS and RepTrak, among other indicators |
| Local Quality Teams | Monitoring, target-setting and approval of quality and continuous improvement plans |
Our main customer-related internal policies and regulations are as follows:
In today's highly competitive market, maintaining the trust of our customers is vital to the sustainability of our business. Responsibility towards customers is fully integrated into the Company's risk map. The risk model allows us to identify Telefónica's actions or processes that lead to customer dissatisfaction and that could pose a risk that could lead the customer to lost trust in and/or leave the Company.
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This also allows us to focus on the continuous improvement of our operations and, with it, the opportunity to build a long-term relationship of trust with our customers. The risk model for responsibility towards customers was updated in 2022 and will be implemented by the Company from 2023 onwards.
While respecting privacy and ensuring the highest level of security in the processing of customer information and personal data, we use the knowledge we have of the customer, obtained through the Voice of the Customer programmes, to build our strategy around the factors that drive customer satisfaction.
Voice of the Customer programme
All Telefónica Group operators conduct monthly satisfaction surveys among our customers to learn how our services are perceived. In these surveys, we ask about the quality of the network, the commercial offer, the customer service we provide through various channels, bills, mobile top-ups and prices, among other things. One of the indicators we obtain from these surveys is the Net Promoter Score (NPS). This information shows us our customers' satisfaction levels with our products and services and whether they would recommend us. We have been monitoring and reporting our NPS as a recommendation indicator for our products and services since 2018 and we calculate the Group's global NPS based on the results obtained from each of our operations. This indicator has also been set as a target linked to Customer Trust for the variable remuneration of all the company's employees in the short term.
Reliable, robust connectivity for all
The network is one of our main assets. Today's changing environment and accelerating digitalisation have underlined how important it is to have a robust, stable and reliable network. Connectivity is at the heart of our customers' day-to-day lives and our strategy is to offer the best network experience. For this reason, Telefónica sets the customer's satisfaction with the functioning of the network as one of the targets for measuring its importance to customers. As an example of our commitment in this regard, Telefónica has launched the Customer Experience Maturity Model transformation project in our main markets. The main aim of this project is to elevate our Networks and Operations to an advanced level of Customer Experience Management (CEM) maturity. The maximum level in this regard would make the following approach possible in the future:
To this end, a CEM Maturity framework has been defined, with six areas (Strategy, Customer Experience, Culture, Operations, Technology and Data) and five levels of Maturity. These areas and levels together form a Maturity Index, which is the main KPI to measure our progress in this transformation. To move forward, we have a roadmap of improvement initiatives covering these aspects, including among others:
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Tailored offer
At Telefónica, we create a portfolio of products and services adapted to the needs of our customers, improving and extending the offer to strengthen the relationship we have with them. In addition, it is consistent with the Company's sustainability requirements in terms of accessibility, ethics and positive social impact regarding both the environment and the customer's health. For further information, see chapter 2.14. Contribution and impact on communities. As a result, traditional connectivity and communications services have been joined by digital TV and content services, cloud services, the Internet of Things (IoT), etc., as well as professional security, big data and IT services, among others. Telefónica continues to improve its offer in the residential segment, seeking to set itself apart from its competitors by expanding its portfolio of services through the launch of digital security, health and energy ecosystems, among others. In the corporate segment, we provide an integrated offer that speeds up the implementation of technology through our cybersecurity, cloud, IoT, big data, AI and blockchain services, technology solutions and business transformation support.# 2.11.5. Customer experience and complaint management
In order to help our customers incorporate sustainability criteria into their purchasing decisions, so that they can contribute to the transition towards a more sustainable society, Telefónica has the Eco Smart label, which identifies the environmental benefits provided by our products and services. For further information, see chapter 2.4. Digital solutions for the green transition.
Customer Health Index (CHI)
In line with the above, in Spain we are implementing a new model to pursue excellence in the products and services we provide customers, from the initial development stage right through to maintenance once they are on the market. Through the Customer Health Index (CHI), we aim to tailor services to the needs of our customers. It interlinks with Responsibility by Design with regard to our products and services, aiming to develop services with a customer-oriented focus to achieve the least possible number of incidents throughout their life cycles. The Voice of the Customer, collected through surveys, feeds back into this CHI. Our goal is for all our products and services to have a CHI above 90%, with corrective initiatives being established prior to market launch for those that do not achieve this.
Unique experience
The way in which we interact with our customers at our points of contact is undoubtedly one of the main areas in which we can offer a unique experience. This relationship must be based on accessibility, an omnichannel approach, transparency and convenience. In this regard, we use the Customer Effort Score (CES), a metric that measures the ease with which our customers resolve their issues through our customer service channels, in order also to evaluate the digital transformation process of our points of contact. We set annual country and Company-wide targets. Furthermore, the Customer Satisfaction Index (CSI), the result of the satisfaction question asked in the transactional surveys (conducted at the end of each contact), is used for the management/remuneration of customer support providers.
Code of Ethics for sales calls
Movistar, Orange, Vodafone, the MASMOVIL Group and Euskaltel consolidate the agreement they reached in 2010 with the aim of stepping up controls and increasing consumer guarantees. In order to offer consumers protection that is up to date with the habits of today's society and greater transparency in sales practices, the five major operators have signed a new Code of Ethics that consolidates the consensus reached in 2010. It acts as a self- regulation mechanism so that customers have all the guarantees they need when signing up for their services. This initiative is an initial starting point and other operators may join the agreement.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 192
Complaints
All our operators have teams that focus exclusively on bringing down the number of dissatisfied customers and reducing complaints, regardless of the channel through which they reach us. This includes the following measures:
The following table provides the details of our main operations, the corresponding regulatory bodies and the websites where you can find the information we provide:
| Regulatory bodies of the main countries in which we operate | |
|---|---|
| Spain | Secretaria de Estado para el Avance Digital/CNMT https://www.telefonica.es/es/acerca_de_telefonica/calidad/calidad-servicio |
| Germany | Bundesnetzagentur https://www.bundesnetzagentur.de/SharedDocs/Mediathek/Jahresberichte/JB2021.pdf?__blob=publicationFile&v=5 |
| Brazil | Agencia Nacional de Telecomunicaciones (Anatel) https://informacoes.anatel.gov.br/paineis/consumidor/reclamacoes |
| Argentina | Ente Nacional de Comunicaciones (ENACOM) http://datosabiertos.enacom.gob.ar/dashboards/20003/denuncias-y-reclamos/ |
| Chile | Servicio nacional del consumidor (SERNAC) y Subsecretaria de telecomunicaciones (SUBTEL) https://www.subtel.gob.cl/ https://www.sernac.cl/portal/617/w3-channel.html |
| Colombia | Comisión de Regulación en Telecomunicaciones (CRC) https://www.postdata.gov.co/dataset/quejas-de-servicios-de-comunicaciones |
| Peru | Ministerio de Transportes, Comunicaciones, Vivienda y Construcción/Organismo Supervisor de Inversión Privada (OSIPTEL) https://serviciosanaliticos.osiptel.gob.pe/MicroStrategy/asp/Main.aspx?hiddensections=header%2Cpath%2CdockTop%2CdockLeft%2Cfooter&Server=SRVBI&Project=OSIPTEL+BI&Port=0&evt=3140&src=Main.aspx.3140&documentID=D39628EA437893896BD8CFB2A3FA49CC&hiddensections=he ader%2Cpath%2CdockTop%2CdockLeft%2Cfooter |
| Ecuador | Agencia de Regulación y Control de las comunicaciones (ARCOTEL) https://regulatorios.movistar.com.ec/regulacion-legal/1398/bacon-261-par%C3%A1metros-de-calidad-general-oct---dic-2022 |
| Venezuela | Comisión Nacional de Telecomunicaciones (CONATEL) http://sais.conatel.gob.ve/ http://www.conatel.gob.ve/reclamos/ |
| Mexico | Instituto Federal de Telecomunicaciones (IFT) Procuraduría Federal del Consumidor http://www.ift.org.mx/usuarios-y-audiencias/informes-estadisticos-soy-usuario https://datos.profeco.gob.mx/datos_abiertos/# |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 193
Voice of the Customer programme
Telefónica's digital transformation has contributed to the expansion and automation of active listening to customers as a management tool. Our main businesses have customer listening tools in place at key points of contact. This has made it possible:
This close-the-loop process not only seeks to provide an immediate response to the incident raised by the customer after their interaction with one of our contact channels, but also to use the information collected as feedback to prioritise structural improvements in the Company's processes, preventing this incident from affecting other customers in the future. Further down the line, it will also allow us to move from a reactive approach to customer experience to proactive actions, allowing us to anticipate the customer's needs.
Security and protection of customer data
Technology improves people's quality of life and generates wealth, provided that their privacy is respected and the highest level of security is guaranteed in the processing of their information and personal data. We want our customers to feel confident about using our products and services and to be aware that we respect their rights at all times, providing them with options to choose freely how their personal information is used. For this reason, we work to protect the privacy and security of our customers to generate a relationship of trust with all those with whom we are associated. For further information, see chapter 2.19. Privacy and security.
All Telefónica Group operators conduct monthly relationship satisfaction surveys among our customers to learn how our services are perceived. In these surveys we ask about the quality of the network, the range of products and services on offer, the customer service we provide through various channels, bills, mobile top-ups and prices, among other things. From the results, we obtain the Net Promoter Score (NPS), among other indicators. This information enables us to find out our customers' satisfaction levels with our products and services and whether they would recommend us. This indicator has also been set as a target linked to customer trust for the variable remuneration of all the Company's employees in the short term. We have been monitoring and reporting our NPS as a recommendation indicator for our products and services since 2018 and we calculate the Group's global NPS based on the results obtained from each of our operations.
In the 2022 financial year, the overall calculation was carried out using the results of our operations in Spain, Germany, Brazil and Hispanoamerica.# Consolidated Annual Report 2022
The strength of our networks, tailoring our offer to the needs of our customers and our efforts to make procedures easier through our communication channels have led to an increase in customer trust, which translates into an increase in recommendations in the markets of Spain, Germany, Brazil and Hispanoamerica, from 26 (reported result 27) to 30, compared to 2021. We finished 4 points above the previous year and surpassed our annual target.
NPS Telefónica Group
| 2021 | 2022 | |
|---|---|---|
| Result | 26 | 30 |
Includes Spain, Germany, Brazil and Hispam (Argentina, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela).
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 194
1 2021 reported result 27.
By segments we also achieve exceptional results this year:
NPS Telefónica Group (by segment)
| Segment | 2021 | 2022 |
|---|---|---|
| B2C | 19 | 23 |
| B2B | 55 | 58 |
Includes the three main operators (Spain, Germany and Brazil).
We improved by 4 points in the B2C segment compared to the result for 2021, and by 3 points in the B2B segment. Among others, these results include the tailored offer and actions carried out following active listening as part of each operator's Voice of the Customer programme, about which some examples and figures are given below.
At Telefónica, reputation is key to ensure consistency with our long-term vision. Measuring reputation allows us to see how society (customers and non-customers) perceives our overall performance and helps us to understand their expectations. To do this, we focus on four key features, namely: admiration, esteem, confidence and good impression (the RepTrak Pulse® model). This model also enables us to identify drivers and define specific, practical reputational plans adapted to each country. For example, in Spain, each regional manager takes action under their remit related to commercial issues, communication and the relationship with society. In 2022, we included factors that allow us to determine how the Company is perceived regarding ESG (environmental, social and governance) issues, as adequate management of these issues is becoming increasingly important for both companies and their various stakeholders in order to build a reputation. Reputation is an indicator that has also been part of the variable remuneration of our employees since 2019. For further information, see chapter 2.16. Governance and a culture of sustainability.
In 2022, the combined RepTrak Pulse® score consisted of the results for Germany, Brazil and Spain, with a score of 67 points out of 100. Our long-term ambition is to have a reputation above 70 points, like other sectors such as the retail, automotive, and food and beverage sectors. These industries have been able to understand society's expectations and provide them with a higher level of satisfaction than others, which is a fundamental target for Telefónica. Therefore, surpassing the 70-point mark would demonstrate that the public recognises Telefónica as having a strong reputation, which means that they trust, admire and respect the Company.
Our main operations use the same methodology, which has a positive impact on the sharing of best practices among our operations. Anonymised data is used in all cases. It is updated after every interaction and is available online and from any device for any area of the organisation.
In its first year of operation, the programme enabled the launch of over 17 million questionnaires, obtaining nearly three million responses. This provides information on various relevant KPIs, such as satisfaction with the process, with the channel and with the technician, operation, performance, devices, etc., as well as open questions where the customer can freely express their opinion of the service. These responses are analysed and classified using AI techniques to inform decision-making and continuously improve customer care. The handling of dissatisfied customers through the close-the-loop approach allows almost 70% of customers to end up being satisfied. All levels of Telefónica's internal organisation, from the areas that work with the customer service channels to the Management Committee and our suppliers, have access to the Voice of the Customer tool, which allows them to take action to improve the satisfaction of Movistar's customers.
It uses its Voice of the Customer tool as a measure for 25 customer journeys and touchpoints, as well as ad hoc studies to measure, for example, user experience or how a product launch or campaign is received. It records around 1.2 million results per year in total. In addition to collecting customer recommendation information (NPS) and the reasons why customers would recommend the service or not, to analyse the root cause other indicators such as Customer Effort, the percentage of unfriendly interactions, and the perception of the network, the brand and the price are also measured. Around 5,000 calls are made per month to detracting customers, mainly to close the loop, which is reflected in a significant increase in the NPS score. Advanced analytical tools have been created to analyse the information collected, allowing us to identify both weaknesses and strengths in our relationship with the customer, in order to carry out the necessary structural changes to correct our weaknesses and reinforce our strengths.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 195
All in all, since the launch of the programme in 2019 the relational NPS has increased by around 20 points.
The Company launched its Vivo DNA Voice of the Customer programme in 2017. The platform, accessible from 2022 for Vivo's entire workforce, from the front line to the Executive Committee, received over three million responses through the Vivo DNA programme. This allowed it to capture the Voice of the Customer in a simple and streamlined way, add value to processes and services, and improve the customer experience. Through the Vivo DNA Betas programme, aligned with the Company's collaborative digital culture, particular emphasis was given to those who are on the front line, putting them in contact with the business teams, as they contribute the experience of those who work directly with the customer to the business discussion. Over one million transactions were processed through DNA Solve (its close-the-loop programme). It was awarded the Customer Centricity World Series Award in the Complaint Handling category. This accolade demonstrates that, following the resolution of a complaint, it is possible not only to transform detractor customers into promoters, but also to reduce the churn rate and implement structural solutions in the affected processes. The resolution rate of the process was 75% and the churn reduction was 60%. Thanks to this active listening, in the Brazilian SME segment we have identified the pain points that negatively impacted the customer experience, implementing initiatives to improve processing times, customer communication, self-management and logistics. As a result:
* Sustained NPS growth was maintained throughout 2022, and with a positive difference compared to 2021.
* The CSI of the billing process improved compared to the previous year's negative trend.
* Customer complaints due to dissatisfaction with bills were reduced by 16% for mobile and 12% for fixed-line services.
* Customers bills claims were R$24.5 million (BRL) less this year for mobile and R$3 million (BRL) less for fixed telephony.
The demand for a tailored offer to the needs of our customers is one of the lessons learned thanks to these Voice of the Customer programmes. In Spain, miMovistar was launched. This is a new experience allowing customers to subscribe to, configure and manage what they need at any given moment and what they are actually going to use. In this way, customers can configure their offer, choosing from a range of options designed to make their lives better. They decide what is best for them. Germany launched O2 Grow, the country's first tariff that grows automatically every year without any price increases (every year customers enjoy 10 GB extra for free every month). This meets the customer's need for more and more data, using a greater number of devices, without having to pay more. In addition, with Testkarte, customers can test our network (voice and data coverage) for 30 days free of charge before they have to decide whether they want to sign up with us. This is an excellent opportunity to test whether the product meets the customer's expectations and needs, thereby avoiding a bad post-purchase experience. And with the Flex for Free option, customers have a flexible contract with no minimum contract length and at no additional cost.
For further information, see chapter 2.12. Responsibility in our products and services. In Spain and Brazil, in addition to the usual channels, we have offices to deal with escalated complaints.
The satisfactory resolution of complaints is vital for Telefónica. Listening to customers and resolving complaints has a decisive influence on both customer satisfaction rates and whether customers recommend services. For this reason, Telefónica has teams dedicated exclusively to dealing with any complaint whether by telephone, email or post.As part of its commitment to providing quality to its customers, Telefónica stands out as the only telecommunications operator in Spain which, since 2006, has had a second level for managing escalated complaints. This is the Customer Defence Service (CDS), an independent area of the business that Telefónica provides to its customers as a higher authority for escalating complaints if they have not received a satisfactory response from the first line of customer service. The resolutions of the CDS are based on fair and independent criteria and are binding for the Company. During the 2022 financial year, the CDS placed special emphasis on the cases of leasing of devices associated with bundled packages, which have also been affected since 29/10 by the change of contractual conditions derived from the new legislation for the telecommunications sector. In addition, as a result of proactive listening and the analysis of complaints, the CDS identifies opportunities for improvement in the processes and actions of the Group's companies, bringing them to the attention of the Customer Experience Committee with a view to improving internal processes to increase customer satisfaction.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 196
Since mid-2020, the Company has been encouraging online submission of complaints in the interests of digitalisation and environmental sustainability. This allows the Company to leave paper-based communication for cases where the need arises and involving sections of the population who must not be underserved (elderly people, those lacking the necessary resources, etc.). In terms of the main activity indicators, the CDS received 3,264 letters from customers requesting action, 70% of which were admitted for processing. Resolutions issued in favour of customers accounted for 86% of the total.
Vivo has a channel for resolving customer complaints in the second instance, to assist those who have already used other service channels and have not had their problems resolved. The channel aims to transform every complaint into a story, which feeds back to the whole organisation in search of the best customer experience through our services. Its mission is to represent the interests of customers within the Company, acting impartially in the analysis and handling of complaints received, as well as in the review of internal processes. Ouvidoria is open to all of the operator's customers who have, or have had, Vivo services. In 2022, Ouvidoria Vivo was revamped, increasing its service capacity and we handled 37% more calls as a result. This change aimed to resolve customer complaints faster and, consequently, complaints lodged with Anatel (Brazil's Telecommunications Regulatory Agency) fell by 30% compared to 2021.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 197
Telefónica has maintained an optimal level of network availability and quality against the backdrop of a 20-30% year-on-year increase in traffic. All our base stations comply with the limits on radio-electric emissions exposure established by the International Commission on Non-Ionizing Radiation Protection (ICNIRP). All the products we market comply with international standards and local legislation in every market where we operate.
At Telefónica, we have an enormous capacity to influence and bring added value to socio-economic development through the products and services we offer. Our technology solutions and communication networks can have a major positive impact on both society (see chapter 2.10. Digital inclusion) and on the protection of our environment (see chapter 2.4. Green digitalisation).
For further information, see chapter 2.10. Digital inclusion.
For further information, see chapter 2.4. Green digitalisation.
However, this contribution would not be complete if we did not ensure that our services comply with all health and safety regulations and standards while also bringing added value. This enables our customers to use solutions that go the extra mile and allows them to engage with digital services securely and with confidence.
We can highlight our lines of action in the following areas:
Technology has proven to be a highly valuable tool for tackling major social and environmental problems that need to be managed and minimised. At Telefónica, we are fully aware and work hard in this direction by dedicating management time and resources to ensuring responsible use of technology (see chapter 2.10. Digital inclusion).
For further information, see chapter 2.10. Digital inclusion.
Similarly, technology creates opportunities and innovative digital solutions can be developed on a quality network (e.g. cloud services, the Internet of Things, big data, etc.),
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 198
which also contribute to achieving the Sustainable Development Goals defined by the United Nations. These solutions are not only used in business but also for social purposes, such as better understanding and reduction of the effects of climate change, natural disasters and pandemics, as well as analysis of migration problems.
Guaranteeing network availability and quality in the most remote areas (unconnected or with a poor connection) can also help to attract new customers and contributes to the social and economic development of these areas. Furthermore, certain risks can be tied to poor connectivity. A telecommunications company that cannot guarantee network availability and quality will not survive in the market. It is a risk not only for Telefónica, but also for society in general. Quality connectivity is one of the key driving forces for progress. In other words, without network availability/quality, people have no access to information, educational content, job opportunities or business development.
In terms of electromagnetic fields, there is a risk that fake news about 5G might potentially re-emerge via online media. This poses a disinformation risk regarding perception among the population on the safety of mobile telephony networks. Experience in this regard has taught us to more easily detect and anticipate fake news and to work together on providing a unanimous response to associations, institutions and industry from the sector. We view the European Union’s welcome of the publication of exposure limits from ICNIRP as a clear opportunity. This will foster greater regulatory alignment in terms of the roll-out of 5G and the radio-frequency exposure limits recommended by the scientific community.
We must also emphasise the value to the Company of offering reliable services that guarantee the health and safety of our customers and provide the highest standards of quality. For Telefónica, the experience that a customer has when using our services via our devices is critical. We must therefore guarantee that our devices are safe for their health and reliable, not containing any noxious materials or dangerous substances. We even go a step further, by making sure they comply with international standards and local regulations, and ensuring that the materials used throughout the supply chain do not come from countries affected by a context of conflict. The risk we face in terms of safety in our products is that a supplier fails to comply with our safety and quality standards. To minimise that risk, we certify our devices and optimise their response in our markets. We manage their life cycle and conduct inspections and quality controls on our products. Furthermore, we directly audit the facilities that produce the devices we develop ourselves. For all other devices, we guarantee quality during the sales activity at our stores, prioritising the most relevant features or those of most interest to customers, such as the performance or connectivity they offer and showing how sustainable they are via the Eco Rating awarded to each one. Operators stand at the end of the supply chain, very close to the end user, and this is a huge opportunity.# 2.12.3. Network quality and availability
It is imperative for all of us at Telefónica to comply with national and international regulations to guarantee the quality of our products. In this context, as a telecommunications and technology company, we have an obligation to ensure the highest quality in both our communications networks and in the new digital products and services we develop, market and deliver to our customers. Our responsibility is to guarantee maximum access speed and information transmission capacity 24 hours per day from any device and location and in any situation. The International Telecommunication Union (ITU) defines quality-of-service as the collective effect of performance which determines the degree of satisfaction of a user of the service.
Our commitment to customers is to guarantee an optimal uninterrupted service and to be constantly transparent about our network status at all times, even during the most adverse situations. To guarantee quality and the service we offer, we are constantly evaluating and monitoring fixed and mobile communications. This allows us to guarantee the availability of our service and respond immediately to any incidents that may arise at any time.
Our commitment to network availability and quality was strengthened more than ever as a result of the global crisis triggered by COVID-19. The traffic our infrastructure had to support during the worst moments of the pandemic rose by over 50% when compared with the traffic recorded on the same dates in previous years. Education, many working activities, healthcare and commercial activities, etc., were able to take place online via our networks, demonstrating that our commitment over many years to achieving one of the most efficient and developed broadband infrastructures in the world was worth the effort.
Network availability in 2022
Fixed and mobile network in Brazil and Spain. Mobile network in Germany and UK
Connectivity is the basis of our business, which is why we invest heavily in high-quality resilient infrastructures to ensure that more households every day have the opportunity to access the digital world.
We are transparent and regularly publish information on the quality of our service. By doing so, we enable online checks of mobile network status in real time via our Internet portals.
Example of a real-time VMED O2 UK network status check
We also supply details about upload and download speeds of the Internet connection from any location (e.g. the Movistar Speed Test). This provides users with access to quality information and enables them to enjoy greater efficiency in the use of connectivity, as well as the swift identification of potential incidents.
Movistar Speed Test
By relating the various functions of an electronic communications service – contracting, maintenance, connection, billing – to the various criteria that users may apply when assessing their service quality (speed, accuracy, availability, reliability, etc.), a set of observable and measurable parameters can be defined to provide an objective and comparable representation of service quality to the user.
Of course, we are aware that natural phenomena, external factors, power cuts, etc., can cause occasional and localised service interruptions. To minimise the duration of any incident as far as possible, we work continuously on building greater resilience.
Progress
In accordance with the international standard on telecommunication services from the SASB (Sustainability Accounting Standards Board), we assess a series of indicators relating to the quality and transparency of our services. Due to the particular features of each technology, these calculations can only be performed on each technology separately and the results depend on the geography of the regions where the service is operating. We continued to report on all services (voice, data and television) in 2022, for both the fixed and mobile networks of Telefónica Spain. Analysis of the average interruption frequency and duration indicators (TC-TL-550a.1) supports the conclusion that service availability was above 99.9% - despite a significant year-on-year traffic increase of more than 20-30%.
The critical situations that arose during the course of last year and which impacted our service are listed below:
In addition to these network service incidents, due to the seriousness of the circumstances, situations have arisen that are managed directly by Telefónica's global crisis committee. For further information, see chapter 2.19. Privacy and security
| Indicator | Value |
|---|---|
| TC-TL-520a.2 | |
| FIXED LINE NETWORK: average actual sustained download speed in megabits per second (Mbps) of owned and commercially associated content. | |
| -FTTH600: | 615,925Mbps |
| -FTTH1000: | 911,302Mbps |
| -There is no differential assessment between associated and non-associated content | |
| MOBILE NETWORK: average actual sustained download speed in megabits per second (Mbps) of owned and commercially associated content. | |
| -4G: | 45,93Mbps |
| -There is no differential assessment between associated and non-associated content | |
| FIXED LINE NETWORK: average actual sustained download speed in megabits per second (Mbps) of non-associated content. | |
| - FTTH 600: | 615,925 Mbps |
| - FTTH 1000: | 911,302 Mbps |
| -There is no differential assessment between associated and non-associated content | |
| MOBILE NETWORK: average actual sustained download speed in megabits per second (Mbps) of non-partnered content. | |
| -4G: | 45,93Mbps |
| -There is no differential assessment between associated and non-associated content | |
| TC-TL-550a.1 | |
| FIXED LINE NETWORK: system average interruption frequency (interruptions per customer). | 1.90 |
| MOBILE NETWORK: system average interruption frequency (interruptions per customer). | 25.25 |
| FIXED LINE NETWORK: customer average interruption duration (hours per customer). | 3.38 |
| MOBILE NETWORK: customer average interruption duration (hours per customer). | 0.03 |
For more information, see chapter 2.21. Appendix: SASB compliance table
In all countries where we operate, we comply with the exposure limits for electromagnetic emissions established by independent scientific organisations, such as the International Commission on Non-Ionizing Radiation Protection (ICNIRP), based on scientific evidence.# 2. Non-financial Information statement
Compliance with these recently revised and updated standards ensures that we deploy a secure network, including 5G, as these guidelines are endorsed by the World Health Organization (WHO) and the International Telecommunication Union (UIT). We monitor compliance with these limits in all operations and verify that all terminals and equipment offering our service meet international safety standards including SAR (Specific Absorption Rate) values. We also have a Manual of Good Practices that acts as a guide for our teams and lists all initiatives taken within the Group in the different countries in which we operate. All these practices have a common interest in establishing a proper relationship with those communities we intend to serve. In this context, we work in coordination with institutions and operators in order to have a communication and dialogue strategy that helps the general public to detect fake news about 5G technology.
The 5G standard
The electromagnetic frequencies used for 5G are part of the radio frequency spectrum that has been researched extensively in terms of health impacts over decades, i.e. over 50 years of scientific research has been conducted on the possible health effects of radio signals used for mobile phones, base stations and other wireless services, including planned frequencies for 5G exposures. The results of these studies have been analysed by many expert review groups. They all conclude that there is no evidence linking exposure below the guidelines set by the International Commission on Non-Ionizing Radiation Protection to known health risks for adults or children.
Commitment to research
The scientific research in this field is a priority area for the World Health Organization. Similarly, the research programme of the European Union includes different projects in this area with the aim of addressing possible health effects of the electromagnetic fields.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 202
1 Data corresponding to Telefónica Spain. Telefónica closely follows these projects and supports research by the German Federal Agency for Radiation Protection (BfS) on the development of leukaemia in predisposed animal models exposed to magnetic fields. In particular, we support the group of Spanish scientific researchers from the Salamanca Cancer Centre (CSIC) working on this study. The study will take three years to complete and results will be delivered in 2023.
Progress
In 2022, we conducted 46,861 measurements at our base stations. These have always been below ICNIRP levels in every country where we operate, even those without their own regulation.
At Telefónica, we do a thorough job of ensuring the security, smooth operation, accessibility and traceability of our products. That is why we apply all the necessary protocols to ensure that 100% of the devices we market, which represent the most significant risk to the health and safety of our customers, comply with both international standards and local legislation everywhere we operate. In one way or another, these certificates affect customers’ safety, quality and experience as users and, in many cases, go beyond legal requirements. Non-compliance in these areas was not detected in any region in 2021. In particular, at Telefónica, we also require the RoHS certificate (Restriction of Hazardous Substances, version 3) from all suppliers of terminals, not only for European markets but for all markets in which we operate, which restricts the use of certain hazardous substances (lead, mercury, cadmium, chrome VI, PBB and PBDE, etc.) in electrical and electronic equipment and the SAR (Specific Absorption Rate) of mobile phones, ensuring that none of them represent a health hazard for our customers. We also require that devices we sell have the GCF (Global Certification Forum) certificate. This guarantees that the connection with the mobile network works correctly, including emergency calls. As for the rest of the equipment deployed in a residential setting and associated with access to the fixed network (routers-HGUs, WiFi amplifiers–repeaters, Movistar Home, etc.), we comply with all the common international standards that also apply to these types of devices, such as CE marking and RoHS, as well as local legislation required in each of the markets where we are present. But we also go a step further in our commitment to the security of our products by conducting inspections and audits directly on our manufacturers’ premises as part of the entire development process. In this way, we guarantee the quality of the installations, their quality control processes, the use of non-hazardous materials, safety regulations at the facilities, etc. For this purpose, we carry out what is known as Pre-Shipment Inspection which includes:
* BoM check.
* Validation of firmware version used.
* Verification of labels, manuals, cables and PSU.
* Verification of PCBA version used.
* Verification of housing used.
It should be noted that the verification of the implemented firmware versions, packaging and housing of the equipment is also carried out in the logistics areas of each of our countries.
Progress
No non-compliance in these areas was detected in any region in 2022.
MILESTONES
→ Network availability was above 99.9% throughout the year.
→ We worked with the Emerge-5G research project to develop electromagnetic field exposure assessment methods in new 5G use cases.
→ We complied with the emissions levels established by the ICNIRP, even in countries without their own regulation.
→ 100% of the devices we market meet international standards and local legislation in the markets where we operate.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 203
KEY POINTS
We have invested more than 700 million euros in R&D and drive internal innovation and the entrepreneurial ecosystem to maintain our competitive position and contribute to socio-economic development. We evolve our technology and operating model, taking advantage of all technological advances to achieve the best customer experience based on sustainable, efficient and secure infrastructures. We are among the top 50 European companies in terms of R&D investment, as evidenced by a portfolio of 344 patents and 9 utility models.
Telefónica has been recognised from the outset as being an innovative company. We understand innovation as the ability to anticipate the future, to understand the needs and challenges of society and our customers, and to be able to build an organisation that fosters a culture that drives transformation and entrepreneurship. Innovation is a strategic building block that allows us to both develop solutions and products that tackle social and environmental challenges and transform ourselves to become a company that has a greater positive impact. Innovation is a strategic building block that allows us to develop solutions that tackle social and environmental challenges.
l l l
To achieve these targets we have adopted two working models. One is based on incremental innovation, with continuous improvements of existing technologies to adapt them to new societal demands, such as making them more efficient and greener. The second model focuses on disruptive innovation with the development of new products or business models that transform or alter the market and contribute to having a positive social or environmental impact. These models are reflected on the activity developed transversally into the organization by the Core Innovation unit, commercial business units or the network and IT areas, and at the same time in fostering the external entrepreneurship and start-ups ecosystem to benefit from the innovation developed outside the Company.
The main framework for our commitment to innovation is set out in our Responsible Business Principles, the Company's code of ethics, section five of which reflects our commitment to innovation, development and the responsible use of technology. As innovation is a cross-cutting process throughout the organisation, there is no one centralised management and governance of all the processes involved. However, there are a number of internal organisational structures that drive and lead the different key aspects, including a Strategy and Innovation Committee that advises and provides support in all matters related to innovation. The main areas within the organisation involved in innovation management are as follows:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 204
Internal Innovation
In addition, innovation investment management, which encompasses both early innovation efforts through R&D and disruptive approaches to existing technologies, results in a number of IP assets that can become differentiating factors for our future services or be marketed by third parties through license agreements. Currently, according to the Observatory for Industrial R&D of the European Union, we are among the top 50 companies in Europe in terms of R&D investment.
In 2022, the Telefónica Group registered 14 new patent families, related to telecommunications technologies, digital products and services, as well as two families of industrial designs. Our portfolio therefore amounts to 444 technological industrial property rights with current or potential value.
New Assets Generated in 2022
| Assets | Scope |
|---|---|
| 14 patents | 10 European patents |
| Four international PCT patents | |
| Two industrial designs | European Union Intellectual Property Office and Chile |
Finally, with the aim of combining technological innovation with training in new digital skills in line with our historical commitment to education, in 2022 we launched the Innovation and Talent Hub at the Company's headquarters in Madrid. The hub will continue to developing and expanding its activity in the coming years.
Technological disruption, the importance of connectivity and digitalisation, and the need to optimise network monetisation and customer experience bring both risks and opportunities for the telecommunications sector. Innovation is key to ensuring transformation that delivers efficiency, business growth and user confidence. We also take into account the risks and opportunities arising from new developments and technologies. In general, said risks relate to misuse of what is being developed or inappropriate developments that may lead to unintended negative impacts. This is why we carry out a thorough and detailed analysis of the target we want to achieve and the problems we want to solve. In addition, innovation is an activity in which risks are inevitable. We are aware that a significant part of the activity carried out will not have a major impact on the business. For this reason, for example, in the Core Innovation teams, a process has been designed whereby progressively more resources are allocated to projects as they eliminate the associated risks. Activities are prioritised so that risk elimination tasks are completed as early as possible in the development cycle. It has a tracking system focused on OKRs (Objectives and Key Results), early market validation and acceptance of failure as a form of learning. The result is a highly optimised resource management model that minimises investment in projects that fail and accelerates investment in those activities that demonstrate a higher return.
In network and systems innovation, one of the main risks is that the resulting solution does not achieve the necessary degree of adoption, that is, it does not achieve the economy of scale to be competitive and sustainable. This risk is mitigated by aligning requirements in procurement processes and collaborating with other operators and in standardisation bodies or industry associations. Also, the processing power that quantum computing will bring will open up opportunities for the processing of massive data, the development of advanced research and the launch of new services, but it also threatens the vulnerability of current cryptography systems and critical infrastructures such as communications networks.
Sustainable innovation becomes our main asset in terms of making a positive contribution towards fulfilling our purpose.
On the side of the opportunities generated by sustainable innovation, we must highlight that by developing new knowledge, technologies and digital solutions we will be able to address existing challenges, in addition to ensuring the future sustainability of our organization.
To better understand the progress made towards innovation over the last year, as well as the main targets and initiatives, we will look at each of the activities carried out by the main areas involved.
Our priority is to develop new digital services that improve people's lives. To do so, we leverage the Company's main assets, such as networks, digital platforms, data, etc. The current global business units, such as Internet of Things (IoT), big data and video, have their roots in projects developed years ago by the Core Innovation teams. The main lines of activity are related to innovation in new network capacities, innovation in new technologies and services and applied research.
At Telefónica we are analysing new opportunities in the metaverse. We are working on developing communications networks to meet all the needs that will arise due to the development of the metaverse and virtual reality. During 2022, we had a virtual space at AltspaceVR as part of the Innovation and Talent Hub and joined the Metaverse Standards Forum. Another line of work focuses on Web3, which provides a financial layer on top of the web that facilitates frictionless financial transactions online, creating opportunities for innovative business models. We have launched our own NFT marketplace, a platform for the creation and sale of digital art where we have collaborated with Fundación Telefónica and other social organisations.
In entertainment and video, in 2022, we enhanced the Living Apps element of Movistar Plus+ in Spain and Vivo Play TV in Brazil to host experiences in areas such as retail (offering shopping through the TV), education (LinkedIn Learning) and sport (Estadio Infinito). We also improved the integration of social media with the TV platform, creating cross-platform interaction experiences between the two worlds with the new Living Apps for Twitter and TikTok Extra. In addition, we analysed cognitive digital marketing opportunities, applying artificial intelligence (AI) algorithms to data. The aim is to achieve better marketing results while ensuring consumer privacy, our ethical commitments in the development of algorithms and AI and to meet the needs of our customers. We are currently working with other operators to create an advertising identification solution through which customers retain control over when, how and with whom they share their data. Lastly, we would like to highlight how we are harnessing AI to improve sport. As our testing ground, we are working with the elite sportsmen and women sponsored by Telefónica in cycling (Movistar Team), badminton (Carolina Marín) and tennis (Rafael Nadal).
In order to be a pioneer in the technological world, we dedicate part of our innovation efforts to improving the state of the art of certain technologies. We collaborate with public and private organisations and universities both nationally and internationally. Highlights in this regard include work on improving AI as applied to the Spanish language (in collaboration with the Royal Spanish Academy), projects aimed at preserving privacy and new systems for collaboration between humans and machines through cross-modal communication.
We are working towards a new high-impact network and systems capabilities and improving the commercial availability of the most strategic of these. To this end, we cover all stages of innovation, from ideation to the market availability of commercial solutions in collaboration with other operators, partners and customers. The diagram below shows the different stages of the innovation process:
Our activities are organised around the long-term global programme Autonomous Network Journey. This programme is led by the Operational Transformation Department, with the collaboration of the Technological Innovation and Ecosystems Department, and is implemented in each of the Group's operators through local projects.# The three pillars of this programme are high-capacity and energy-efficient networks; flexible architecture based on software and new cloud-native technologies; and data- and AI-driven operations with a high level of automation and/or assistance for the network operator.
The intention is to develop differential capabilities to create a competitive advantage based on improved performance, optimal utilisation and increased efficiency. Highlights include the following areas of work:
The functionalities developed for a cloud environment that are currently used in business and operational systems are not well suited to network applications. The unlocking of these capabilities is essential to facilitate the proper integration with operational systems, the introduction of new functionalities and the development of products and services. However, this architecture also poses integrity and security risks. To deal with these risks we are developing the Telco Cloud initiative, which aims to ensure the availability of commercial solutions for the virtualisation (cloud) layer and provide tools to manage the complexity of a multi- cloud hybrid environment. In this regard, we lead the open source OSM project at ETSI, which is developing an open solution for the management of a virtualised network environment. In November 2022 we participated in the launch of the Sylva open source project, under the newly created Linux Foundation Europe, together with other European network operators and providers. This project will create a software solution tailored to telecommunications and edge computing services and will help tackle the current fragmentation, reduce complexity and accelerate migration to the cloud. The work we have done helps us to meet the requirements of the European Union in relation to privacy, security and energy efficiency in the migration to the cloud.
New technologies, as they are software-based and virtual, allow many control and automation tools to be reused; however, they are more complex to operate and incorporate a greater range and number of suppliers, since they are more modular and open. We are therefore developing initiatives with the aim of moving towards the zero-touch, data-driven operation of our networks and systems.
Our open innovation strategy seeks to attract talent, technology and new businesses. We promote the innovation that comes from startups and scaleups, under a venture capital model, with a triple aim:
Thanks to these targets, out of the more than 1,000 enterprises in which we have invested, 300 have ended up working with Telefónica, generating €500 million for the Company. Most importantly, they enable us to take their innovative solutions to our customers to help them in their digital transformation and use them internally to generate efficiencies.
Since 2011, this has been our flagship open innovation programme. Present in nine countries in Latin America and Europe, Wayra is a complete and unique interface between entrepreneurs and our network of partners (large companies, governments and other important stakeholders). It has a corporate venture capital fund. It invests alongside other leading venture capital firms in late seed start-ups and in sectors such as entertainment (gaming and video), IoT, big data, AI, eHealth, Fintech, energy, the metaverse and Web3. Over €65 million has been invested in more than 850 startups in total. We currently have over 400 active startups in our portfolio and eight innovation hubs, spaces that allow us to showcase the most innovative startup technologies to our customers and partners. Examples include the Wayra Tech Labs, opened in Germany in 2021 and Barcelona in March 2022. It also develops corporate open innovation programmes for third parties.
Launched in 2020, it allows users to explore and find patents, technologies or products developed internally at Telefónica that have the potential to be transformed into startups. The goal is to create independent startups using these technologies that meet current market needs.
This is our 100% digital hub, launched in 2020, for investing in startups with digital products for mass consumption with a focus on 5G, eHealth, eLearning, sustainability, entertainment and Fintech, among others. Since its launch, it has invested €1 million in over 13 startups in 10 countries.
This is our corporate venture capital vehicle that makes strategic investments in growth stage startups. The intention is to address the main challenges facing the telecommunications industry and create new businesses by leveraging cutting-edge technologies. It invests directly in startups with investment tickets ranging from €350,000 to €5 million and indirectly through a network of leading venture capital funds in key markets. In total, since its launch in 2006, it has invested €155 million and has a current portfolio of 16 startups it has invested in directly, plus over 100 startups it has invested in through its network of 14 venture capital funds.
There are also other initiatives to support the progress of startups at earlier stages of development or those related to the academic world.
Over the course of 2022, we invested €5.7 million in 40 start-ups through Wayra. Telefónica Ventures allocated almost €20 million to several strategic investments, including Leadwind, a new independent venture capital fund to invest in fast- growing start-ups using disruptive and transformative technology in Southern Europe and Brazil. Among the main areas of investment, we should mention projects related to:
In 2022, we set up two new funds together with other Group business units. In May, Vivo Ventures was created, a €60 million fund to invest directly in growth stage start-ups with solutions in the fields of healthcare, education, financial services, smart home, and entertainment and technology marketplaces, among others. ÍOPE Ventures, launched with Telefónica Seguros in September to invest in 15 Insurtech & Fintech start-ups with tickets of up to 200,000 euros.
Moreover, during the year, we participated in over 30 open innovation projects with strategic partners, including:
Incremental innovation for the development of new solutions is a major part of our activity. Many of the products and services that are created meet social needs and demands or contribute positively to the environment. The evolving nature of our products, services, processes and technology is what enables us to maintain our competitive position and contribute to achieving the Sustainable Development Goals.
Examples of solutions developed to make a positive contribution include the following:
Financial inclusion
We facilitate access to loans and insurance through mobile financial products (Movistar Money), thereby reducing barriers to accessing finance and financial resources.
Health solutions
We support telemedicine projects for remote care such as Movistar Salud in Spain or Vida V in Brazil. In this regard, for example, Vida V is an affordable alternative between private health plans and the public health network in Brazil. It offers multidisciplinary medical care with guidance by telephone, online consultations by video call and face-to-face consultations, as well as access to clinics and laboratories for imaging and laboratory tests and even discounts on medicines. We also provide services in this sector that enable remote surgical interventions and solutions that help patients with degenerative diseases.
Digitalisation and connectivity of the rural environment
Our services include programmes such as Smart Agro which informs farmers about factors such as soil moisture and soil water consumption, and allows them to optimise irrigation thereby improving crop yields. This solution has been designed to promote a more sustainable agriculture model able to cope with the challenges caused by climate change and encourage rural development.
Data and AI solutions
These are services that look to solve social or environmental problems (Big Data for Social Good/ Artificial Intelligence for Social Good) with applications for monitoring infectious diseases or analysing air quality in large urban environments.
Security services
The products in this category help guarantee the security and integrity of people and businesses, such as the range of commercial services offered through Movistar Prosegur Alarmas.
Responsibility by Design is an internal assessment framework that allows us to ensure we incorporate ethical and sustainability principles right from the initial development of a new product or service (P&S) and through to its delivery to the customer, and to be certain they comply with our Responsible Business Principles. These principles make up our code of ethics and guide us in making decisions based on integrity, commitment and transparency. It is important to note that organisational culture, awareness raising and training are key to successful implementation.
The Responsibility by Design framework is based on two main pillars:
Sustainability applied to design
Design taking into account the impact on human rights and accessibility Products and services that anyone, regardless of their abilities, can use in a satisfactory, safe and independent manner.
Impact on the environment This incorporates environmental criteria with the aim of reducing environmental impact while enhancing the benefits it can have on the environment thanks to its features.
Digital rights: ensuring that our products respect and/or promote the human rights of our customers, with a special focus on minors and other vulnerable groups. The Company has a firm commitment to human rights, as outlined in the Responsible Business Principles and the Human Rights Policy.
Eco-design: contributing to the development of more sustainable, efficient and circular processes, prioritising the reduction of resource consumption.
Accessibility: so that anyone, irrespective of their abilities, can use them in a satisfactory, safe and autonomous way, especially when they are products and services with a web interface or app.
Waste management: prioritising the reuse of materials and recycling channels.
Energy consumption: providing energy efficiency solutions.
Consolidated Annual Report 2022 Telefónica, S. A. 214
Throughout 2022 we worked exhaustively to ensure the successful implementation of the Responsibility by Design project in Spain and we have begun to expand it to other Group operations. We have carried out over 50 assessments to date. In addition, we have set the target that at least 30% of our new products and services will be assessed under the Responsibility by Design framework by 2023, 70% by 2024 and 100% by 2025. Moreover, we developed a specific governance model for AI issues, with the RAI Champions being the most notable addition in this regard. This is a role that helps and collaborates in resolving problems and queries related to these technologies. We also set up the AI Ethics Committee, which can highlight important concerns about new products that may have an associated ethical risk.
MILESTONES
→ We increased our portfolio of products and services through new health and renewable energy solutions.
→ We launched the Innovation and Talent Hub.
→ We expanded the Responsibility by Design programme to all regions in which the Telefónica Group is present.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 215
GRI 3-3
KEY POINTS
Following leading international frameworks, we have developed a socio-economic impact assessment model that shows that we contribute over €98 billion to communities. Our work agenda revolves around SDG 9, deploying sustainable, resilient infrastructure and driving innovation and development. We are an essential enabler for meeting the sustainability commitments of both the European Union and other industrial sectors.
In 2015, the Sustainable Development Goals (SDGs) introduced a disruptive change from their predecessors, the Millennium Development Goals. The main change was the recognition of innovation and technology (through SDG 9) as an essential element in terms of achieving sustainability in our society. Furthermore, at a regulatory level, the European Green Deal sets out the roadmap for making Europe the first climate-neutral continent by 2050. This deal boosts the economy, improves quality of life and protects nature. The European Union also aims to ensure that all households have access to a high-capacity network by 2050 through the Digital Compass programme, through a fair digital transformation that aims to increase innovation and productivity in the economy, and offer new opportunities for people and businesses. The synchronisation of these two revolutions, digital and green, must be the most effective way to guarantee the future of our society, optimising environmental protection and enabling competitive, sustainable and fair economic growth. Telecommunications have proven to have a key role to play socially. They facilitate and transform how we interact. Economically speaking, they facilitate the development of new working models, improved production sites and the increased efficiency and use of natural resources. Telecommunications are an enabler for other sectors to be able to achieve the green transition and meet the sustainable development goals.
l l l
Our sector plays a crucial role in fulfilling the 2030 Agenda and digital transformation processes. We are closely linked to most of the SDGs. Communication networks have been recognised as a key component in achieving sustainable development.
There is increasing regulatory pressure around ESG issues. The Taxonomy Regulation for the classification of sustainable activities and the entry into force of the European Sustainable Finance Disclosure Regulation (SFDR) highlight how important it is to demonstrate how companies can contribute to the fight against climate change and social inequalities.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 216
Also taking into account the modification of the MiFID II regulation (Markets in Financial Instruments Directive and amending Directive), the following is considered in assessments of the social and environmental contribution made by an organisation:
• Funds that promote environmental and social characteristics (Article 8, SFDR);
• Funds that, besides complying with the definition provided in Article 8, incorporate criteria aligned with the taxonomy or consider Principal Adverse Impacts (PAIs) (Article 8 plus);
• Funds that pursue specific sustainability objectives (Article 9, SFDR).
Under these criteria, at Telefónica we provide all the relevant information on our targets, and the roadmap of how we are going to achieve them. Measuring and reporting our impacts allows us to break down each contribution and identify where we can enhance our positive impact. This also allows us to minimise negative impacts and identify new financing opportunities that contribute to the decarbonisation of the economy or boost digital inclusion and transformation. In this context, our alignment with the SDGs and the European frameworks shows how we integrate sustainability into the organisation. Furthermore, by measuring the value of our impacts and quantifying them, we are able to incorporate the results in the organisation's management as a significant indicator in decision making.
GRI 2-12
We define social and environmental impact as the changes experienced by people and the planet as a result of a particular activity that affects human well-being in the long term. We also define impact measurement and management as the identification and quantification of metrics agreed upon with stakeholders to measure the changes experienced by people and the planet as a result of a particular activity. We assess the extent to which we contribute to these changes. And consideration should be given to learning that must influence the organisation's actions. These changes can be measurable, positive or negative, intended or unintended, tangible or intangible. We have chosen to use the Sustainable Development Goals (SDGs) as a strategic framework to serve as a guide for our commitments to society and environmental protection. The SDGs allow us to analyse and measure our contribution and impact on socio-economic development. Since 2020, we have been measuring our impact and our contribution to the main SDGs in order to better integrate this into the organisation's decision-making models. We have been optimising our assessment model by incorporating the new methodologies and we have adapted them to our sector's specific characteristics and needs.# Consolidated management report 2022
These methodologies include the work on measuring and managing impact of ICADE University's Social Impact Chair, SDG Impact, the analysis models of the Impact Management Project (IMP), and, in particular, the work carried out by Harvard University in its Impact Weighted Account Initiative (IWAI) project. Using the aforementioned methodologies, we are working on two analysis models:
Our analysis models aim to:
Our main aim is to incorporate the results obtained from impact measurement into active management and decision-making processes.
Since the publication of the Sustainable Development Goals, we have been analysing to which goals and targets we make the most decisive contribution. In doing so, we have taken into consideration our technical and commercial capabilities and the connections between the different SDGs, focusing on the three strategic pillars:
We are currently assessing the requirements of the SDG Impact methodology of the United Nations Development Programme (UNDP), with a view to studying the possibility of implementing them in the coming years. Taking into account the four pillars of this methodology, we have carried out a preliminary analysis to understand better our current position:
We have identified SDG 9 (Industry, Innovation and Infrastructure) as the goal to which we contribute the most thanks to our investment in communications, innovation and entrepreneurship infrastructures. We have a work agenda based on SDG 9, to which we contribute by deploying sustainable, resilient, quality infrastructure and innovation.
In addition to our direct contribution, we have analysed the connections between the SDGs we work towards. We have calculated the extent of the interrelationships between goals by identifying undesired effects, opportunities and possible feedback loops.
For example, for SDG 9 we would have the following distribution in terms of an indirect contribution:
All this analysis is published on the Telefónica website in the report “A connected world, a sustainable world”.
To assess our contribution as an organisation, we take our materiality matrix and our three strategic pillars as a starting point and identify the main variables. In addition, we group indicators according to the relationship between them and their relative importance for both the organisation and society. For further information, see chapter 1.4. Materiality.
Once the indicators have been identified, we use various tools to quantify their impact. In order to quantify said impact, we have adapted the calculation methodologies defined in Harvard University's IWAI and the True Value methodology developed by the consultancy firm KPMG to the unique features of our sector and the specific characteristics of Telefónica.
The following graph shows the breakdown of the indicators analysed, their relative quantification, their relationship with the strategic pillars and the SDGs linked to these indicators:
Please note: this data refers to the impact analysis based on calculation indicators for the 2021 financial year.
It is important to stress that digitalisation is a key tool for tackling greenhouse gas emissions, resource scarcity and climate change. We encourage innovation to develop solutions that reduce our environmental impact, promote energy efficiency and the use of renewable energy in our operations, reduce our carbon footprint and develop digital solutions that help our customers reduce their emissions. For further information, see chapter 2.1. Responsibility towards the environment.
This approach allows us to contribute to the decarbonisation of the economy, be more competitive and offer our customers low-emission connectivity. We have analysed the negative impact of our commercial activity. We also looked at the extent of our positive contribution to mitigate the effects of climate change. This calculation shows that Telefónica's total contribution to the environment is positive thanks to the digital transformation and the projects we are developing to reduce our emissions and control energy consumption.
The targets and indicators, associated with the environmental Sustainable Development Goals we have analysed, are as follows:
SDG 7 - Develop the most efficient telecommunications network, powered by renewable energies
We reduce our impact on the environment, working to decouple the growth of traffic through our networks from greenhouse gas emissions. The aim is to align our efforts with the level of decarbonisation required to limit global warming to below 1.5°C. Our carbon footprint comes mainly from electricity consumption, so, as a result, we have made our consumption 100% renewable in Europe, Brazil, Peru and Chile and are committed to extending this to all our operations by 2030. Coupled with an ambitious energy efficiency programme, this has meant that our carbon emissions have been reduced significantly in recent years.
| Contribution to SDG 7 | Goal | KPI | 2021 | 2022 |
|---|---|---|---|---|
| 7.2 Promote the use of renewable and clean energy in all our activities. | Percentage electricity from renewable sources in own facilities | 79% | 82% | |
| 7.3 Encourage the development of projects that increase energy efficiency and improve the technology needed to provide modern, sustainable energy services. | Emissions avoided thanks to renewable energy (tCO2e) | 902,019 | 845,456 | |
| Emissions avoided through energy management (tCO2e) | 68,833 | 118,410 |
SDG 11 - Develop solutions to optimise consumption, reduce emissions and improve mobility and safety for people and communities
Our greatest contribution to climate change mitigation and adaptation undoubtedly comes from a state-of-the-art network and solutions that help us tackle environmental challenges. Our efforts in this direction in 2022 helped avoid the emission of 81.7 millions of tonnes of CO2 thanks to services such as connectivity, the Internet of Things (IoT) and cloud. These products promote a more efficient use of resources and improve energy efficiency for our customers.
| Contribution to SDG 11 | Goal | KPI | 2021 | 2022 |
|---|---|---|---|---|
| 11.6 Promote the development of digital services and solutions that have a positive impact on the environment and help create more sustainable and resilient cities. | Emissions avoided thanks to our services (million tCO2)¹ | 8.7 | 81.7 |
¹ The increase in this indicator is due to the fact that in 2022 the scope of the indicator has been extended to include additional services. More information can be found in chapter "2.4. Digital solutions for the green transition".
Telefónica, S. A. 217
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Telefónica, S. A. 221# SDG 12 - Promote the circular economy in the use of electronic equipment, through eco-design, re-use and recycling
At Telefónica, we reduce the impact of our activity thanks to reuse and recycling, which are key to reducing the consumption of raw materials and the generation of waste, especially electronic equipment. We are also progressively integrating responsible design into our internal processes.
| Goal | KPI | 2021 | 2022 |
|---|---|---|---|
| 12.2 UNSTATS Indicator 12.2.1 Achieve the sustainable management and efficient use of natural resources. | Energy consumption (MWh) | 6,106,625 | 6,106,255 |
| Waste generation (tonnes) | 64,059 | 52,906 | |
| 12.5 UNSTATS Indicator 12.5.1 Minimise waste generation through prevention, reduction, recycling and reuse activities, promoting programmes that foster the circular economy and the recycling of waste. | Percentage recycling of waste | 98% | 98% |
| 12.6 Transform our internal processes to ensure that all our solutions are designed and developed according to ethical and sustainable criteria. | Responsibility by Design process | Integrated in T-Spain | Integrated in T-Spain. In the process of integration in T-Tech, Germany, Hispam and Brazil. |
| Number of assessments carried out | 40 |
We contribute to reducing the impact of climate change by supporting projects within our own operations and along the value chain. For further information, see chapter 2.2. Energy and climate change.
| Goal | KPI | 2021 | 2022 |
|---|---|---|---|
| 13.2 Incorporate climate change measures into the Company's policies and strategies through emission reduction programmes. | Direct emissions (Scope 1) (tCO2) | 183,231 | 131,809 |
| Indirect emissions (market-based method) (Scope 2) (tCO2) | 353,506 | 221,537 | |
| Other direct emissions (Scope 3) (tCO2) | 2,072,159 | 1,930,051 |
GRI 203-1, 203-2, 204-1
Our commitment is to bring the best connectivity and latest technology to everyone. We advocate for people-centred digitalisation to tackle unequal opportunities. To assess our contribution, we have analysed:
We are deploying state-of-the-art networks, not only to lead the markets where we operate and ensure a reliable and resilient service, but also to connect as many people as possible. We have state-of-the-art digital services. We add a social element to our innovation because we cannot imagine progress without people.
Over the past year, we have maintained our efforts to roll out broadband network coverage in both Europe and Hispanoamerica. Our LTE networks reach virtually the entire population and we are expanding the rollout of 5G and fibre to all areas, including rural and remote areas.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 222
For further information, see chapter 2.10. Digital inclusion. Beyond infrastructure, we promote innovation and entrepreneurship through programmes such as Open Future, Telefónica Venture Capital and Wayra. These initiatives prevent the exodus of young talent to other parts of the world, thereby becoming a driving force for innovation and economic development in many regions.
Over the last 10 years, Telefónica's open innovation unit has invested in over 1,000 start-ups around the world. Many of them are now part of our service portfolio or help to improve our internal processes. For further information, see chapter 2.13.Sustainable innovation.
| Goal | Indicator | 2021 | 2022 |
|---|---|---|---|
| 9.1 Inclusive digitalisation, strengthening and investing in very high-capacity networks that have proven to be critical for future competitiveness. | R&D+i investment (million euros) | 4,378 | 3,721 |
| Prepaid customers | 129,675,714 | 129,685,679 | |
| Universal Service (million euros) | 169 | 212 | |
| 9.5 Foster innovation and technological entrepreneurship through our open innovation programmes. | R&D investment (million euros) | 835 | 714 |
| Industrial property rights portfolio (includes patents) | 421 | 444 | |
| 9.c Bring connectivity to where it is missing, connecting millions of people in rural or remote areas who have no, or very limited, access to the internet. | Percentage 4G/ LTE mobile coverage | 87% | 90% |
| UBB - Ultra-Broadband (covered premises) | 64,970,491 | 71,022,284 |
The development impact of telecommunications and broadband has been well documented in various international studies. These reports highlight the fact that we are a strategic player in the economic growth of the countries in which we are present. This contribution is made both directly through our commercial and technological activity, as well as our capability to influence other industries.
We encourage the creation of quality jobs and promote, mainly through Fundación Telefónica, the development of employability and education programmes. These are often aimed at young people, facilitating access to the jobs of the future and stimulating local entrepreneurship. Of particular note are Conecta Empleo and Lanzaderas de Empleo. These initiatives are helping to train and develop people in places suffering from structural problems such as unemployment and talent relocation.
| Goal | Indicator | 2021 | 2022 |
|---|---|---|---|
| 8.1 UNSTATS Indicator 8.1.1 Support and contribute to the economic growth of the countries in which we provide our services. | Impact on GDP (million euros) | 48,904 | 45,978 |
| Total tax contribution (million euros) | 9,134 | 7,669 | |
| 8.3 Support key sectors and develop policies for productive activities and innovation to boost economic growth: • Encourage investment in local businesses. • Collaborate with domestic and international organisations that promote economic development and digitalisation. | Percentage purchases from local suppliers | 81% | 83% |
| 8.5 UNSTATS Indicator 8.5.2 Promote employment and quality work for all women and men, including youth and people with disabilities, and equal pay for work of equal value. | Total number of employees | 103,934 | 103,638 |
| Indirect jobs created (employees) | 656,662 | 675,947 | |
| Employees with disabilities | 1,128 | 1,482 | |
| 8.8 Guarantee and protect labour rights, providing a safe working environment for all workers and promoting a sustainable supply chain that incorporates ethical, social and environmental criteria in purchasing processes. | Supplier audits | 17,960 | 18,578 |
| Suppliers with improvement plans | 610 | 879 |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 223
Our overall contribution to the GDP of the main countries in which we operate includes the direct impact of our economic activity, expenditure and investments (indirect impact) and the impact caused by the increase in consumption as a consequence of the rise in labour income generated by the jobs created. For every euro generated in direct impact, in the nine main countries where we are present, we have generated an additional 1.5 euros indirectly through expenditure and investment.
| Impact on GDP (main operations) | Millions of euros | % of total impact |
|---|---|---|
| Total impact | 45,978 | 100% |
| Direct impact | 18,382 | 40% |
| Indirect impact | 21,349 | 46% |
| Induced impact | 6,247 | 14% |
Definitions
* Total impact: total impacts generated by corporate activity and the expenses and investments we make in the countries where we operate;
* Direct impact: impact generated directly by our operations.
* Indirect impact: impact generated by the expenses and investments of our supply chain.
* Induced impact: impact generated by an increase in consumption resulting from the rise in labour income generated by direct and indirect employment.
Countries included in the analysis: Argentina, Brazil, Chile, Colombia, Germany, Mexico, Peru, Spain and the United Kingdom.
| Impact on GDP | Millions of euros | % of local GDP |
|---|---|---|
| Germany | 7,263 | 0.2% |
| Argentina | 2,369 | 0.7% |
| Brazil | 13,481 | 0.9% |
| Chile | 2,222 | 0.8% |
| Colombia | 2,196 | 0.8% |
| Spain | 15,582 | 1.3% |
| Mexico | 786 | 0.1% |
| Peru | 2,079 | 1.1% |
For every euro of gross operating margin we obtained, we generated 3.6 euros which contributed to the GDP of the main countries in which we operate.
In addition to the direct jobs created by the Company, our activity stands us in good stead as a driving force for progress and the creation of more indirect and induced jobs.
| Impact on employment (main operations) | Impact on employment in the main countries (no. of persons) | % of total impact |
|---|---|---|
| Total impact (1) | 1,074,440 | 100% |
| Direct impact (2) | 99,174 | 9% |
| Indirect impact (3) | 675,947 | 63% |
| Induced impact (4) | 299,319 | 28% |
Definitions
* Total impact: Total impacts generated by our corporate activity and the expenditure and investments we make in the countries where we operate.
* Direct impact: Employees hired directly.
* Indirect impact: Jobs generated in companies and sectors that receive our expenditure and investments and by their respective suppliers.
* Induced impact: Jobs created in all economic sectors thanks to the economic activity generated in an induced way in the market as a whole.
Countries included in the analysis: Argentina, Brazil, Chile, Colombia, Germany, Mexico, Peru, Spain and the United Kingdom.# Consolidated Annual Report 2022
| Impact on employment (no. of persons) | % of total local employment |
|---|---|
| Germany | 50,578 |
| Argentina | 30,904 |
| Brazil | 497,771 |
| Chile | 47,835 |
| Colombia | 150,363 |
| Spain | 159,037 |
| Mexico | 33,937 |
| Peru | 104,015 |
| Germany | 0.1% |
| Argentina | 0.2% |
| Brazil | 0.5% |
| Chile | 0.5% |
| Colombia | 0.7% |
| Spain | 0.82% |
| Mexico | 0.06% |
| Peru | 1.09% |
Education is a key tool for ensuring inclusion and fostering growth and progress. The rapid digitalisation of the economy requires an increasing number of professionals with knowledge and training in digital skills. Education becomes a key part of bridging the digital divide and reducing social inequalities. Through various programmes, Fundación Telefónica and Telefónica Educación Digital promote educational innovation and work to bring quality digital education to every corner of the globe. This includes the Profuturo programme. Developed jointly by Fundación Telefónica and the “la Caixa” Foundation, Profuturo was launched in 2016 and has reduced the education gap, providing quality digital education to more than 19.7 million children and training more than 914,000 teachers in 40 countries in Latin America, Africa, Asia and the Caribbean. Other programmes developed by Fundación Telefónica include ConectaEducación, Code.org, Conecta Empleo and '42, projects that seek to improve the digital skills of young people so that they can access a labour market that is increasingly demanding these kinds of skills. For further information, see chapter 2.10. Digital inclusion.
| Goal | KPI | 2021 | 2022 |
|---|---|---|---|
| 4.4 | UNSTATS Indicator 4.4.1 Improve and empower people to be ready for the new digital environment: •Enable access to training courses in the skills needed to access employment and entrepreneurship. •Ensure that all our employees have access to personalised digital skills retraining programmes. | ||
| Beneficiaries of the digital skills training programme | 1,212,765 | 1,305,715 | |
| Internal employee training hours | 39 | 35 |
We also contribute to Goals 4.1 (education schemes to enable all girls and boys can complete primary and secondary education) and 4.c (increase the supply of qualified teachers through specific training programmes and by promoting the modernisation and digitalisation of education) through other Fundación Telefónica programmes. These contribution indicators are published annually in the foundation's Annual Report.
A human-centred digitalisation must focus on trust-building, be value-based and centre on the responsible use of technology. We build trust through our actions and commitments and favour inclusion and equality. This block of analysis highlights the impact of salaries and the investment made in health and safety programmes for our employees, as well as our drive to promote diversity.
Equal opportunities are a source of talent for us and we are firmly committed to their promotion. We are working to achieve gender equality and promote the use of technology for the empowerment of women. We promote and collaborate with programmes that promote women's access to careers involving science, technology, engineering and mathematics (STEM), such as Girls Love Tech, because equal opportunities and digitalisation must be based on diversity in all areas. For further information, see chapter 2.7. Diversity and inclusion.
| Goal | KPI | 2021 | 2022 |
|---|---|---|---|
| 5.2 | Work towards the elimination of all forms of violence against women. Instances of discrimination identified/ measures taken. | 0 | 0 |
| 5.5 | UNSTATS Indicator 5.5.2 Commitment to fostering women's leadership, increasing the proportion of women in leadership positions and eliminating all forms of unequal pay. | ||
| Percentage women on the Board of Directors | 33.3% | 33.3% | |
| Percentage women directors | 29.5% | 31.3% | |
| Percentage women in the workforce | 38.1% | 38.6% | |
| Percentage adjusted pay gap | 1.18% | 0.74% | |
| Percentage gross pay gap | 17.49% | 16.80% | |
| 5.b | Improve the use of instrumental technology, in particular information technology, to promote women's empowerment by fostering actions and programmes that help reduce the digital gender gap and promote STEM careers among young women. | ||
| Programmes to promote STEM careers | 52 | 102 |
A key part of guaranteeing justice and strong institutions is ensuring personal privacy and security in digital services. This is why we work with integrity in all business areas and have very strict ethical responsible business principles. Our priority is to ensure the privacy and security of our customers' information and the products and services we offer. For further information, see chapter 2.19. Privacy and security. In addition, we collaborate with different organisations, social entities and public administrations to support the most vulnerable groups and promote the responsible and ethical use of new technologies.
| Goal | KPI | 2021 | 2022 |
|---|---|---|---|
| 16.5 | Combat corruption and bribery in all its forms through our internal responsible business programmes and ensure the highest standards at all levels of the Company to promote trust. | ||
| Percentage of employees who have taken the responsible business course | 85% | 89% | |
| 16.10 | Ensure public access to information, while protecting fundamental rights and freedoms: •Enhance citizens' trust through the ethical and responsible use of technology, respecting and protecting fundamental freedoms, privacy, security and other digital rights. •Foster digital trust and the use of data | ||
| Information privacy | see SASB TC- TL-220a | see SASB TC- TL-220a | |
| Information security | see ASB TC- TL-230a | see SASB TC- TL-230a | |
| 16.a | Strengthen institutions and cooperation at all levels with employee-led activities that create value and help the most vulnerable people. | ||
| Corporate volunteering (people) | 59,054 | 58,502 |
The United Nations has identified our sector as key to achieving more than half of the goals defined in the 2030 Agenda. It has incorporated two specific goals related to our ability to take broadband and digitalisation everywhere. According to internal analyses, we estimate that the deployment of fibre optics, together with the development of digital services in rural areas, can increase average annual income by up to 3.9%, and reduce the unemployment rate by approximately 1%, through the promotion and creation of service companies. Similarly, digitalisation could help increase the productivity of SMEs by 15-25%. Thanks to our transformative capacity, we also work to foster national and international collaboration with other organisations also committed to sustainable development.
| Goal | KPI | 2021 | 2022 |
|---|---|---|---|
| 17.6 | UNSTATS Indicator 17.6.2 Increase the number of fixed broadband internet subscribers in all regions where we operate. | ||
| Number of fixed broadband subscribers (thousands ) | 25,833 | 26,304 | |
| 17.8 | UNSTATS Indicator 17.8.1 Foster collaboration with other organisations to innovate and increase access to, and the use of, technology and digitalisation in all areas of society. | ||
| Percentage LTE service penetration in customer base | 90% | 91% |
GRI 201-1
In addition to the contribution and impact studies on the SDGs and the quantification of these impacts through indicators, we have calculated the direct economic value generated and distributed (EVG&D) during the year in accordance with GRI recommendations. Information on the creation and distribution of economic value indicates how our Company has generated wealth for different stakeholders.# Consolidated Management Report 2022
| 2021 | 2022 |
|---|---|
| Direct economic value generated (revenues) €M | 51,950 |
| Economic value distributed | 38,379 |
| Operational costs (€M) | 23,234 |
| Salaries and employee benefits (€M) | 6,733 |
| Payments to capital providers (€M) | 5,149 |
| Payments to governments (by country) (€M) | 3,206 |
| Investments in the community (€M) | 56.55 |
| Economic value retained (direct economic value generated - economic value distributed) €M | 13,571 |
MILESTONES
→ Publication of the updated Impact Report, incorporating further improvements and recommendations from international frameworks.
→ Full assessment of the SDG Impact model.
→ Optimisation of models for calculating and estimating the social impact of the organisation's strategic projects.
In 2021, extraordinary transactions were carried out that change the results compared to 2022.
GRI 2-24, 2-25, KEY POINTS
We have a strong commitment to respecting and promoting human rights, governed at the highest level with a clear accountability process. We have a long-standing due diligence process in place and carry out impact assessments in all our operations in order to identify, prevent, mitigate and remedy potential human rights impacts. We have been ranked as the 1st telco worldwide by Ranking Digital Rights for our commitment to human rights, privacy and freedom of expression.
Human rights challenges continue to have universal and intensifying effects on everyone. The climate crisis, digital divide, social inequality and the violation of people’s rights are just a few examples. As a multinational company, we have the opportunity to proactively contribute in overcoming these global challenges through a responsible business conduct and provision of sustainable solutions. In this vein, we are committed to the United Nations (UN) Declaration of Human Rights of 1948, as well as subsequent standards such as the UN Guiding Principles on Business and Human Rights of 2011 or the OECD Guidelines for Multinational Enterprises. What is more, we go beyond our internal ecosystem and aim to work closely with our stakeholders to ensure respect for human rights throughout our value chain. To this end, we implement various initiatives and measures to guarantee the respect for human rights of our suppliers in the supply chain as well as our customers through the development of responsible products and services.
•100% of our operations annually assessed on human rights.
•100% of high risk suppliers in sustainability matters (including human rights) assessed via external evaluation by 2024.
• 100% of new products and services developed at Group level will follow the responsibility by design approach by 2025.
•Continue to occupy a leading position in the Ranking Digital Rights.
GRI 2-12
We have defined a governance model led by the Board of Directors that involves all relevant hierarchies and areas of the company at global and local level (more information in the box below: Human rights governance) to ensure that our commitment to human rights permeates our day- to-day business at all levels.
Board of Directors
* Periodicity: Continuous.
* Responsibilities: Approval of sustainability-related policies such as, the Responsible Business Plan (including human rights objectives/projects).
Sustainability and Quality Committee
* Periodicity: Monthly.
* *Permanent Committee of the Board.
* Responsibilities:* Governance and supervision of Responsible Business Plan (and therefore human rights issues) through monthly reporting by the Responsible Business Office.
Responsible Business Office
* Periodicity: Continuous supervision and quarterly reporting.
* Responsibilities: Definition, management, and monitoring of Responsible Business Plan (and thus human rights issues). Brings together all the company’s strategic department heads and is led by the Global Chief Sustainability Officer.
Due Diligence Office
* Periodicity: Continuous.
* Responsibilities: Management and supervision of the sustainability due diligence process, including human rights issues.
Coordination and dialogue with teams at local level
* Periodicity: Continuous.
* Responsibilities: Ongoing dialogue with local teams to ensure consistent implementation of the human rights policy and due diligence in the company.
GRI 2-23
Our main internal human rights policies and standards of conduct are:
•Global Human Rights Policy.
•Supply Chain Sustainability Policy Regulation of the Responsible Business Channel.
•Global Privacy Policy.
•Global Security Policy.
•Occupational Safety, Health and Well-being Policy.
•Diversity and Inclusion Policy.
•Regulation on Responsible Communications.
•Global Environmental Policy.
•Anti-Corruption Policy.
•Global Regulation on Requests by Competent Authorities.
•Principles of Artificial Intelligence.
•Equality Policy.
We are fully aware that the nature and geographical reach of our business means that we face risks of potential human rights’ issues along the value chain. Data privacy and security, freedom of expression and decent working conditions are some examples of rights over which we play an essential role and must enforce, internally with employees and externally with suppliers and customers. Notwithstanding the above, connectivity is also a key tool to facilitate and promote people’s rights, for example through access to information and the exchange of ideas. At Telefónica, we see this potential as an opportunity to develop products and services that encourage economic and social development, e.g. through increased connectivity in rural and remote areas.
GRI 2-23, 408-1, 409-1
Our strategy is to conduct a due diligence process along the entire value chain to ensure the respect and promotion of human rights throughout Telefónica's footprint. The due diligence system we have in place helps us identify, prevent, mitigate and remedy our (potential and actual) human rights' impacts. It allows us to manage the risks and opportunities facing the company. Our due diligence system follows the UN Guiding Principles on Business and Human Rights and is aligned with the requirements of the currently discussed EU Directive on Corporate Sustainability Due Diligence. As indicated in both, a public commitment to human rights endorsed at the highest level is essential. In our case, it is the Board of Directors that endorses our public commitment to human rights through the adoption of the Global Human Rights Policy and the due diligence processes explained therein.
Policy
We have a Global Human Rights Policy (phase 1), approved by the Board of Directors, which aims to reaffirm our responsibility to respect and promote human rights and establish general guiding principles. From this, we derive other internal policies and procedures (see examples in figure Human rights across the value chain) that serve as instruments to ensure respect for human rights in more specific areas.
Impact assessments
From an internal management perspective, the starting point is our Global Human Rights Impact Assessments (phase 2) which are conducted every three to four years with the help of external experts and in close consultation with our stakeholders. The aim is to understand how our business activities/relationships and products/services have a potential or actual impact on human rights, in order to identify the salient issues we need to work on. Based on the salient issues identified in these Global Assessments we conduct further in-depth analyses :
•Biannual risk assessments in all our operations at national level in accordance with Telefónica’s Enterprise Risk Management process.
•Local impact assessments in cases where it is considered relevant to have a more accurate picture of the national situation in order to address risks in a specific context.
•Thematic impact assessments when we need to take a detailed view of an issue because we have identified a particular risk or concern.
Priority issues identified in the 2022 Global Impact Assessments: issues and groups impacted
| Operations | Products and Services | Human Resources¹ | Ethics and Governance | Value Chain² |
|---|---|---|---|---|
| •Labour conditions | •Health and safety | •Privacy | •Cybersecurity | •Digital Inclusion |
| •Privacy | •Cybersecurity | •Digital Inclusion | •Property | •Climate change |
| •Cybersecurity | •Responsible use of new | •Climate change | •Circular economy | •Biodiversity |
| •Digital Inclusion | technologies | •Circular economy | •Biodiversity | •Water resources |
| •Property | •Freedom of expression and | •Labour conditions | •Privacy | •Privacy |
| •Climate change | information | •Diversity and non-discrimination | •Cybersecurity | •Cybersecurity |
| •Circular economy | •Digital inclusion | •Health and safety | •Responsible use of new technologies | •Digital Inclusion |
| •Biodiversity | •Protection of minors | •Privacy | •Freedom of expression and | •Protection of minors |
| •Water resources | •Climate change | •Cybersecurity | information | •Climate change |
| •Privacy | •Circular economy | •Fiscal responsibility | •Digital inclusion | •Circular economy |
| •Cybersecurity | •Competitive behaviour | •Protection of minors | •Labour conditions | |
| •Responsible use of | •Corruption and bribery | •Climate change | •Diversity and non-discrimination | |
| new technologies | •Labour conditions | •Conflict minerals³ | •Health and safety | |
| •Freedom of expression | •Health and safety | •Privacy | ||
| and information | •Diversity and non-discrimination | •Cybersecurity | ||
| •Digital inclusion | •Privacy | •Climate change | ||
| •Protection of minors | •Cybersecurity | •Conflict minerals³ | ||
| •Climate change | ||||
| •Circular economy | ||||
| •Labour conditions | ||||
| •Diversity and non- | ||||
| discrimination | ||||
| •Health and safety | ||||
| •Privacy | ||||
| •Cybersecurity |
Issues Impacted groups
•Own employees •Workers in our supply chain •Vulnerable groups •Local communities⁴ •Clients •Minors •Vulnerable groups •Own employees •Minors •Vulnerable groups •Society in general •Own employees •Workers in the supply chain •Migrant workers •Clients •Minors •Vulnerable groups
Taking our global impact assessment as a reference point, we have selected a number of issues and grouped them together as priorities for Telefónica and for which we are conducting specific actions, set out in the section on Progress below. The issues are:
Consolidated management report 2022 l
1. Strategy and growth model
2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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¹ Including freedom of association/right to collective bargaining, etc. Including equal remuneration etc.
² Including both upstream and downstream. Upstream includes the relation to suppliers and subsuppliers. Downstream includes the relation to clients, but also M&A and Joint Ventures etc
³ Including child/forced labour, human trafficking etc.
⁴ Vulnerable groups take into account indigenous communities, women, seniors, ethnic minorities, persons with disabilities and other groups potentially facing discrimination.
Digital inclusion: the core of our business is the provision of connectivity through our products and services. It is thus essential to ensure that our products and services are developed responsibly and we leave no one behind, regardless of their gender, age, education, income-level or geographical location.
Digital rights (privacy, freedom of expression and information, and cybersecurity): as an ICT company that handles personal data of customers, we use and protect their information with maximum security, providing transparency and control over its use and purpose. The same commitment to privacy, freedom of expression, and cybersecurity, applies to requests we receive from competent authorities regarding interceptions of communications, access to metadata, blocking and restriction of content, and geographical suspensions and/ or service restrictions.
New technologies (artificial intelligence and big data): the relationship between people and machines is becoming ever closer, which is why it is essential to ensure and monitor the ethical development and use of new technologies so that technological advances do not undermine people’s rights, but contribute to a sustainable development.
Protection of children: the digital world offers many opportunities. Children need digital skills, as well as specific tools to enjoy those opportunities. Their online privacy and reputation needs protecting, and potential problems, such as inappropriate content, must be addressed.
Social and Environmental standards in the supply chain: it is essential that we pay particular attention to supply chain management, given our commitment as well as its scope and relevance, and we join forces to ensure that our suppliers have an adequate human rights and environmental record.
Based on the results of the various impact assessments mentioned above, we adapt our internal policies and processes (phase 3) to prevent, mitigate and/or remedy potential and actual human rights impacts. Two processes should be highlighted here: responsible design, focusing on the integration of ethical and sustainable criteria (including respect for human rights ), from the initial development phases of any product or service, and; human rights training for all employees and departments.
We carry out monitoring and reporting actions (phase 4) on an ongoing basis, monitoring potential human rights risks and assessing how improvements, arising from the impact assessment work plans, have been implemented.
One of our complaint and remedy mechanisms (phase 5), the Concern and Whistleblowing Channel, allows any person or entity to raise legitimately concerns or complaints about human rights and other issues. This channel allows us, beyond the actual resolution of the issue in question, to take appropriate measures to reduce risks by adapting our policies, processes, etc.
More information in Consultation and Complaints Channel Telefónica´s website.
In 2022, we continued to work on each of the five steps of our due diligence process. The table below reflects our progress in recent years. We highlight the 2022 Global Human Rights and Environmental Impact Assessment carried out by an independent third-party consultancy to identify potential/ actual impacts linked to Telefónica's value chain activities. The identification of salient issues was carried out taking into account our corporate strategy and business activities, trends in the telecommunications sector, global and local societal challenges, views from internal and external stakeholders as well as sustainability experts. All impacts have been evaluated both in terms of their severity and probability. In addition, our current due diligence process was thoroughly evaluated taking into account our policies/processes to make sure that the identified human rights and the environmental impacts are adequately addressed. The impact assessment and actions taken thereupon also help us to comply with existing and upcoming regulations such as, the Corporate Sustainability Due Diligence Directive at the European level or the Due Diligence Supply Chain Act in Germany.
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1. Strategy and growth model
2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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| Due diligence step | Roadmap
| 1. Policy | Approved in 2013 Updated in 2019 # Non-financial Information statement _Helping society thrive
The consultations on the Channel are used to update human rights policies and processes, etc. Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 235
In addition, we continued to reinforce three cross-cutting initiatives, which help us transforms our human rights commitments into reality:
In 2022, the ‘human rights by design’ approach continued to be implemented. To this end, product managers perform a self-assessment of new products and services using an online tool in the design phase in order to identify and address potential human rights impacts such as privacy, freedom of expression, non-discrimination, artificial intelligence or the impact on vulnerable groups such as minors. If risks are identified, the product or service is subjected to further analysis with the help of the Company’s human rights experts in order to avoid adverse effects. Human rights by design is part of Telefónica's Responsible Design initiative, which is set out in Chapter 2.13. Sustainable Innovation. Go to chapter 2.13. Sustainable Innovation
As in previous years, we provided general training for all employees through the Responsible Business Principles and Human Rights Course and more specific training for professionals whose work might have a greater impact on human rights (e.g. in procurement).
In 2022, we continued to implement our guidelines for responsible network deployment in all countries where we are present. These guidelines were developed in close collaboration with our local teams and outline a set of recommendations to be followed in the following phases of network deployment: deployment justification, deployment planning, deployment and field operation, network operations, and network maintenance and removal.
In each of these phases, four human rights perspectives are considered:
Human rights compliance in the Company’s immediate environment includes issues relating to health and safety, working conditions, discrimination and diversity management. Regarding society, these include issues of privacy, freedom of expression and our relations with local communities and indigenous peoples, as well as bridging the digital divide in rural versus urban areas. Related to human rights and the environment are aspects regarding negative impacts on the environment, such as deforestation, soil and water contamination, and effects on biodiversity or visual impact. Human rights aspects related to the supply chain include issues related to impacts that may be caused indirectly through Telefónica's business partners, mainly with regard to non- compliance in the workplace, environment or social issues. The latter two occur mainly in the network deployment and maintenance phases, although they are closely related to the planning phase, where all potential impacts originate and can also be avoided or minimised.
We also have cross-cutting tools that help minimise the risk of negative impacts and maximise positive ones, guaranteeing a responsible network deployment:
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In relation to Telefónica’s human rights and environmental salient issues, referred to in the Strategy and Commitments section, we would highlight the following development during 2022:
Telefónica was distinguished as a world leader in digital inclusion in the Digital Inclusion Benchmark (DIB) conducted by the World Benchmarking Alliance (WBA), which analyses how the 150 most influential tech companies, improve access to technology and its reliable use, helping to promote more inclusive digital economy and society. As an essential part of our commitment to digital inclusion we continue to apply inclusivity criteria in our Responsibility by Design initiative to ensure that the development of our new products and services is done in an responsible manner. In parallel, to reduce the digital divide in rural areas we have launched various initiatives in 2022. We continued to issue sustainable bonds, that amongst other things, finance mobile broadband connectivity in poorly connected remote or rural areas. This has allowed us to reduce the digital divide by providing mobile broadband connectivity on average to 4,600 rural areas per year since 2019. Go to chapter 1.7 Sustainable Finance
Additionally, Telefónica participates in the consortium, Bluevia. A network operator that provides Fiber To The Home (FTTH) services, with the target of improving connectivity access to fibre communication in Spanish cities with less than 20.000 inhabitants, thereby, contributing to the social and economic development in these rural areas.
As a sign of our progress on privacy. freedom of expression as well as cybersecurity in 2022, Telefónica reaffirmed its leadership and for the third year in a row was ranked first among all global telecommunications companies evaluated in the Ranking Digital Rights (RDR), being the only company, which conducts human rights assessments in all areas considered in the benchmark. For more information about our privacy and secutiry policies visit Telefónica´s Transparency Report in our website. For further information, see chapter 2.19 Privacy and security
This ranking assesses companies’ commitments, governance, policies and practices affecting customers' freedom of expression and privacy, including governance and oversight mechanisms. In 2022, Telefónica joined B-Tech, a United Nations initiative to promote human rights in the digital sector and provide a platform for multi-stakeholder engagement and knowledge sharing on digital rights.
To ensure that new technologies such as artificial intelligence and big data are developed and used in a responsible manner, we continued to implement our AI Principles in our operations through a dedicated governance model. In this context, we offer a course to all our employees on how to apply and respect human rights by design, including considerations on the responsible use of artificial intelligence. Go to chapter 2.13. Sustainable Innovation
An analysis of different products and services was carried out to check as to whether they are in line with our AI Principles. The following criteria of our AI Principles were applied: fairness, transparency, security and privacy, people-centred and collaboration with third parties. Once all the selected products and services were evaluated, a diagnosis of the situation was made, work carried out to remedy the gaps identified and a reassessment performed to see how corrections or improvements were implemented. The aim was to ensure that the AI Principles permeate all areas in which it is applied and to ensure ethical AI by design.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Helping society thrive 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 237
We have a strong commitment to make the Internet a safer placer for minors. In line with our commitments and efforts to ensure a secure digital environment, we continue to reinforce the defence of children's rights by analysing the impact of our business. Our processes and initiatives are aligned with the Child Rights and Business Principles developed by Unicef and apply its MO-CRIA (Unicef Mobile Operator Child Rights Self-Impact Assessment Tool). Minors, including infants and teenagers, are considered in our identified vulnerable group in our internal policies within our Responsible Business Principles, our Regulation on Responsible Communications and Sustainability in the Supply Chain Policy. Furthermore, In 2022, we carried implementing the improvement plan developed from the MO-CRIA in areas such as the following:
While our supply chain management is explained in more detail in Chapter 2.20, it is important to highlight our commitment to ensuring that our suppliers operate in a way that respects human rights. To achieve this, in 2022, as in previous years, we required all our suppliers to sign the Supply Chain Sustainability Policy, which sets out contractually binding human rights requirements.In addition, we conducted a risk analysis to identify those suppliers who may constitute a high risk in terms of sustainability in general, and human rights in particular, and required them to carry out a detailed assessment. This assessment of high-risk suppliers is performed through EcoVadis and Integrity Next, two external platforms. In addition, we verified the compliance of the most critical suppliers through on-site audits. To conduct these audits, we also cooperate with other telecommunications companies within the Joint Audit Cooperation (JAC) initiative, which specifically addresses issues such as forced labour, child labour and/or conflict minerals.
Practical example of corrective actions: audits and working groups
We work to ensure that human rights are respected throughout the value chain. In the case of suppliers (upstream), we ensure that they comply with their obligations on that matter, among other things, through audits. Some of the issues that are reviewed in these audits are: health and safety, freedom of association, working conditions and wages, discrimination, forced labour or child labour. Audits help us to identify potential non- compliance with human rights by our direct and indirect suppliers (Tier 2 and above). A concrete example in 2022 was the identification of working hours exceeding the local legislation at a factory in our supply chain. As a corrective action, it was agreed that employment contracts should require the signing of working hours so that overtime hours cannot exceed 36 hours per month. With this corrective action implemented, workers’ overtime now complies with the regulation (more examples of corrective actions are given in the table in the section, "JAC audit details", in Chapter 2.16. Responsible supply chain management). In addition to audits, we are part of a specialised human rights working group within the JAC sectoral initiative. This working group was created in 2021 and analyses trends, new regulations or specific human rights risks in the ICT supply chain and proactively undertakes different initiatives to address any identified shortcomings.
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1. Strategy and growth model
2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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In addition, we promote best practice on human rights in our supply chain through various supplier engagement initiatives such as the Supplier Development Programme. More information on chapter 2.20. Responsible supply chain management
MILESTONES
→ Human rights risk assessment in all our operations.
→ Global Human Rights and Environment Impact Assessment in 2022.
→ Further integration of human rights aspects in our Responsible Design approach.
→ Leading telco in the 2022 Ranking Digital Rights Telco Giants Scorecard.
→ Issuance of sustainable bond to promote broadband connectivity in rural areas
Summary of key indicators
| 2021 | 2022 | |
|---|---|---|
| No. of employees trained on human rights through our Responsible Business Principles course | 88,815 | 91,347 |
| % of operators subjected to a human rights impact assessment | 100% | 100% |
| No. of on-site human rights audits of suppliers (labour issues, child/forced labour, health and safety, privacy and security) | 10,721 | 9,964 |
| Number of queries/complaints received on human rights through the Responsible Business Channel | 5,625 | |
| % of significant investment agreements(4) signed by Telefónica S.A., Tech and Infra that contain human rights clauses.7 | 100% | 100% |
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1. Strategy and growth model
2. Non-financial Information statement _Helping society thrive
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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5 Well-founded complaints filed in the Whistleblowing channel regarding human rights issues such as privacy, harassment/mobbing and discrimination are covered in the chapter on Ethics and Compliance (complaint and remedy mechanisms: consultation and complaint channels).
6 The consultations/complaints received on Privacy and Freedom of Expression are listed in the table ‘Summary of key privacy and security indicators’ in Chapter 2.19 Privacy and Security.
7 Significant investment agreements are those signed by Telefónica, S.A., Tech and Infra during the reporting period that have led to a position of control of another entity and have entailed a capital investment project material to the financial accounts. According to this definition, the following significant investment agreements have occurred in 2022:
•On March 21, 2022, Telefónica Tech UK & Ireland, Ltd. ("T. Tech UK") entered into an agreement to purchase the shares of the Scottish company Perpetual TopCo Ltd. and, indirectly, its subsidiaries (collectively, "Incremental Group"). The transaction was signed and completed simultaneously, as it was not subject to any suspensive conditions.
•On May 8, 2022, Telefónica Cybersecurity & Cloud Tech, SLU ("TCCT") signed an agreement for the purchase of shares of the German company BE-terna Acceleration Holding GmbH and, indirectly, its subsidiaries (collectively, "BE-terna Group"). After obtaining the authorisation of the German antitrust regulatory authority, the transaction was executed on June 9, 2022.
•On December 20, 2022, and once the corresponding regulatory authorisations were obtained, Telefónica España Filiales, S.A.U. ("Telefónica España Filiales"), Telefónica Infra S.L. (T. Infra) and the consortium formed by Vauban Infrastructure Partners ("Vauban") and Crédit Agricole Assurances ("CAA") executed an agreement for the establishment of a joint venture, Bluevía Fibra, S.L. ("Bluevía"), whose corporate purpose is the deployment and commercialisation of a fiber-to-the-home (FTTH) network in mainly rural areas in Spain. By virtue of the agreement reached, Telefónica Group owns 55% of the capital of Bluevía (30% Telefónica España Filiales and 25% T. Infra), with Vauban/CAA owning the remaining 45%. Within the set of contracts of the three operations, in the so-called "Investment Agreements", clauses on human rights issues were included.
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1. Strategy and growth model
2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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GRI 2-24
In 2022, 91,347 employees received training in our Responsible Business Principles, Telefonica's code of ethics, based on integrity, transparency and commitment. Our Responsible Business Plan is approved and monitored at the highest level and on a regular basis. It translates our code of ethics into targets and KPIs, which are then incorporated into the Company's strategic plan. We ensure sustainability is part of our culture by integrating the pillars of ESG within our businesses, our processes, our variable remuneration and via training and awareness-raising initiatives for our employees.
GRI 2-9, 2-12, 2-13, 2-14, 2-16, 2-23
The Telefónica Group has a code of ethics and conduct: our Responsible Business Principles. The Principles form part of our sustainability policy as they help guide us to act with integrity, commitment and transparency. To ensure that our Responsible Business Principles are the common thread guiding everything we do, we de have a Responsible Business Plan. This includes targets and projects in the key areas of our strategy's three pillars: leading by example, helping society thrive and building a greener future. The priorities of the Responsible Business Plan form part of the Company's Strategic Plan, which contains the non-financial indicators that we cover in this Report. Some of the targets are also incorporated into the variable remuneration of all employees, including members of the Executive Committee. For further information, see chapter 1.5. Strategy
The main governing bodies for sustainability are as follows:
| Approval | Supervision | Follow-Up | Implementation |
|---|---|---|---|
| Board of Directors | Sustainability and Quality Committee | Responsible Business Office | Corporate Business and Support Areas |
| Audit and Control Committee | Due Diligence Office | Country Operators | |
| Nominating, Compensation and Corporate Governance Committee | Energy and Climate Change Office |
The Board of Directors approves the Responsible Business Principles, the Responsible Business Plan and the most important ESG policies (anti-corruption, environmental management, privacy, diversity, equality and sustainable management of the supply chain). This forms our ethical and responsible business framework and the roadmap for all employees, which is complemented by training and awareness-raising. For further information, see chapter 4.4. The organisational structure of the Administrative Bodies
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2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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The Sustainability and Quality Committee oversees the implementation of the Responsible Business Plan at its monthly meetings. In addition, the Audit and Control Committee has an additional role in sustainability, as it oversees certain aspects related to non-financial information such as regulatory compliance, the risk analysis and management process, and the Company's reporting processes. On the other hand, the Nominating, Compensation and Corporate Governance Committee oversees the variable compensation system.# 2.16.2. Telefónica Group's main policies and regulations related to sustainability
COVERAGE OF POLICIES AND REGULATIONS: The main policies and regulations indicated above are applicable to Telefónica Group companies within the scope of consolidation. For further information, see Appendix I: Scope of consolidation.
Beyond ensuring ethical behaviour and responsible business management, we aim to make sustainability a cornerstone of our culture. In doing so, we seek to align behaviours, processes and targets with the Company's purpose and values. We are guided by our Responsible Business Principles, which are developed across 10 areas:
To align internal culture with ESG (Environmental, Social and Governance) factors, we demonstrate their long-term business value. In fact, we ensure that every internal process or activity is in line with this vision. Moving the organisational culture forward and embedding a commitment to sustainability is a long-term task that requires shared vision and commitment at every level of the organisation. We would like to highlight several lines of work that show in a tangible way how the Group's management is 100% aligned with sustainability criteria:
| 20% | |
|---|---|
| ESG metrics | 20% |
| Financial metrics | 80% |
| 30% | 30% | 20% | 5% | 4% | 5% | 3% | 3% | |
|---|---|---|---|---|---|---|---|---|
| OIBDA | ||||||||
| Operating Income | ||||||||
| Free Cash Flow | ||||||||
| ESG | ||||||||
| Employees | ||||||||
| Remuneration | ||||||||
| NPS | ||||||||
| GAP NPS | ||||||||
| Climate Change - GHG emissions | ||||||||
| Trust from Society - RepTrak | ||||||||
| Gender Equality - % Women directors |
| 50% | 40% | 10% | |
|---|---|---|---|
| Relative TSR | |||
| Free Cash Flow | |||
| Neutralising of C02 emissions |
In June, a new edition of the course was launched and assigned to all employees, incorporating the updates to the Responsible Business Principles implemented in 2021. An extensive internal communication campaign was carried out and compliance was closely monitored. In 2022, 91,347 employees received training, representing 89% of the average workforce1) totalling 163,125 hours.
| Number of employees who received training on responsible business and human rights through the Principles Course | 91,347 |
| Percentage of employees who received training in responsible business and human rights through the Principles Course | 89% |
| Hours of training on responsible business and human rights through the Principles course | 163,125 |
We conducted various internal training sessions related to ESG issues:
GRI 2-25
We have zero tolerance for corruption and bribery. Training and awareness are key elements underpinning our culture of compliance. 94,840 employees received anti-corruption training in 2022. Our Concern and Whistleblowing Channel ensures that our stakeholders have the opportunity to share their concerns, complaints and/or claims anonymously or personally.
Our vision is to strengthen our culture of ethics and compliance by bolstering the standards of adherence to mandatory rules and maintaining best in class ethical and business practices.
GRI 2-12
Our culture of ethics and compliance is led and driven by the highest level of our Company with a firm commitment to zero tolerance of corruption and bribery, and to other best business practices. We have clear lines regarding responsibility and the definition of key risks in this area. The commitment of the Telefónica Group to fighting corruption and bribery, and to regulatory compliance in general, led the Board of Directors of Telefónica, S.A. to approve the creation of an independent regulatory compliance area on 16 December 2015, and subsequently the appointment of the Chief Compliance Officer of the Telefónica Group; this officer reports directly to the Board of Directors through the Audit and Control Committee. The goal pursued was to continue to implement a compliance model at Telefónica in a much more targeted way, with due regard for all the activities performed up until that point by other areas of the Company in order to prevent corruption and bribery (for example: the internal audit, sustainability and legal areas). Both the appointment and the removal of the Chief Compliance Officer fall within the remit of the Board of Directors of Telefónica, S.A., at the proposal of the Audit and Control Committee and, where appropriate, of the rest of the competent bodies in this process. The Compliance Function of the Telefónica Group reports directly to the Board of Directors through the Audit and Control Committee. Its purpose is to manage the preventive and reactive environments related to compliance with (a) legislation and (b) Telefónica’s internal regulations, both at the Corporation and at a Operational level (countries and businesses) in general, while focusing specifically on those that are more sensitive according to the circumstances.
Governance of ethics and compliance
Board of Directors
Audit & Control Committee
Chief Compliance Officer
The internal regulations which implement the Responsible Business Principles, our code of ethics, with regard to integrity, ethics and compliance are listed below:
One of our main challenges is to consolidate a culture of ethics and compliance designed to ensure the Company's future and sustainability, and contribute to guaranteeing the trust of all our stakeholders. The nature of our business, compliance with various national and extraterritorial regulations, and the progressive demand for specific compliance programmes, represent a challenge to implementing this culture. Therefore, we must constantly adapt our compliance activity to the prevailing needs of each company or business unit. We also foster training and awareness-raising initiatives, as a basic element of our compliance programme, in order to consolidate this culture so that our employees can adopt ethical and responsible decisions in the face of the dilemmas and conflicts they face during their daily activities.
GRI 2-23
To ensure ethical behaviour throughout our Company, we take several lines of action: the Compliance Function, identification of non-compliance risks, policies and procedures, due diligence controls, training and awareness-raising, consultation, internal reporting mechanisms for potential infringements, discipline and recognition, as well as possible remediation plans.
Targets
GRI 205-1, 205-2, 206-1
The Compliance Function Charter, approved by the Board of Directors, defines the main lines of Telefónica Group's Compliance Programme, its interaction with the Company's business processes and other areas, and the matters identified as particularly relevant. The starting point for compliance management is risk assessment and the protection of integrity. The function of compliance, in accordance with the current Compliance Function Charter, is deployed on two levels:
Preventive control in order to generate a culture of compliance. It involves training and awareness-raising activities on issues such as anti-corruption, criminal prevention and sanctions, as well as supporting other Company training. It also includes continuous assessment of compliance risk. It is also worth highlighting the consultative activity conducted through channels available to employees to make queries related to compliance issues (mainly related to the application of the Anti-Corruption Policy and other related internal regulations). We also develop compliance-based protocols for assessing suppliers and business partners, which are put into practice in a context of continuous improvement. These include the assessment protocols applied to corporate transactions (mergers and acquisitions), in which we assess anti-corruption aspects and the risks of money laundering and terrorist financing. For further information, see chapter 2.20. Responsible supply chain management. Finally, we must mention other activities, such as internal regulatory monitoring, the preventive control model, management of conflicts of interest, and criminal prevention.
Reaction and response through action protocols for situations in which there is sufficient evidence of non-compliance. Response refers to the correction of the consequences through action: mitigating all the consequences associated with a possible breach, or a breach already evidenced, and ensuring the consistent application of the consequences for said breaches, as well as promoting the recognition of employees with outstanding behaviour in terms of their commitment to compliance.
In a dynamic prioritisation exercise, subject areas were identified in which compliance-based training is needed that extends beyond simply preserving integrity or international sanction regimes.
Compliance programme subjects
This chapter features the following topics: (a) anti-corruption (integrity), (b) competition (relations with competitors) and (c) money laundering.
Digital solutions for the green transition
Society (S):
* Accessibility: guidelines and training sessions to ensure inclusive communication with our stakeholders. For further information, see chapter 2.10. Digital inclusion
* Disability: workshops and courses for employees, leaders and Human Resources areas to ensure the successful integration of talent with disabilities.
* Diversity: awareness-raising initiatives on gender, LGBT+, racial and generational diversity. For further information, see chapter 2.7. Diversity and inclusion
Governance (G):
* Ethics: in addition to the Responsible Business Principles course, anti-corruption training was provided. For further information, see chapter 2.17. Ethics and compliance
MILESTONES
→ Formalisation of Due Diligence and Energy and Climate Change Offices.
→ 89% of employees received training through the Responsible Business Principles course in 2022.
→ New training courses on ESG issues.
1 Including within the “average workforce” those employees newly hired in the last quarter, those on paid leave during the training period and those from newly acquired companies in the process of integration whose deadline for training has not yet ended.# Anti-corruption compliance
The Compliance area oversees and bases a large part of its policies, procedures and controls on integrity. It includes, among other initiatives, those that implement our fight against corruption and bribery. With regard to the policies and procedures implemented in the Telefónica Group to combat corruption and bribery, it is worth highlighting, as a basis for the activities described above, the specific internal regulations in this area, the most significant being the Anti-Corruption Policy. Among other aspects, the Anti-Corruption Policy sets out the guidelines on conduct which must be followed at Telefónica with regard to accepting or offering gifts or invitations and prohibiting any type of bribery; in the case of offering gifts or invitations to employees and public officials, this aspect is developed specifically by the Regulations on Relations with Public Bodies. The regulatory framework on this subject is complemented by the Conflict of Interest Regulations² and the Corporate Policy on the Comprehensive Discipline Programme, among others. As the parties responsible for establishing adequate controls and procedures to ensure compliance with the Anti-Corruption Policy, the Company's directors and executives certify their knowledge of and commitment to comply with the Responsible Business Principles and said policy on an annual basis, and with the associated policies, practices and regulations. In 2022, 100% of the executives signed the anti-corruption certificate.
Corruption risk analysis is another of the focus areas of Telefónica's Compliance Programme. As part of the Risk Management Model, based on the guidance from the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and which has been implemented homogeneously throughout the Group’s main operations, senior Company management perform timely identification, assessment, response and monitoring of the compliance risk, within their scope of action. This includes the particularly important subject of integrity and encompasses the obligations associated with the Responsible Business Principles, in particular those relating to practices that prevent corruption. In 2022, the annual assessment of the aspects related to compliance risks and therefore with corruption risks covered the entirety (100%) of our operations.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 248
¹ Regulated areas: this refers to compliance with legislation applicable to insurance and reinsurance companies, and pension fund and investment fund management companies.
² Telefónica’s Conflict of Interest Regulations address situations in which an employee’s personal interest ( whether direct or indirect) influences or could influence – or creates the perception that it may influence – professional decisions to be made by that employee, where that personal interest or benefit may conflict with the interests of any of the companies belonging to the Telefónica Group. Our regulations make it a requirement to act at all times, and particularly in the case of a conflict of interest, in accordance with the corporate principles of loyalty, confidentiality and integrity.
2022 Assessed operations based on risks related to corruption.
| 100% |
|---|
For further information, see chapter 3. Risks.
The following Group companies are UNE 19601:2017 Criminal Compliance Management certified: Telefónica S.A. (obtained in 2021), Telefónica de España, S. A.U and Telefónica Móviles España, S.A.U. (both renewed in 2020), alongside companies in its perimeter such as Telefónica Soluciones de Informática y Comunicaciones de España, S.A.U. and Telyco, S.A.U. (obtained in 2020). In 2022, Colombia Telecomunicaciones was awarded the ISO 37001:2016 Anti-bribery Management Systems certification and Telefónica del Perú S.A. renewed that certification. In 2022, Telefónica's commitment in this matter was recognised in the context of its participation in a project launched by "Business at OECD" with the aim of evaluating the role that technology can play in the fight against corruption. Telefónica's initiatives in this regard stood out among the different use cases identified in the private sector.
At the present time, international sanction regimes – namely the commercial and/or financial and economic restrictions and/or prohibitions imposed by governments, regulators and/or other international organisations against governments, countries, individuals, entities and/ or business sectors – constitute an increasingly important and highly complex reality. Telefónica is committed to conducting its business in compliance with the international sanction regimes that may apply to it at any given time. Therefore, in 2022 the Board of Directors, as part of the evolution and continuous improvement of the Compliance Programme that Telefónica has implemented in this respect, approved new Rules on Sanctions which define the main controls in this area and reinforces Telefónica’s commitment to compliance with applicable sanction regimes.
Fair competition is one of our Responsible Business Principles, and is integrated transversally in several policies and processes within the Company. In 2022, in order to strengthen Telefónica’s compliance programme in this area, the Board of Directors of Telefónica, S.A. approved the first Competition Law Policy of the Telefónica Group. This formalised the Telefónica Group’s commitment to the principle of fair competition, enshrined in the Responsible Business Principles, in a rule that both demonstrates and facilitates the fulfilment of that commitment to fair competition practices in all markets, as well as reflecting our belief in free markets and fair conditions of competition. On the basis of the approval of the Competition Law Policy, the course on competition law, which is included in the Training Opportunities Scheme and is aimed at all Telefónica Group employees, was reviewed and updated. Training sessions are also given on specific areas previously-identified. In addition, the Group has guidelines in place for participation in industry organisations and meetings with competitors, where clear rules are laid down to ensure compliance with competition law regarding the exchange between competitors of sensitive information. This is complemented in some countries by specific competition compliance programmes under local legislation (e.g. Chile). In 2022, no (0) material judicial proceedings³ in progress for infringement of competition law regulations were identified and a fine was paid (€67 million) for anti- competitive practices in relation to the formal procedure opened in 2011 by the European Commission for the contract for the sale of the participation of Portugal Telecom in Brasilcel, N.V. For further information, see the Consolidated Financial Statements.
With regard to money laundering, the Company has payment controls in place that include due diligence procedures for suppliers and business partners, defined from a compliance viewpoint, and controls on payments to certain high-risk countries. These are then complemented by activities specifically aimed at fulfilling the requirements of the legislation in each country, and/or certain regulations on this topic applicable to the type of company or entity in question (when under local legislation it is considered to be subject to the requirements in this area).
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 249
³ Taking into account issues whose materiality meets the reporting rules for the Consolidated Annual Accounts (whether it is greater than €40 million and classified as probable or €100 million and the risk classified as possible).
In this regard, in accordance with the Telefónica Group's internal regulations on payment control, the Company monitors the definition of minimum controls on payments to prevent the risk of money laundering, both at Group level and by jurisdiction and/or type of entity or activity. In particular, in 2022, under its continuous improvement strategy, on a Group-wide level Telefónica implemented, as part of the process, a new control on certain payments, stemming from previously-undertaken analysis regarding the need to strengthen the corresponding control model.
GRI 205-2
A key element in promoting a culture of ethics within the Company is anti-corruption training. This training includes the following courses:
Other specific training courses (including aspects relating to criminal prevention) are in most of the countries in which the Telefónica Group operates. In some cases, they are taught on an in-person basis and/or targeted at certain groups of employees whose activity may present a higher potential risk.# 2. Non-financial Information statement
Here we highlight the training on criminal liability given in Peru, Argentina, Chile and Ecuador, and at Telefónica Spain and the companies within its scope of consolidation which began training in 2021. In 2022, stemming from the updating of the Responsible Business Principles, certain training courses which are particularly important for the efficiency of the Group’s compliance model were reviewed, updated and launched. Specifically, the courses on the Responsible Business Principles, competition law, the FCPA and criminal prevention at Telefónica S.A. and the Spanish companies within its corporate scope, were incorporated into the Training Opportunities Scheme which was launched in June 2022 on a Group-wide basis. As of December 31, 2022, 94,840 employees had received anti-corruption training, which represents 93% of the average workforce. All the members (15) of the Board of Directors received anti-corruption training. In addition, in 2022, a new course began on cybersecurity for employees: personal protection and co-responsibility, and the training on privacy was continued and extended to Group companies in the Hispanoamerica region. Other training activities also began for certain areas and relevant executive personnel of the Company concerning international sanction programmes.
Anti-corruption training in 2022
| Description | Value |
|---|---|
| Number of employees trained in anti-corruption matters. | 94,840 |
| Percentage of employees trained in anti-corruption matters. | 93% |
Another of the crucial elements of the compliance programme is that of raising awareness. There are various initiatives, at both global and local level, which target fostering a culture of compliance among employees. These include:
a. Compliance Day, a day designed to familiarise the business with the function of Compliance and raise awareness among employees about the main issues that this area addresses. In 2022, we instituted the Compliance Quiz. One employee from each of the different units of the Group sent in a multiple-choice question related to compliance matters; some of the questions submitted were used to create a Compliance Quiz, which was launched to coincide with Compliance Day.
b. The 'Five Stars' Recognition Programme, developed to promote and recognise behaviour that stands out thanks to its commitment to the issues of integrity and sanctions, privacy and security. In 2022, we held the fourth edition of these awards, in which 63 employees from different operations and companies were recognised as deserving Five Stars. Also in 2022, we conducted a global compliance survey in order to measure the level of internal awareness about the different elements that make up Telefónica's Compliance Programme, and identify and undertake future awareness-raising and improvement activities.
Consolidated management report 2022
l 1. Strategy and growth model
2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 250
Employees receiving anti-corruption training in 2022 by professional category and region
| Country | Executives | Middle management | Other professionals | Total |
|---|---|---|---|---|
| Germany | 152 | 519 | 4,325 | 4,996 |
| Brazil | 1,693 | 2,459 | 28,708 | 32,860 |
| Spain | 1,581 | 2,809 | 22,176 | 26,566 |
| Hispam | 747 | 2,592 | 26,758 | 30,097 |
| Others | 54 | 153 | 114 | 321 |
| Total | 4,227 | 8,532 | 82,081 | 94,840 |
% of employees receiving anti-corruption training in 2022 by professional category and region
| Country | Executives | Middle management | Other professionals | Total |
|---|---|---|---|---|
| Germany | 64% | 76% | 64% | 65% |
| Brazil | 100% | 99% | 94% | 95% |
| Spain | 99% | 98% | 97% | 97% |
| Hispam | 99% | 88% | 96% | 95% |
| Others | 74% | 59% | 14% | 28% |
| Total | 98% | 92% | 92% | 93% |
GRI 2-16, 2-26, 3-3, 205-3, 403-2, 406-1, 418-1
Telefónica has a whistleblowing channel which is available to employees and stakeholders (suppliers, shareholders, customers, investors and society in general), where they can report, on an anonymous or personal basis, any alleged irregularity or act in breach of the law or of internal regulations. This channel is available 24/7 on our website and on the Company’s intranet to enable access by all our stakeholders and thus comply with both the European Directive on the protection of persons who report breaches of EU law and also with the updated version of the Good Governance Code for Listed Companies.
When processing the complaints reported, the principles of confidentiality of the data provided, respect and substantiation apply. In cases where a significant or relevant irregularity is identified, the Audit and Control Committee, which reports to the Board of Directors, is informed. All individuals who report a breach are protected in accordance with applicable legislation or regulation.
The complaint may fall into the following categories:
The above categories also include any irregularities relating to accounting matters, auditing matters and/or internal control over financial reporting in compliance with section 301 of the US Sarbanes-Oxley Act and other requirements in this regard. The channel makes it possible to consult the status of a complaint, add information and contact the auditor responsible for analysing the complaint.
Consolidated management report 2022
l 1. Strategy and growth model
2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 251
In accordance with our Zero Tolerance policy on corruption, bribery and discrimination, Telefónica has specific controls in place to detect and remedy possible cases. This takes the form of disciplinary action and/or termination of contract. In 2022 we received 808 complaints through this Channel. As a result of the investigations, 374 were founded. Among the measures adopted as a consequence of the founded reports, there were 118 terminations of employment contracts.
Complaints
| Nature of substantiated complaints | 2021 % of total substantiated complaints | 2022 % of total substantiated complaints |
|---|---|---|
| Failure to comply with regulations | 12% | 15% |
| Fraud | 23% | 21% |
| Workplace/sexual harassment and/or discrimination | 1% | 3% |
| Conflict of interest | 4% | 5% |
| Information security/privacy | 2% | 3% |
| Inappropriate behaviour and other workplace disputes | 38% | 41% |
| Other | 20% | 12% |
| Total | 389 | 374 |
Main indicators on complaints
| Indicator | 2021 | 2022 |
|---|---|---|
| Complaints received | 955 | 808 |
| Substantiated complaints | 389 | 374 |
| Termination of employment measures taken as a result of substantiated complaints | 152 | 118 |
| Confirmed cases of corruption | 0 | 0 |
| Disciplinary measures taken or terminations of contract carried out in connection with confirmed cases of corruption | 0 | 0 |
| Cases of discrimination detected | 0 | 0 |
| Disciplinary measures taken or terminations of contract in relation to confirmed discrimination cases | 0 | 0 |
VMED O2 UK 2022
| Indicator | 2022 |
|---|---|
| Confirmed cases of corruption | 0 |
Consolidated management report 2022
l 1. Strategy and growth model
2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 252
We have a channel through which all our stakeholders can make queries, give notice of or report, either anonymously or personally, queries, requests or complaints about any aspect related to the Responsible Business Principles. In 2022, we received 711 valid queries, of which 698 have been resolved as queries related to the themes of this channel. The themes into which the closed queries have been divided are those represented in the following table:
Queries
| Theme | 2021 | 2022 |
|---|---|---|
| Responsible communication | 5 | 6 |
| Integrity | 5 | 9 |
| Environment | 11 | 66 |
| Supply chain | 1 | 14 |
| Privacy | 9 | 30 |
| Accessibility | 3 | 5 |
| Sustainable innovation | 2 | 3 |
| Human rights | 2 | 5 |
| Children's rights | 1 | 0 |
| Freedom of expression | 2 | 0 |
| Diversity and talent management | 2 | 14 |
| Others (for example, responsibility towards the customer, infrastructure) | 153 | 546 |
| Total | 196 | 698 |
In 2022, as in previous years, the handling of these queries has made it possible to identify improvements in complaint and remedy mechanisms, but also in policies and procedures for the internal management of enquiries submitted by stakeholders. Our Concern and Whistleblowing Channel is available in various languages and open to anyone, including our suppliers’ employees.
GRI 415-1
Telefónica is politically neutral. We do not take a direct or indirect position for or against any political party and we do not make donations (0€) to political parties or to organisations, whether public or private, linked to political parties. This does not prevent us, in compliance with prevailing legislation, from making our views known on matters that may affect the management and sustainability of the Company, through lobbying activities. We are registered as a lobbyist in the voluntary transparency register of the European Union and in the register of interest groups of the CNMC (National Commission on Markets and Competition). Our total expenses in relation to contributions to sectoral organisations are widely distributed because: (a) Telefónica is present in many countries and each country has its own local sectoral organisations, and (b) Telefónica provides many types of services affected by different business sectors (fixed and mobile connections, television and digital services).# 2.17.5.5. Responsible communication
We promote freedom of expression, pluralism and diversity, and we are committed to truthful information, education and inclusion. We assume our responsibility to promote responsible, ethical and quality communication through the content we generate (entertainment, cultural, sporting, advertising and other content). Our Responsible Communication Regulation offers general guidelines for when we communicate with our customers and other stakeholders, use our social media, generate and disseminate content, generate our own advertising, or broadcast that of third parties. We also have a specific Responsible Communication Code for Movistar Plus+, approved by the Executive Committee of Telefónica Spain with the following lines of action:
We are a television platform with ethical editorial criteria for all our productions, whether our own, purchased or outsourced. We promote these principles:
| Principles | Description |
|---|---|
| Legality | We comply with the rules, we protect intellectual property and we do not encourage illegal, irresponsible or discriminatory. |
| Neutrality | We promote freedom of expression and creativity, while respecting the right to honour and privacy. |
| Protection of minors | We manage content responsibly and have preventive, safe advertising and awareness-raising measures. |
| Integrity and transparency | We ensure compliance with Telefónica's Anti-Corruption Policy. |
| Diversity | We promote equality and social integration in our programme schedule. |
| Values and talent | Our business commitment to creativity and innovation is reflected in the content. We have pre-broadcast controls, a Content and Production Officer, and anti-piracy mechanisms in place. |
All our activities are based on Telefónica’s Responsible Business Principles and our Responsible Communication Regulation. For further information, see chapter 2.11. Customers.
As set out in the Internal Control Policy, the Company has an internal control model defined in line with the COSO Internal Control — Integrated Framework. Thus, internal control at the Telefónica Group is defined as the process undertaken by the Board of Directors, management and the rest of the Company’s personnel, designed with the goal of providing a degree of reasonable assurance for meeting the targets relating to operations, information and compliance.
Internal control is designed to be a process that is integrated into the Company’s day-to-day activities in which all the areas, within their areas of action (managers), are responsible for internal control and must take into consideration among their tasks the assurance elements necessary to achieve operational targets (effectiveness), with the least use of resources (efficiency), the availability of appropriate information for decision making and external reporting (information - accuracy) and the observance of laws and rules (compliance). These aspects, above all, must take into consideration the possible contingencies that may arise in their development (risks), incorporating assurance elements with regard to possible contingencies (Internal Control structures), as well as for monitoring (supervision) activities and its own internal control structures within its area of responsibility
The areas of action performed by Internal Audit include coordination of the Telefónica Group's regulatory framework by supervising the process of defining internal regulations, as set out in the policy governing the creation and organisation of the regulatory framework. In turn, the regulatory framework promotes actions that favour the updating and communication of said standards. Specific reviews are also performed that are of interest to the Board of Directors or the Company’s management, which include investigations stemming from the whistleblowing channels provided for the purpose at the Telefónica Group, potential cases of fraud and specific reviews aimed at preventing fraud.
In 2022, the Internal Audit area spent 86,096 workdays on the activities scheduled in the audit plan and, of these, 10,020 were related to fraud prevention and corruption prevention activities.
| Number of days | 2021 | 2022 |
|---|---|---|
| Fraud/corruption prevention, review of personal actions | 10,808 | 10,020 |
Telefónica's tax contribution in 2022 amounted to €7.7 billion globally: €19.2 per every €100 of turnover. Taxes paid during the year amounted to €2.4 billion and taxes collected amounted to €5.2 billion. Each year we publish the fiscal contribution per country: we highlight the €2.3 billion contributed in Spain and the €2.8 billion paid in Brazil.
GRI 207-1 Telefónica's taxation is based on our Responsible Business Principles, the guidelines that inform our daily activity and define how we conduct our business. In accordance with these guidelines, we are committed to honesty, respect for the law and transparency in the conduct of our fiscal affairs. At Telefónica, we are committed to the OECD guidelines for multinational companies to ensure strict compliance with our tax obligations. We strive to be a best-practice benchmark, ensuring that we contribute faithfully and loyally to the public finances of the countries and territories in which we operate, our compliance with the tax legislation and the principles that drive sustainability.
The Company's fiscal contribution is one of its main contributions to the economic and social development of the environment in which it operates. Accordingly, in line with our commitment to fiscal transparency and our contribution to the UN Sustainable Development Goals (SDGs), we publish our total economic and social tax contribution on our corporate website in the section on sustainability-innovation/how-we-work/sustainability- strategy. In this regard, the statements contained in this GRI 207 standard enable Telefónica to achieve some of the SDG targets it has set itself.
GRI 207-1, 207-2 The bodies responsible for the fiscal control framework at Telefónica are as follows:
The determination of the Group’s tax policy and strategy is the responsibility of the Board of Directors and cannot be delegated; therefore, the Board of Directors is also responsible for their approval and any future modifications. The Group's Tax Department leads, develops and reviews the tax strategy. The Group’s Tax Department and the Regional Divisions report on a yearly basis to the Audit and Control Committee and, where appropriate, to the Board of Directors, on the following matters:
The Group’s Tax Department and the Regional Divisions detect and report on mechanisms subject to notification under Council Directive (EU) 2018/822 of 25 May 2018 (DAC 6) and coordinate with the Group's Internal Audit function on the review and analysis of procedures necessary to achieve the control objectives of the Fiscal Strategy and Fiscal Control Framework. Those responsible for the tax area in each subsidiary put in place the necessary management procedures to ensure that fiscal control is performed in accordance with the defined principles and operating regulations.## 2.18.3. Policies
GRI 207-1
The Fiscal Control Policy, approved by the Board of Directors and available on the Telefónica website, has the following objectives:
GRI 207-2
As mentioned on the corporate website in the section Commitment/ How we work, we manage tax risks to prevent and reduce tax litigation to the extent necessary to defend tax positions legitimately taken by Telefónica. Accordingly, at Telefónica, we have a Risk Management Model in place based on COSO (Committee of Sponsoring Organizations of the Treadway Commission), which enables the identification, assessment and management of the different risks (as explained in chapter 3. Risks). Under this Model, we have defined four risk categories: business, operational, financial and, lastly, legal and compliance. The latter category includes tax risks.
In relation to their origin, risks of a fiscal nature are classified as follows:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 257
Although risk identification is a continuous process and requires the involvement of the entire organisation, in the case of tax risks the Corporate Tax Department promotes and coordinates their identification and regular updating. The policy of control, evaluation and management of tax risks is developed in the Fiscal Control Policy available on the corporate website, in the section sustainability- innovation/how-we-work/ sustainability-strategy
On a quarterly basis, those responsible for the tax control function at each of the Group's companies inform the Tax Department—through the Regional Tax Divisions—of the main conclusions from the process of identifying and assessing tax risks, including those related to:
They also report on external tax audits and tax administration inspection processes. Furthermore, as a consequence of the entry into force of DAC 6, we have developed a procedure for detecting and reporting notifiable mechanisms.
GRI 207-2, 207-3
Pursuant to Section 529 Ter of the Spanish Corporations Act, on 14 December 2016 the Board of Directors of Telefónica approved the Group's tax strategy as published on our corporate website.
At Telefónica, we are committed to complying with all national and international legislation, regulations and tax obligations, respecting both their letter and their spirit. In fact, we devote the necessary resources and take the appropriate measures to make a reasonable interpretation of the rules, taking into account the legislator's intention in accordance with the interpretative criteria established by the competent tax authorities and the legislative background. We also adopt the necessary control mechanisms to ensure compliance with these regulations as part of good business management.
At Telefónica, we are committed to all tax positions being taken up for commercial and business reasons, paying taxes according to their true legal nature and economic substance, and avoiding abusive tax planning schemes or practices. In this respect, the tax component of any transaction cannot be justified separately from the commercial and business reasons for the transaction in question. Telefónica also applies the arm's length principle in its transactions with related entities, aligning taxation in each country and territory according to its business there and the generation of value, in accordance with local tax legislation and the international taxation standards established by the OECD.
At Telefónica, we are committed to fostering a cooperative relationship with the tax authorities inspired by the principles of collaboration, trust, good faith, loyalty, professionalism, mutual respect and dialogue. Since 2010, and in order to apply the highest standards of tax transparency, Telefónica, S.A. has adhered—by resolution of the Board of Directors—to the Code of Good Tax Practices drawn up by Foro de Grandes Empresas (Forum for Large Enterprises) in conjunction with the Spanish tax authorities. Based on the principles of transparency and mutual trust, we have voluntarily filed Transparency Reports with the Spanish tax authorities since the 2016 financial year, with the prior authorisation of the Audit and Control Committee, as part of the functions delegated by the Board of Directors. Our corporate website provides further information on the subject in the section sustainability-innovation/how-we-work/sustainability- strategy.
Our approach to matters relating to the Spanish tax authorities also applies internationally. In this regard, Telefónica participates in various international fora to promote and develop the OECD's good practice recommendations. We also participate in the cooperative compliance programme in the UK.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 258
Telefónica actively participates in the Foro de Grandes Empresas. This allows us to intervene in tax legislation initiatives, highlight current problems that may arise in the application of the tax system and propose new tax measures to increase legal certainty. We contribute to the committees of telecommunications industry organisations such as ETNO (European Telecommunications Network Operators’ Association) and GSMA. We are active collaborators in various industries and economic forums, such as DigitalES (Spanish Association for Digitalisation) and Adigital (Spanish Association of the Digital Economy). The Telefónica Group is also actively involved in tax policy through the respective committees of the CEOE (Spanish Confederation of Business Organisations) and DET3 (Digital Economy Taxation Think Tank).
Telefónica's stakeholder engagement strategy is based on increasing transparency and effective dialogue to build relationships of trust in the countries in which we operate. We maintain a constructive dialogue and collaborate with various key stakeholders, such as non-governmental organisations – such as Intermon Oxfam, the Haz Foundation and the Tax and Competitiveness Foundation - and government agencies through the Forum of Large Companies, which was created in 2009 as a body for cooperation between Spain’s largest companies and the Spanish tax authorities. Likewise, we obtain all stakeholders’ views on their expectations and perceptions about fiscal transparency in the consultation process that we perform for our materiality analysis. For further information, see chapter 1.4. Materiality.## 2.18.6. Progress in 2022
GRI 201-4, 207-2, 207-4 > Contribution to the development of local economies and finances
In 2022, our Total Tax Contribution (TTC) amounted to €7.7 billion (€2.4 billion in taxes incurred and €5.2 billion in taxes collected), accounting for 48% of our distributed value¹ (value distributed as input and output taxes levied on the total value distributed, the latter being the sum of the following items: shareholder value -profit after tax-, wages and salaries net of taxes levied, net interest and input and output taxes levied).
Total subsidies received by Telefónica in 2022 amounted to €17 million (€16 million in 2021), which includes the receipt of capital grants and subsidies as other income. The Group did not use any tax deductions in the latest corporation tax return filed in Spain. For every €100 of turnover, we pay €19 in taxes (€6 incurred and €13 collected).
It is important to note that our economic and social contribution is quantifiable not only through corporate tax revenues but also through other specific contributions in the various countries in which we operate. These include fees (for use of the public domain and for financing the radio and television corporation, among others), local taxes and social security payments, as well as other similar contributions in other countries.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 259
¹ Calculated on the basis of our own methodology. In addition to these direct taxes, we generate revenue for the public treasury as a result of our business activity and on behalf of other taxpayers, other amounts that must be taken into account in the total tax contribution made by the Company, such as indirect taxes, withholding taxes on employees and other deductions. For further information, see chapter 2.14. Contribution and impact on communities.
Contribution in countries
The following is a breakdown of the jurisdictions in which the Telefónica Group conducts its main business as a telecommunications services provider. Other jurisdictions where the Group is present, and in which its activities are not the Group's core business, are included under "Other". All amounts are given in millions of euros and refer to the financial year 2021. The main companies that make up the Telefónica Group, together with their main activity, may be consulted in the 2022 Consolidated Financial Statements. For further information, see Appendix I: Scope of consolidation.
For reconciliation purposes with the figures reported in the Consolidated Financial Statements, consolidation adjustments and eliminations of inter-company transactions between Group companies in different countries are also included under "Other". However, there are differences with the Group's Consolidated Annual Accounts, which are explained below:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
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| Tax jurisdiction | Third-party income | Related-party revenues | Total income | Profit or loss before tax² | Tax on profit paid³ | Profit tax¹ | No. of employees⁴ | Tangible assets |
|---|---|---|---|---|---|---|---|---|
| Germany | 8,642 | 69 | 8,711 | 663 | 54 | 41 | 7,576 | 3,492 |
| Argentina | 2,296 | 64 | 2,360 | -64 | 18 | 117 | 13,030 | 1,371 |
| Brazil | 7,569 | 49 | 7,617 | 882 | 44 | -30 | 34,570 | 5,377 |
| Chile | 2,084 | 59 | 2,143 | 372 | 39 | 128 | 4,157 | 1,068 |
| Colombia | 1,335 | 15 | 1,349 | -20 | 39 | -41 | 6,114 | 876 |
| Costa Rica | 135 | 1 | 136 | 48 | 11 | 16 | 145 | 0 |
| Ecuador | 408 | 6 | 413 | -11 | 11 | 0 | 935 | 238 |
| El Salvador | 122 | 3 | 126 | -26 | 1 | 6 | 190 | 0 |
| Spain | 20,280 | 2,069 | 22,349 | 5,261 | 197 | 635 | 28,668 | 8,511 |
| Guatemala | 5 | 4 | 9 | 1 | 1 | 0 | 10 | 14 |
| Mexico | 1,042 | 67 | 1,109 | -386 | 24 | 22 | 1,832 | 158 |
| Panama | 3 | 15 | 19 | 2 | 0 | 1 | 26 | 8 |
| Peru | 1,721 | 30 | 1,751 | -554 | 41 | 141 | 4,810 | 1,156 |
| UK | 7,141 | 155 | 7,296 | 5,200 | -7 | 194 | 3,008 | 13 |
| Uruguay | 230 | 109 | 339 | 104 | 14 | 16 | 591 | 309 |
| Venezuela | 104 | 3 | 108 | 90 | 1 | 30 | 1,661 | 40 |
| Others | 420 | -890 | -470 | 195 | 20 | 15 | 453 | 93 |
| Total | 53,537 | 1,828 | 55,365 | 11,757 | 506 | 1,293 | 107,776 | 22,725 |
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² Contribution to the consolidated profit before tax and to the tax on profit, adjusted for the allocation to the year of coupons relating to subordinated perpetual bonds. The consolidated financial statements of the Telefónica Group are drawn up in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union. The local accounting regulations applicable in each of the countries in which the Group is present may differ from the standards set by the IFRS. The table above groups together all companies of the Group according to the country of their registered office. This grouping does not coincide with the distribution by segment of the Telefónica Group. The results by country include, as appropriate, the effect of the allocation of the purchase price to the acquired assets and the liabilities assumed. The results by country exclude income generated by dividends of Group subsidiaries, as well as the change in the provision for write-downs of investments in Group companies, which are eliminated in the consolidation process. The withholdings paid to the various administrations have been allocated to the jurisdiction by which they are ultimately paid.
³ Rebates received from different administrations and corresponding to overpayments from previous years have been excluded in 2021, €30 million in Spain and €17 million in Peru and Chile, to be precise.
⁴ The number of employees refers to the average number of employees, distributed by tax jurisdiction.
Reasons for the difference between the effective rate and the statutory rate
The Group closely monitors the differences between the nominal tax expense and the effective tax expense on a monthly basis. At year-end 2021, the differences relate to the permanent differences inherent in the preparation of corporation tax. In other words, they comprise all the expenses or income recorded on the income statement that will not be deductible or will not be taxed from a fiscal point of view and will therefore never be reversed in subsequent periods. The most relevant are the deductibility of the amortisation of goodwill in Spain and, in Brazil, the deductibility of the distribution of Juros on capital. There is also a significant difference owing to the non-activation of tax credits in countries with negative results.
In addition, during the 2021 financial year, extraordinary accounting adjustments were made to the corporation tax expense account, representing a significant part of the differences between the statutory and effective rates. In this regard, the effects of the tax assessments from the completion of the tax inspection in Spain for the years 2014 to 2017 were recorded, in addition to a decrease in deferred tax assets in Spain due to the restatement of their recoverability, a tax provision in Peru due to an unfavourable ruling by the Supreme Court and adjustments for tax rate changes in different countries, as well as the effect of non-taxable interests in Brazil. In addition, a substantial portion of the capital gains recorded in 2021 was exempt from corporation tax.
Verification of the contents in terms of taxation has been completed as part of the external verification process carried out by PricewaterhouseCoopers Auditores, S.L.# Consolidated management report 2022
The breakdown of the corporation tax contribution is as follows:
Tax contribution by country
| Millions of euros | Total taxes paid 2021 | Total taxes collected 2022 | Total 2022 | Contribution by country to consolidated Group profit before tax (1) 2022 | Contribution by country to consolidated Group profit before tax (1) 2021 |
|---|---|---|---|---|---|
| Germany | 291 | 790 | 1,081 | 697 | 663 |
| Argentina | 165 | 393 | 558 | -166 | -64 |
| Brazil | 1,105 | 1,648 | 2,754 | 919 | 882 |
| Central America | 2 | 1 | 2 | 1 | 25 |
| Chile | 1 | 97 | 98 | 64 | 372 |
| Colombia | 151 | 126 | 277 | 118 | -20 |
| Ecuador | 66 | 25 | 90 | 23 | -11 |
| Spain | 427 | 1,847 | 2,274 | 795 | 5,261 |
| Mexico | 27 | 62 | 89 | -228 | -386 |
| Peru | 143 | 151 | 294 | -103 | -554 |
| United Kingdom | -1 | 36 | 35 | 294 | 5,200 |
| Uruguay | 32 | 25 | 57 | 152 | 104 |
| Venezuela | 14 | 16 | 30 | 95 | 90 |
| Others | 15 | 15 | 30 | 21 | 195 |
| TOTAL | 2,438 | 5,231 | 7,669 | 2,682 | 11,757 |
Tax contribution by region
| Millions of euros | 2022 | 2021 |
|---|---|---|
| Contribution by country to consolidated Group profit before tax | 1,786 | 11,124 |
| Tax on profit | 477 | 244 |
| Europe | ||
| Contribution by country to consolidated Group profit before tax | 874 | 413 |
| Tax on profit | 530 | 229 |
| Latin America | ||
| Contribution by country to consolidated Group profit before tax | 1 | 25 |
| Tax on profit | 2 | 13 |
| Central America | ||
| Contribution by country to consolidated Group profit before tax | 21 | 195 |
| Tax on profit | 2 | 20 |
| Other | ||
| TOTAL | 2,682 | 11,757 |
| Contribution to the consolidated profit before tax, adjusted for the allocation to the year of coupons relating to subordinated perpetual bonds. |
The consolidated financial statements of the Telefónica Group are drawn up in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union. The local accounting regulations applicable in each of the countries in which the Group is present may differ from the standards set by the IFRS.
The table above groups together all companies of the Group according to the country of their registered office. This grouping does not coincide with the distribution by segment of the Telefónica Group. The results by country include, as appropriate, the effect of the allocation of the purchase price to the acquired assets and the liabilities assumed. The results by country exclude income generated by dividends of Group subsidiaries, as well as the change in the provision for write-downs of investments in Group companies, which are eliminated in the consolidation process.
The contribution in 2021 from Germany, Spain and the United Kingdom is affected by the capital gains generated on the incorporation of VMED O2 UK and on the sale of the telecommunications towers division of Telxius (see Note 2 Notes to the Consolidated Financial Statements).
MILESTONES
→ We are one of the 34 companies which voluntarily filed the Transparency Report for 2021 with the Spanish tax authorities.
→ Thanks to the progress we have made regarding tax issues, we have achieved the highest score in indices such as S&P DJSI, MSCI and Sustainalytics.
5 Rebates received from different administrations and corresponding to overpayments from previous years are excluded in 2022, to be precise,€115 million in Spain and €12 million in Peru and Chile. In addition, the extraordinary refund from the Judgement Enforcement Agreement of the Spanish National Court of Appeals (Audiencia Nacional) (€790 million) is excluded in Spain as explained in Note 25 of the Notes to the Consolidated Financial Statements. With regard to 2021, rebates of €30 million in Spain and €17 million in Peru and Chile have been excluded. The withholdings paid to the various administrations have been allocated to the jurisdiction by which they are ultimately paid.
KEY POINTS
We protect our customers’ data, monitored at the highest levels, with high standards of privacy and security, and empower them to have access to, and control of, their personal data. We are transparent about how, why and when our customers’ data is collected, used, stored and disposed of, as well as how we protect the data with a high level of security. We are committed to increasing the percentage of contracts/RFPs that contain security requirements for the supply chain, with the goal of reaching at least 95% by 2025.
Technology improves people's quality of life and generates wealth, provided that their privacy is respected and the highest level of security is guaranteed throughout the processing of their information and personal data. We want our customers to feel confident about using our products and services and to be aware that we respect their rights at all times as we offer them choices about the use of their personal information. For this reason, we work on the privacy and security of our customers, to generate a relationship of trust with all those we work with are linked, and we focus on the following pillars:
• Protection: data must be secure and the privacy of individuals must be preserved. This is the basis of our business and our primary consideration when designing our services and collaborating with third parties.
• Design: we apply privacy and security from the design, that is, from the initial concept of our products and services and throughout the development process.
• Control: individuals must be able to manage and have control over their personal data. In this way, access to their data, and to additional information on risks and benefits associated with its management, is made possible.
• Transparency: the principle of transparency is about making simple tools available to people in order for them to control their data with the appropriate technological developments to generate maximum respect for privacy and information security.
We are also strongly committed to the right of children to privacy and security, to protecting their personal information and to fostering a safe use of technology. For further information, see section 2.10.4.4. Secure and responsible use of technology
In addition, Telefónica is a global leader in the development and commercialisation of cybersecurity and managed security products and services. We provide more detail of our portfolio and achievements in this field in chapter 1.6 Organisation. For further information, see chapter 1.6. Organisation.
This chapter describes the different aspects related to our internal privacy and security operations, which are applicable to our processes, products and infrastructure.
Telefónica respects the fundamental rights and freedoms of individuals, including the fundamental right to the protection of personal data. The Responsible Business Principles, the Group’s code of ethics, envisage the need Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 264 to preserve this fundamental right and establish common guidelines of behaviour for all the companies that form part of the Company.
In order to reduce risk exposure and raise digital trust, we continuously update our processes and policies:
• Update the Group's Privacy Policy.
• Approve Binding Corporate Rules (BCRs).
• Update the Global Privacy Centre.
• Create the regulations for the Artificial Intelligence Governance Model.
• Updated and refresh training, while expanding reach.
At Telefónica, we have a governance model for the management of Personal Data Protection aimed at ensuring effective and efficient management of privacy and that the model is aligned with the Group’s strategy. The person in charge of personal data protection at the Group is the Global Data Protection Officer, who reports directly to the Board of Directors of Telefónica, S.A., through the Audit and Control Committee. To ensure compliance with this function, the different corporate areas meet twice yearly as part of the Governance Model Steering Committee, the Business Committee and through the Local Data Protection Officers. In addition, the Board´s Sustainability and Quality Committee is responsible for promoting and monitoring the implementation of Telefónica’s Global Responsible Business Plan, which includes specific targets on privacy. The Board is informed monthly about the implementation of the Plan by the Corporate Sustainability Department, which is run by the Responsible Business Office and includes the heads of the global operational areas.
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We promote and review different global and local policies, processes and procedures, as depicted in the chart below:
Rapid technological progress and regulatory dynamics in the field of data protection pose significant challenges in adapting and responding to the evolving changes in the field of privacy. This entails the need to identify risks, assess and mitigate them and also to leverage opportunities related to Telefónica’s commitment to protecting the privacy of its stakeholders. Further information on this issue can be found in chapter 3. Risks. For further information, see chapter 3. Risks.
The privacy strategy is based on three pillars:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 266
Our main lines of action are:
The principle of Privacy by Design is one of Telefónica Group’s key strategic pillars and is defined in our mandatory internal regulations. The concept of Privacy by Design entails the obligation of the whole organisation to establish, in the design of products and services, procedures that primarily take into account two aspects: first, the implementation of privacy protection measures from a legal and security point of view in the early stages of any project; and, secondly, that all business processes and practices involved in each activity or processing that may affect personal data are covered.
We have our own Privacy by Design guidelines to define the set of rules, standards and legal and security processes that must be taken into account to comply with our Global Privacy Policy. All of this is to ensure that the rights and freedoms of individual´s personal data are guaranteed as from the initial definition of any processing project or activity. These practical guidelines stand as reference documents for the Group’s professionals in charge of developing and implementing products and services, as well as for internal use cases that directly or indirectly involve the processing of personal data. In addition, product managers are supported by the privacy and security specialists in the area of each company and/or business unit of the Group, in order to ensure that all the necessary privacy-related legal and security requirements are taken into account from the start of relevant projects.
We use a risk management-oriented approach of proactive responsibility (critical and continuous self- analysis in the fulfilment of the obligations required by the regulations) to establish strategies for each product or service that incorporate privacy throughout the entire data life cycle: collection and obtaining, processing, exercise of rights, and retention and deletion. When defining or developing any product or service, the practical application of Privacy by Design involves aspects such as: the lawfulness and definition of the grounds legitimising the processing; the guarantee that the data is secure and that the most appropriate security measures are being applied according to the potential risks; transparency in the privacy clauses and policies; the minimisation of data in that it must be strictly necessary for the purposes of processing; the commitment to the data subjects’ rights; and the limitation of the period of retention, among others.
The Privacy by Design process that was defined by the Telefónica Group’s Global Data Protection Office includes the following activities:
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For further information, see chapter 2.13. Sustainable innovation.
The DPF is Telefonica´s framework for the global legal and privacy strategy with respect to the General Data Protection Regulation (GDPR) and the ePrivacy regulation on data processing platform products and systems. In the DPF we adapt the privacy legal compliance guidelines to a technological reality to standardize and conceptualize the functional and technical requirements of the dynamics of privacy systems, and apply them automatically and digitally in the processing of personal data. This digitilisation is implemented from design, and naturally enables a dynamic and automatic privacy process to be built between the customer and the systems to carry out the processing of personal information and compliance with the GDPR. We are implementing this digitalisation framework in our systems and platforms where data processing takes place, for example, in Kernel,Telefónica's big data platform. The Digital Privacy Framework made significant progress in Spain during 2022 and will continue to do so during 2023 in operators with more demanding data protection jurisdictions, for example, with respect to anonymisation requirements.
At Telefónica, we make privacy more human and understandable by focusing our design principles on people (human-centred design). In this regard, we are committed to putting transparency into practice by including it as one of the principles of the Global Privacy Policy and developing different initiatives to implement this principle:
The Global Privacy Centre is a public reference point for our policy and processes. Available at www.telefonica.com, our stakeholders can find all the information they need easily and in a simple format by means of visual and graphic resources. Our objective during 2023 is to continue improving on this centralized channel including linking all of the Groups Transparency centres to present all the relevant information centrally.
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The purpose of these centres is to enable both our customers and any stakeholders to obtain information, in a simple, digital and understandable way, with regards to the processing of their personal data and other relevant information on privacy and security matters. The Information available includes data on channels and avenues to excercise rights, the security and confidentiality measures adopted to process data, the privacy terms and conditions applicable to our products and services, transparency reports and our Artificial Intelligence principles, as well as the child security and protection issues that apply in each case in digital environments.
The Privacy and Security Centres are currently available on the websites of all the operators. They are updated regularly in accordance with regulation and stakeholder analysis, The Transparency Centre has also been launched on for our content platform, Movistar+. The service is available through the Mi Movistar section and allows customers control their data.
We publish an annual report on the requests we receive from the competent authorities in the countries where we operate. This report includes information on the number of requests for lawful interception, access to metadata associated with communications, content blocking and restriction, and geographical and temporary suspension of service. We follow a strict procedure for any request, which is laid down in the Regulations on Requests from Competent Authorities. This guarantees, in equal measure, the fulfilment of our obligations in terms of collaboration with these authorities and the protection of the fundamental rights of the people affected, in accordance with our commitment to respect for human rights. For further information, see chapter 2.15. Human Rights.
In 2022, a total of 3,761,918 requests for customer information from competent authorities (lawful interception and access to metadata) were recorded.Of these applications, 230,226 were rejected, which was 94% of the requests dealt with. The number of accesses/ customers affected was 4,003,851.
Customer empowerment
As part of the principle of transparency, Telefónica provides customers with access to the data they generate during the use of our products and services, data that are collected in the so-called ‘Personal Data Space’ of Kernel and which are accessible through different channels. The Transparency Centre in Spain, which offers all customers access to their privacy preferences and management of the data collected in the ‘Personal Data Space’, is currently available to a group of users through the Mi Movistar app (in the Security and Privacy section of the User Profile) and has been available through the television channel in Spain since 2022. In the Transparency Centre, through the Privacy Permissions section, customers can manage the legitimising grounds relating to the use of their data for certain purposes. In addition, the Access and Download section includes useful views of different types of data, with a user-friendly experience, in compliance with privacy criteria; there is also the option of downloading a more detailed document. The Transparency Centre experience has been designed to give users confidence, with clear language, explaining the purpose for which their data is processed and its nature within Telefónica. The Transparency Centre represents the first steps towards fulfilling our promise to give our customers features for them to control and ensure the transparency of their data, albeit in accordance with applicable regulations on privacy. For example, in Europe this processing will be fully aligned with the GDPR.Consultation and complaint mechanisms
Besides the mechanisms established in the privacy policies and privacy centres, Telefónica has implemented other consultation and mediation methods to deal with any incidents in this area:
Responsible Business Channel
We have a public channel on our website where all our stakeholders can enquire or complain about any aspect related to the Responsible Business Principles. In 2022, 30 communications on privacy and 0 on freedom of expression were processed.
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Voluntary mediation system with AUTOCONTROL
This system has been operational since January 2018, and is designed to provide a swift response to complaints related to identity theft and the receipt of unsolicited advertising. The procedure was developed by the Asociación para la Autorregulación de la Comunicación Comercial (AUTOCONTROL) in collaboration with the Spanish Data Protection Agency (AEPD). It also involves the participation of Orange, Telefónica and Vodafone, and is open to other entities. This information can be found in the Movistar Privacy Centre. In 2022, 227 requests for mediation were processed.
Binding Corporate Rules
Binding Corporate Rules (BCRs) are designed to permit the international movement of data within the Telefónica Group in accordance with article 47 of the GDPR, in particular the data from the European Economic Area (EEA) to countries outside the EEA. The implementation of the BCRs will foster an improvement in compliance with the European regulations throughout the Telefónica Group, by enabling Telefónica to transfer personal data swiftly regardless of the place where the recipient Telefónica subsidiary is located. In addition, the BCRs will provide more legal certainty by facilitating the alignment with the Group’s organisational model. In 2022, Telefónica began the process of approving its BCRs and has followed the following steps:
• Analysis of international intra-group transfers.
• Drafting of Binding Corporate Rules.
• Designation of the AEPD as the lead supervisory authority, responsible for leading the process, as well as the interested supervisory authorities for cooperation in the approval procedure, following a proposal by Telefónica.
• Sending the BCRs and complementary documentation to the lead authority for approval.Management of our supply chain
One of Telefónica’s priorities in ensuring privacy is successful management of the supply chain in relation to the processing of personal data by third-party contractors. To this end, we have incorporated common data protection agreeements across the whole Group and included specific commitments asssumed by suppliers with regards to international transfers. In 2022, a series of automated control measures were implemented to ensure successful processing of personal data before, during and after the provision of the service by the supplier. Additionally, to ensure protection of personal data managed by third parties, automated mechanisms were developed to enable the optimisation of training initiatives.
2.19.2.7. Progress in 2022
Telefónica has developed an internal tool to facilitate compliance at the Group with the data protection regulations and, in particular, in order for each area to perform the following tasks, among others: creating the Record of Processing Activities (ROPA) and keeping it updated; management and recording of security breaches; recording requests to exercise GDPR data subject rights; management of electronic signatures of data protection agreements (DPAs); and management of privacy indicators.
Proof of our progress in terms of privacy and freedom of expression is that in 2022, and for the third consecutive year, we were first among all telecommunications companies in the Ranking Digital Rights (RDR). This ranking assesses corporate commitments, policies and practices that affect freedom of expression and customer privacy, including governance and oversight mechanisms.
2.19.3. Security
2.19.3.1. Vision
Security aims to protect against potential damage to people and property, and to guarantee the confidentiality, integrity and availability of the Company’s information assets. At Telefónica, security is approached as an integral concept which includes physical and operational security (of people and goods), digital security (encompassing information security and cybersecurity), business continuity and fraud. The increase in the number, complexity and type of threats makes it necessary to apply security measures and review them in a cycle of continuous improvement. Our strategy is based on a number of security activities that reinforce both the Company’s processes and its transformation initiatives, compromising a security management system in line with international reference frameworks and standards such as ISO 27001 and NIST (National Institute of Standards and Technology)
2.19.3.2. Targets
In the short and long term, the targets we have set are to:
• Review the global regulatory framework on security to align it with new versions of international standards, such as ISO 27001.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 270
• Move forward in deploying the Zero Trust1 model to control IT system access and implement tools to govern the security of cloud environments.
• Increase the percentage of contracts/RFPs that contain security requirements for the supply chain, with the goal of reaching at least 95% of suppliers by 2025.
2.19.3.3. Governance
The global Security and Intelligence Area has the backing of the Company’s management and reports to the Board of Directors through the Sustainability and Quality Committee and the Audit and Control Committee. It also coordinates with the local security departments, as shown in the following diagram:
The head of security at the Company is the Global Chief Security and Intelligence Officer (the Global CSO), who has been delegated, by the Company’s Board of Directors, the authority and responsibility to establish the global security strategy. The Global CSO leads, monitors and supervises implementation of the policy framework and that of the global initiatives. The Global CSO nominates a local security manager at each Telefónica Group company. The nominations are submitted for a decision from the corresponding company’s management bodies. The Global Security Committee coordinates and governs activities. The Committee is and is chaired by the Global Director of Security and Intelligence. The local Chief Security Officers (local CSOs) and the corporate heads of different areas of the Company (Compliance, Audit, Legal, Technology and Operations, People, Sustainability, etc.) are committee members. There are also local security sub-committees chaired by the local CSOs, which take part in defining strategic initiatives and global guidelines and implement them in each Telefónica Group company. In addition, the Global Security and Intelligence Area promotes and drives the Global Digital Security Committee in which several members of the Company’s Executive Committee participate.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 271
1 Zero Trust is a security strategy applied to access to information, which will be provided through “minimum privilege” control techniques. It will be end-to-end encrypted and guided by the principle of “never trust, always verify”.# The Global Security and Intelligence Area reports to the Board of Directors through the Sustainability and Quality Committee and the Audit and Control Committee. Telefónica also has a Security Advisory Board made up of major figures from outside the Company, in the field of security and intelligence, with the aim of contributing best practices, increasing the efficiency of capabilities and procedures, and enhancing the quality of our strategy in this area.
At Telefónica we foster regulatory security policies that are mandatory for all Group companies. All the documents are reviewed and updated as a result of a cycle of continuous improvement. In these reviews, account is taken of periodic measurements and audits of security activities, changes in context and newly- identified risks, as reflected in the following diagram:
Consolidated management report 2022
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2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
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Security regulations
Governance
Security Committees
Global policy
Global Security Policy
Global rules
Global Security Regulations
Global regulations
• Management of Incidents and Emergencies
• Analysis of Security Risks
• Business Continuity
• Security in the Development Life Cycle
• Security in the IT Infrastructure
• Security in Networks and Communications
• Cybersecurity
• Security in Change Management
• Classification and Processing of Information
• Security in Asset Management
• Access Control
• Physical Security
• People's Safety
• Prevention and Management of Fraud in Telecommunications
• Security in the Supply Chain
• Governance of Security
Governed by national and international standards and regulations on physical and digital security and lays down the guiding principles applicable to all the companies that make up the Group. Updated and approved by the Board of Directors of Telefónica in 2021.
Develops the principles and general guidelines of the Global Security Policy, establishes rules of conduct and general responsibilities, and refers to global regulations on different subjects. Updated in 2022 by the Secretary of the Board, it includes alignment with the global policy, review of obligations and responsibilities, and global and local security departments.
These establish the controls necessary to guarantee security in each specific domain. Based on the provisions of the global regulations, local procedures and documents are generated which contain the details of the actions to be performed to ensure compliance with the security controls. In 2022, a review of eight regulations was approved, with a range of updates.
Security activities
Monitoring and measuring (security Indicators)
Audit and Control
Changes in context and new risks
Consolidated management report 2022
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2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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In certain domains, including products and services, official certifications are held such as ISO 27000, PCI-DSS, and national security system (ENS) certifications in applicable countries. The decision to obtain certification is based on legal compliance, business requirements or customer demands. In turn, depending on the service provided, we require third-party certification or reports from our suppliers (for example, ISAE 3402 or similar).
Information technology is an important element of our business and is exposed to cybersecurity risks. For this reason, it is included in the Company’s basic risk map, which defines guidelines to facilitate uniform reporting, alignment with business objectives and corporate risk tolerance criteria. For further information, see chapter 3. Risks.
At Telefónica, we understand security as a comprehensive concept aiming to protect our assets, interests and strategic objectives, ensuring their integrity, and protecting them from potential threats that could damage their value, affect their confidentiality, reduce their effectiveness or alter their operability and availability. Comprehensive security encompasses:
In turn, the concept of digital security integrates aspects related to information security and cybersecurity and is applied to the media, systems, and technologies and elements that make up the network. Our security provisions apply to all the entities involved in the supply chain, focusing especially on companies that manage data of the Telefónica Group or its customers. Security activities are governed by the principles of legality, efficiency, co-responsibility, cooperation and coordination. The most recent review of the Company’s Global Strategic Security Plan, approved by the Global Security Committee on 28 September 2022, pursues the implementation of the basic principles laid down in the Security Policy and identifies and prioritises the main lines of action.
Digital security is a key element of our business. Its ultimate goal is to ensure our resilience, in other words, the ability to withstand and contain attacks so that our business is not affected or is affected to a degree that is tolerable. This is put into practice in processes, tools and capabilities that aim to anticipate and prevent cybersecurity risks. The activities in this respect are coordinated by the global area with the various digital security units of the Group’s companies. We hold annual meetings with the digital security teams of all Telefónica units in order to align strategies and share experiences. We have a public mailbox for reporting weaknesses or threats and a bug-bounty program consisting of rewards for finding them.
Particular emphasis is placed on the following aspects:
We have tools and capabilities for the entire cycle of potential incidents:
Our approach to cyber-intelligence is proactive, applying knowledge and technology to achieve the required levels of protection by quickly detecting breaches or attacks on assets. We also build the technical and human capabilities needed to respond effectively and quickly to any breach or incident in order to minimise attacks and their consequences. We have a public mailbox, available to all , so that bugs or threats that could affect Telefónica’s technological infrastructure can be reported. This mailbox can be found on Telefónica's global website and on those of its operators in the Global Privacy Centre/Security section. We also have a bug-bounty reward program, managed by selected companies acknowledged as industry
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
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leaders, enabling us to rely on input from cybersecurity experts (ethical hackers) worldwide. The CSIRTs work in a coordinated manner to understand and analyse the risks of potential cyber-threats, monitor serious bugs in the most critical technological assets and establish relationships with other national and international CSIRTs/Computer Emergency Response Teams (CERTs) in the public and private sectors. Cyber- exercises are performed once a year to train the CSIRTs in all the countries in handling potential incidents.
During 2022, 2 significant security incidents were dealt with (we consider significant incidents to be those that meet certain criteria at a global level, such as their economic, legal, service, or media impact). The 2 incidents affected customer data. One occurred in Telefónica Peru and the other in Telefónica Spain. Neither of the incidents had a sufficiently material impact to be reported to the financial market supervisory authorities. Lessons learned from incidents help us to improve the security of both processes and technological capabilities and platforms. We followed the transparency protocols, notifying the affected users and, where appropriate, the data protection agencies of the incidents. Incident management protocols are also followed in terms of detection, analysis and response, establishing the appropriate mitigation measures.
The Company has various insurance programs and coverages in place that could mitigate the impact on the income statement and balance sheet of the materialisation of a large number of risks. In particular, there is cover for cyber-risks that could cause a loss of income, loss of customers, extra costs or recovery costs for digital assets, among others, and cover for Technological Errors and Omissions in the event of claims for damages to customers and third parties in general. The current global insurance limits range in value from €100 million to €500 million.
Our approach to networks and communications is based on a good understanding of our assets and sites, as well as their characteristics and their importance for the business.# 1. Strategy and growth model
At Telefónica, we make a continuous effort to improve our capabilities for the physical protection of infrastructure and assets. Among the programs we develop, the following stand out:
Security is considered at the earliest stages in all areas of activity to ensure that it is an integral part of the entire technology life cycle. This approach is based on the following aspects:
In this way, the security requirements are a consideration from the design phase of applications and systems, incorporating controls against known bugs, and ensuring that there are no security weaknesses at source. This results in systems and applications that are more resistant to malicious attacks.
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At Telefónica, we have security requirements for our suppliers and we identify the risks associated with the provision of a service/product. We continue to develop 3PS+, our security process digitalisation tool in the supply chain. Its main characteristics are as follows:
Supply chain security process
All Telefónica Group employees have access to this tool.
The business continuity function integrates various activities and processes aimed at improving our resilience, and crisis management makes it possible to tackle any serious incident that affects the organisation in an effective manner. In the event of a crisis, the priorities are:
The business continuity function is included in the Global Security Policy. The details are defined in the Global Business Continuity Regulation and in a range of documentation, both globally and locally, for each business unit. The Global Crisis Management Plan, which is made up of the Global Crisis Management Project and the Global Business Continuity Project, is part of the Strategic Plan of the Global Security and Intelligence Directorate. For the execution of the crisis management plan, the processes of each of the areas are identified, detecting scenarios that could lead to their interruption; potential treatment plans are considered; the business continuity strategies to be applied are decided; and, if necessary, business continuity plans are generated with the appropriate actions to be taken.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 276
Our strategy is evolving by strengthening the following aspects:
This is based on international standards such as ISO 22301 for business continuity management and ISO 22320 for emergency management. Each year, several global and local exercises are conducted to check the business continuity mechanisms, simulate crisis scenarios and identify opportunities for improvement with regard to real incidents.
The Global Business Continuity Committee, the highest governance body, defines the global strategy from design, as well as the prioritisation and availability of the necessary resources. The local business continuity committees, the bodies responsible for ensuring business continuity in each business unit, guarantee the implementation of the strategic decisions taken at global level and transfer the needs, achievements and maturity indicators that allow a holistic view of business continuity in the Company. The committees, whether at global or local level, prioritise and focus the resources where they can generate the greatest impact and value for the Company, based on:
Each business unit has its own Local Business Continuity Office (LBCO), and all local offices are aligned and coordinated through the Global Business Continuity Office (GBCO). The GBCO is functionally located in the Global Security and Intelligence Directorate, which is part of the Company’s corporate area. It coordinates the LBCOs and transfers the various strategic decisions defined by the Global Business Continuity Committee.
Our Global Business Continuity Program is aligned with the standard ISO 22301 and is made up of the following phases:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 277
The LBCOs are responsible for ensuring and driving the proper implementation of the business continuity management process, which starts with the identification of processes/services. The process is shown in the following image:
Business continuity management system
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4.# Consolidated Annual Report 2022
In order to have a homogeneous process for measurement of the correct execution of the management process by the LBCOs, the ‘degree of maturity’ has been defined.
Over the past years, we have reached and maintained an ‘optimised’ maturity level. This means that we have established, tested and gained lessons learned on the defined business continuity mechanisms:
The Global Crisis Management Project includes all aspects related to the successful coordination and management by senior management of events that could have a major impact on the Company, and which have to be treated as a crisis. The structure contains four layers.
| Layers of Crisis Management | |
|---|---|
| Crisis | • Definition • Classification (Local, Regional, Global) • Overall strategy |
| Crisis Committee | • Chairman • Members and boards • Media and channels |
| Procedures | • Crisis response procedures • Business continuity drills/plans • Communication plans |
| Architecture | • Alert system • Secure communication system • Crisis committee support system |
The global crisis management project provides additional and complementary mechanisms to business continuity, making it possible to manage incidents with a broad impact on the Company. Three types of crises are described as part of the model:
Depending on the type of crisis, there are active protocols and means of alert, notification, management and coordination, which are known to all those involved in the overall Crisis Management Project. The main role in this management process is played by the members of the crisis committee, at global or local level. There is a differentiation between permanent members who participate in any activation, ad hoc members who participate depending on the typology of the crisis, and working groups or task forces to support these members.
The Global Crisis Management Project enables us to:
Finally, it defines the obligation to conduct tests and drills on different scenarios potentially harmful to the Company. The drills will be carried out at least once every six months, unless a crisis situation is declared in the same period. This makes it possible to:
The events discussed by the crisis committee are detailed below:
| Events discussed by the crisis committee | |||
|---|---|---|---|
| GLOBAL – MONITORING CRISIS, COVID-19 – January to March 2022 | Description COVID-19 |
Type of crisis Health and Safety |
Impact Monitoring of the development and level of impact of COVID-19 on the employees of the Telefónica Group at a global level, as well as the level of impact on the in-person presence of employees at Telefónica facilities and the opening levels of the Company’s stores. |
| GLOBAL – UKRAINE– March to June 2022 | Description Conflict between Ukraine and Russia |
Type of crisis Political-social |
Impact Monitoring of the development and level of impact of the conflict on the Telefónica Group’s activities at a global level and its employees, as well as the level of impact on the countries where it operates. |
| BRAZIL (LOCAL) March 2022 | Description Unavailability of access to VPN |
Type of crisis Technological |
Impact Affecting approximately 60% of the customer care service level, due to it being impossible for employees and collaborators working remotely to connect and perform that service. The duration of the incident was 1 hour and 15 minutes, and it had no economic impact. |
| ECUADOR (LOCAL) June 2022 | Description Public demonstrations |
Type of crisis Political-social |
Impact Services to customers were not affected, but there were financial losses due to the commercial impact and impact on sales. In some cases, customer services at offices had to be restricted. |
| CHILE (LOCAL) September 2022 | Description Data centre power cut |
Type of crisis Operational continuity |
Impact Due to a power cut on 14 September, there was a failure at a data centre which affected several IT systems and the continuity of the WiFi. Although the most critical IT systems were restored in the first few days, in accordance with the priority set in the Business Continuity Plans, there were systems which exceeded the recovery time objectives (RTO), leading to the activation of the crisis committee. |
| BRAZIL (LOCAL) September 2022 | Description Failure in authentication and integration of users |
Type of crisis Technological |
Impact Impact on the customer care service, field and stores (B2B and B2C) due to login failure for several applications. Duration of approximately 1 hour, without an economic impact. |
| BRAZIL (LOCAL) December 2022 | Description Failure in the national mobile network |
Type of crisis Technological |
Impact Intermittent unavailability of fixed, mobile and TV network services at a national level, with different impact scenarios according to region due to the deconfiguration of 400 Nokia routers. |
PERU (LOCAL)
December 2022
Description Political instability and public demonstrations
Type of crisis Political-social
Impact Services to customers were not impacted. However, owing to the demonstrations, there was damage to premises.
Actions The crisis committee was activated on 8 December 2022. Periodic sessions were held, adopting security measures to protect staff and reinforce technical sites. Access to critical technical sites was restricted and, in the regions outside Lima, teleworking was put in place for staff. It coordinated actions with government authorities to ensure continuity of the services. In addition, all travellers were recommended to leave the country due to the risk to their safety. Those who wished to visit the country were warned about the risk to their safety and required to undergo a consultation process to authorise their trip.
Throughout 2022, we continued to adjust our security measures linked to remote access and teleworking. We continued to promote Local Business Continuity Offices in recently-created companies of the Group, as well as the participation of the Global Business Continuity Office in cross-cutting projects at a corporate level. The management of global and local crises, after satisfactorily activating the management process and the available resources, made it possible to maintain the service levels agreed with customers at all times and adapt the network capacity to changes in demand.
During 2022, the improvement, support for, and broadening of, the supply chain security initiative continued. We consolidated and evolved the 3PS+ tool, which makes it possible to digitalise the entire security risk management process in our purchasing.
In order to address and comply with the legal provisions of the countries related to local data protection and privacy laws and regulations, within the 2022 Annual Plan, a total of 748 specific audit days were used to verify compliance, as well as the identification of best practices in data protection issues.
The most significant aspect for European operators, which are affected by the new data protection legislation (GDPR), was to review the implementation of the documentation in Privateca of the data processing corresponding to year 2 of the GDPR audit cycle, as well as the successful execution of the controls on the reviewed processing and, within the governance model, the implementation of the data deletion procedure.
In the rest of the countries affected by local data protection laws, the most important aspects reviewed were verification of the application of security measures in the processing of personal data, verification that the integrity and quality of the information is assured, and verification that the consent of users has been obtained for the processing of their personal data.
The Annual Plan has also promoted auditing work related to cybersecurity and security in networks and systems, with the aim of validating mainly the security of remote access to the infrastructure and its security configuration (bastioning), as well as the resistance of the technological perimeter to incidents due to the exploitation of vulnerabilities. Another objective, related to the infrastructure configuration, is to review the stored information to ensure that it is sufficiently secure in terms of access permissions and profiles to prevent tampering or unauthorised deletion.
In 2022, a total of 5,088 specific audit days were used to verify the control environment as regards cybersecurity and the security in networks and systems.
We ran awareness-raising and training campaigns for employees on the subject of privacy and security, as well as for relevant third parties (sub-contractors, service providers and similar). For further information, see chapter 2.20. Responsible supply chain management.nagement.
With regard to employee training, in 2022, 126,948 participants completed their training on privacy, data protection, security and cybersecurity. These courses amounted to a total of 119,639 training hours provided.
In addition, we reinforced communication and awareness-raising programs in this area through different channels and techniques to ensure that the messages reached all the levels and locations of the Company:
* Phishing campaigns applied to all the employees of the Group, to raise awareness and educate them about cybersecurity risks.
* Annual surveys to measure knowledge levels concerning security and privacy.
* Knowledge pills on security, targeting the entire workforce, containing short messages to raise awareness about specific aspects.
* Gamification techniques, which include the elements and dynamics that are typical of games and leisure, in order to foster motivation and reinforce behaviour in information security and Company asset protection practices.
Telefónica actively participates in various international organisations and forums, most of which are multi- stakeholder bodies. In 2022, the following were noteworthy:
Internet Governance Forum in Spain
In 2022, we participated in the organisation of the Spanish edition of the Internet Governance Forum (IGF). This year, with the theme “Technology and people, more connected than ever”, we actively contributed to the debates on such different issues as: challenges and opportunities of the metaverse, digital sovereignty and Internet fragmentation, and the contribution of Over-The- Top (OTT) services to the financing of European telecommunications infrastructures.
Council of Europe
We have been a member of the partnership between digital companies, operators, industry organisations and the Council of Europe since its inception in 2017, so as to cooperate on the development of recommendations and proposals related to technology and human rights in democracy and the rule of law. Over 2022-2023, Telefónica has been participating in the Committee on Artificial Intelligence (CAI) in the work to prepare the Convention on Artificial Intelligence, which is intended to become the legal framework of reference on a global scale to tackle the challenges posed by AI with regard to human rights, democracy and the rule of law.
Cybersecurity Tech Accord
Telefónica is a founding member of this private sector initiative. It is a joint effort of more than 160 companies from around the world whose main objective is to protect internet users against the growing evolution of cyber- threats. Consumer awareness and “cyber-hygiene” are two of the tasks on which the organisation focuses its efforts. The Tech Accord is unique in its aim to accelerate the implementation and improvement of cybersecurity globally, through the participation of businesses, governments and individuals. The Cybersecurity Tech Accord was one of the first to support the Paris Call for Trust and Security in the Cyberspace, a forum created in 2018. In 2022, Telefónica continued our active participation in coordination between companies and governments, with the goal of enhancing security in an increasingly-connected environment. Noteworthy aspects of Telefónica’s contribution include the dissemination of a Zero-Trust culture and progress as regards security in the supply chain, and in promoting participation by women in the area of cybersecurity.
Organization for Economic Co-operation and Development (OECD)
We are a member of Business at OECD and Vice-Chair of its Committee on Digital Economy Policy. In 2022, the Ministerial meeting of the Committee on Digital Economy Policy was held, in which a statement was approved whereby the OECD includes, in its work, consideration of people’s rights in the digital world, following the Spanish proposal of a charter of digital rights. Telefónica was an active participant in the preparatory workshops and made a substantial contribution to the debates relating to the digital rights of people. We also participated in other OECD programs such as the Declaration on Government Access to Personal Data Held by Private Sector Entities, one of the most significant agreements of this Ministerial meeting. We continued to participate in the Working Party on Artificial Intelligence Governance (AIGO), as well as initiatives associated with digital technologies and anti- corruption measures.
International Telecommunication Union (ITU)
In 2022, we took part in the ITU Plenipotentiary Conference and its World Telecommunication Standardization Assembly, both of which are held every four years, where countries come to agreement, among other things, on which security aspects are the responsibility of telecommunications operators. Cooperation between agents, coordination and adoption of risk-based measures is essential in order to improve cybersecurity at a global level.# Consolidated management report 2022
Centre for Information Policy Leadership (CIPL)
We are part of the CIPL organisation, an international think tank based in Washington D.C., Brussels and London that works with industry leaders, regulators and policymakers to develop global solutions and best practices in the field of privacy and responsible use of data in the new digital environment.
Global System for Mobile Communications Association (GSMA)
We participate in the GSMA (the global organisation representing mobile operators and organisations) not only in the special groups and topics of the Fraud and Security Group (FASG), but also its other working groups. José María Álvarez Pallete is currently the Chairman of the GSMA and will hold the position for two years as of 1 January 2023.
ENISA Ad-Hoc Working Groups
We participate in the working groups that ENISA, the European Union Agency for Cybersecurity, has created with different European operators and manufacturers, with the aim of defining a 5G security certification scheme which will be mandatory for all European Union countries.
GRI 418-1
Summary of key indicators on privacy and security
| 2021 | 2022 | |
|---|---|---|
| Number of attendees on training courses in data protection and cybersecurity² | 67,880 | 126,948 |
| Number of hours of training in data protection and cybersecurity | 81,460 | 119,639 |
| Number of open procedures due to data protection issues | 68 | 49 |
| Number of fines for data protection issues | 24 | 18 |
| Sum of fines (euros) due to data protection issues | 436,714 | 318,059 |
| Number of confirmed fines due to data protection issues as a result of a security breach or incident (physical or cybersecurity) affecting personal data of customers, employees or others | 0 | 0 |
| Number of queries/complaints on data protection/privacy issues in the Responsible Business Channel | 9 | 30 |
| Number of queries/complaints on freedom of expression issues through the Responsible Business Channel | 2 | 0 |
| Number of days devoted to data protection and cybersecurity by Internal Audit | 5,822 | 5,836 |
| Total number of relevant information security/cybersecurity incidents classified as serious | 3 | 2 |
| Number of high-impact information security or cybersecurity incidents/breaches that affected customers’ personal data | 1 | 2 |
| Number of customers affected by data breaches³ | 157,217 | 1,407,257 |
| Percentage of clients whose information is used for secondary purposes⁴ | - | 69% |
MILESTONES
→ In 2022, for the third consecutive year, we were first in the sector in Ranking Digital Rights (RDR).
→ We consolidated and evolved the 3PS+ tool, which makes it possible to digitalise the entire security risk management process in our purchasing, with the goal of reaching at least 95% by 2025.
→We have extended our training and awareness programmes in privacy and security for our employees and relevant third parties.
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2 .An employee may have taken more than one privacy and/or security course.
3 In 2022, 2 incidents affecting personal data were identified. The first incident affected 1.4 million customers’ WiFi connectivity data in Spain. The incident was reported to each customer affected. Additionally, the continuous improvement in Telefónica’s cyberintelligence tools enabled the detection of a publication containing basic data from 2016 pertaining to customers in Hispam which was eliminated. As the published data were of a basic nature they were deemed as being inconsequential from a regulatory standpoint. Furthermore, no potential impacts on the rights and freedoms of the persons affected have been detected. However, in the interests of transparency, Telefónica has decided to voluntarily report this incident.
4 This percentage has been calculated based on the total number of Telefónica customers likely to receive commercial communications.This indicator has been calculated in line with the TC-TL220a.2 standard of the Sustainability Accounting Standards Board (SASB) and reflects the proportion of customers who, in accordance with legislation, do not object to the use of their information for uses such as commercial communication of the company's products and services. In particular, this indicator does not presuppose the use of customer information by third parties. Telefónica only processes personal data for secondary purposes in those cases permitted by current legislation or with the consent of customers. Telefónica also provides information on the processing of its customers' data in the Privacy Policy of each of its operations. In any case, the reported figure (69%) demonstrates that the tools we make available to our customers are useful to them and that customers are exercising their rights effectively.
GRI 2-6, 2-20
KEY POINTS
We require 100% of our suppliers to operate with stringent sustainability standards similar to our own. We engage with our key suppliers on specific topics (Scope 3 emissions, occupational health and safety standards, zero child labour, etc.) in order to join forces to achieve our targets. We collaborate with other telcos in industry initiatives to enhance our positive impact on the sustainable transformation of the ICT supply chain as a whole.
Telefónica has set ambitious sustainability targets, be it in relation to reducing CO2 emissions, promoting decent working conditions or designing sustainable digital solutions. In order to meet them, we cooperate closely with our suppliers on these issues. That is why we see them as partners in our common journey towards a more sustainable economy. We have developed robust policies and processes with a dual purpose in order to build trusting relationships with our suppliers. First, to jointly identify potential sustainability risks common to our supply chain in order to address them effectively. Secondly, to collaborate proactively on key issues (e.g. CO2 emissions) to turn the ICT supply chain into a driver for sustainability. This dual approach guarantees our customers products and services which not only have a positive impact on society and the planet, but have also been developed in a responsible manner.
GRI 3-3, 2-12
The sustainable management of our supply chain is part of the Responsible Business Plan, which is led by the Board of Directors. The Sustainability and Quality Committee of the Board of Directors supervises its implementation and monitors its goals.
GRI 3-3
Our key policies and standards related to responsible supply chain management are:
•Supply Chain Sustainability Policy.
•General conditions for the supply of goods and services.
•Low Carbon Procurement Instruction.
•Human Rights Policy.
•Global Privacy Policy.
•Global Security Policy.
•Occupational Health, Safety and Well-being Regulation.
•Global Environmental Policy.
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The main sustainability risks in our supply chain relate to working conditions, environmental impacts and data privacy and security. Failure to adequately address these risks may result in adverse impacts, not only for society and the planet, but also in terms of business disruption along our supply chain. In other words, sustainable supply chains allow for better identification of risks and higher avoidance of business disruptions resulting from pandemics, natural disasters and other geopolitical events. For further information, see chapter 1.4. Materiality. Our approach is to turn these risks into opportunities by working closely with our suppliers. In doing so, we can create efficiencies and, for example, reduce material, energy and transport costs. We can also increase labour productivity by ensuring decent working conditions in our supply chain. Lastly, we can innovate together in the face of changing markets and meet the growing demand for sustainable solutions in the transition to a more sustainable economy.
Telefónica’s purchasing strategy is mainly based on:
•Global management by Telefónica Global Services, an organisation made up of a team of buyers specialised by product/service category. This team leads the negotiations of products and services that require more technical knowledge and are more critical for the business, with in-depth knowledge of the market and a focus on capturing synergies. Coordination with the operators is coordinated through the local procurement teams in each country, making it it possible to anticipate demand and supervise the execution of contracts and supplier performance.
•Internal efficiency through the optimisation of procurement processes and systems, by symplifying process initiatives and developing support systems. This is complemented by a commitment to innovation and sustainability, present throughout the entire process of our relationship with our suppliers and developed through our sustainable management model. This is all based on generating a positive impact, favouring economic and social development based on digitalisation.# Consolidated management report 2022
Our commitments according to the key sustainability aspects in our supply chain
| Aspect | Our commitments | You can find more information on how we manage this in: |
|---|---|---|
| Abolition of child/forced labour | To contribute to the abolition of forced labour through specific projects focused on the protection of children's human rights (e.g. on-site audits of high-risk suppliers). | 2.15. Human Rights 2.20.5.1. Risk management, 2.20.6.1. Risk management in 2022 2.20.6.2. Engagement in 2022 |
| Working conditions | To promote decent working conditions among our suppliers, especially for those suppliers of labour-intensive services (contractors and subcontractors). | 2.20.5.1. Risk management, 2.20.6.1. Risk management in 2022 2.20.6.2. Engagement in 2022 |
| Occupational health and safety | To promote best practices in health and safety among our suppliers, with the common aim of achieving zero accidents. | 2.20.6.1. Risk management in 2022 2.20.6.2. Engagement in 2022 |
| Conflict minerals | To strengthen control over the use of 3TG minerals (tin, tantalum, tungsten and gold) throughout our value chain. | 2.20.6.2. Engagement in 2022 |
| Waste management | To work hand in hand with our suppliers to digitalise our waste management in order to improve traceability and seize the opportunities. presented by the circular economy. | 2.3. Circular economy |
| CO2 emissions - Scope 3 | To improve emissions management in our supply chain and increase engagement with our suppliers both globally and locally. | 2.2. Energy and climate change 2.20.6.2. Engagement in 2022 |
| Data privacy and security | To work with our suppliers, with a particular focus on those who have access to customer data, to ensure compliance with applicable regulations and security requirements. | 2.19. Privacy and security |
In doing so, we continue to rely on a Company-wide common procurement model. This model is aligned with our Responsible Business Principles and is based on transparency, equal opportunities and non- discrimination, objective decision making and sustainable management of our supply chain. Our suppliers have all the information available on our Supplier Portal. In accordance with international standards such as ISO 20400 and the OECD Due Diligence Guidance for Responsible Business Conduct, we base our sustainable management model on risk mitigation and trusting relationships with our suppliers.
Our approach is based on two pillars:
•Risk management
•Engagement with suppliers
We protect children's rights in the supply chain. Zero tolerance of child labour is a mandatory requirement for our suppliers.
l l l
2.20.5.1. Risk management
GRI 308-2, 407-1, 408-1, 409-1
Step 1. Minimum standards required
We require 100% of our suppliers to conduct their business activities in accordance to ethical standards similar to ours. Thus, ensuring respect for core human rights and labour rights, as well as the protection of the environment. Therefore, all Telefónica suppliers must accept the following upon registering and/or renewing in our Procurement platform:
•Supply Chain Sustainability Policy, where we set out the minimum criteria for responsible business that our suppliers must comply with.
•Anti-corruption Policy (certified). Prior acceptance of these minimum conditions means that successful suppliers are assessed in relation to the social and environmental impacts set out in our regulations.SUMMARY OF OUR MINIMUM RESPONSIBLE BUSINESS CRITERIA
•Zero corruption and conflicts of interest.
•Respect for human rights.
•Zero child labour.
•Fair treatment of employees.
•Freedom of association.
•Zero tolerance of forced labour.
•Diversity, gender equality and non- discrimination.
•Zero tolerance for violence and harassment at work.
•Health and safety.
•Minimum environmental impact.
•Waste management.
•Reduction of single-use plastics.
•Management and reduction of hazardous substances.
•Fewer emissions.
•Eco-efficiency.
•Responsible sourcing of minerals.
•Privacy, confidentiality of information, freedom of expression and artificial intelligence.
•Management of the supply chain.Step 2. Identification of high-risk suppliers
We focus on our main suppliers according to their level of risk and impact on our business, given the volume of purchases awarded. To do so, we carry out the following process to analyse the overall sustainability risk of our individual suppliers, according to our risk analysis methodology:
First criterion: an initial assessment of the possible risk level given the products/services supplied to us and based on the following specific sustainability aspects in our supply chain, as set out in our Minimum Responsible Business Criteria: working conditions, health and safety, environmental, human rights (child/forced labour), conflict minerals, privacy and data protection, and customer responsibility.
Second criterion: an analysis of the potential risk is then carried out taking into account the origin of the service or product (and its components). In this analysis, we have also incorporated the impact of potential risks associated with the pandemic by country of origin.
Third criterion: finally, we assess the potential reputational impact on Telefónica, should the risks analysed materialise. This three-step analysis allows us to identify potential high-risk suppliers in our supplier base from a sustainability perspective.
Step 3. Performance assessment of our high-risk suppliers
We monitor the possible risks associated with our potential high-risk suppliers identified in the initial analysis. Our buyers in different countries can view the results directly on the purchasing platform:
External assessment platform
We conduct an external 360° assessment of our main high-risk suppliers based on 15 sustainability criteria that cover ethical, social, environmental and supply chain management aspects.
Performance-based actions
Performance Sustainability Action ADVANCED •Collaborate with the supplier to identify possible improvements or sharing of best practices. PARTIAL •Request a commitment from the supplier to implement an improvement plan in the coming year, with the aim of improving its level of performance. INSUFFICIENT •Preventive blocking of the supplier in the purchasing system.
•Report and agree an improvement plan with supplier.Dow Jones Risk & Compliance Service
We cross-check our supplier database with Factiva, a database developed by Dow Jones Risk & Compliance. This comparison takes place on a regular basis from the time the supplier is registered. This tool allows us to identify possible risks related to ethical behaviour and corruption, thereby reinforcing processes already in place for compliance with our Anti-Corruption Policy. We identify the potential ethical and corruption risks of 100% of our suppliers when they register on our procurement platform.
l l l
If a supplier does not reach the required level in the external assessment platform or is unable to provide the information requested, we require their commitment to implementing improvement plans to ensure compliance with our standards. If the comparison with Dow Jones Risk & Compliance results in adverse information about the supplier, an analysis of this information is carried out to assess this adverse information and its significance in relation to the specific contract. In extreme cases, when this is not feasible, all further business with the supplier is suspended until they prove they have rectified the situation and/or corresponding actions have been taken to mitigate the identified risks, as stated in the terms and conditions signed by both parties.
Step 4. Audits of high-risk suppliers
The performance assessments are complemented by our annual audit plan to verify compliance with the critical aspects identified according to (i) type of supplier, (ii) service and product provided, and (iii) the risks of each region or country. These audits are mainly carried out through the internal Allies Programme (for service suppliers) and the sectoral Joint Alliance for CSR (JAC)1 initiative (for product manufacturers). The audits include improvement plans agreed with 100% of the suppliers that do not comply with any of the aspects that may have a negative social or environmental impact.
1 Joint Audit Cooperation has been transformed into a legal entity under the legal form of an international non-profit association under the new name “Joint Alliance for CSR" (JAC).
As explained above, our approach is based on two complementary pillars, namely risk management and supplier engagement.
In 2022, 100% of our suppliers accepted the minimum standards set out in our Supply Chain Sustainability Policy (step 1). Based on our global risk analysis of suppliers awarded contracts in 2022, we identified 768 suppliers that provide us with products or services which were classified as potentially high risk from a sustainability perspective. In 2022, we maintained our analysis methodology in order to focus on those suppliers with a significant impact on the business as well as the Company’s strategy (step 2). Of the suppliers identified, 72% have been externally assessed on sustainability aspects through an external platform, namely EcoVadis or IntegrityNext (including those that are in progress, pending analysis of the information provided).
Over the past year, taking into account the new requirements included in the proposed EU Directive on Corporate Sustainability Due Diligence, we started to improve the tools we have been using to work with our suppliers on sustainability. This improvement will progressively allow us to incorporate all our suppliers into our process for external assessment of sustainability aspects. It will also enable us to select the aspects to be included in each assessment according to the potential level of risk to Telefónica identified in our overall risk analysis.
According to the information available in the procurement system at the end of this reporting period, 6 suppliers were blocked in our database due to integrity/ sanctions, sustainability risks or non-compliance. These were 100% of the suppliers with identified risks, either relating to integrity/sanctions or sustainability issues (social or environmental reasons), which had not yet remedied the situation or shown a commitment to implement improvement plans to ensure compliance with our standards (step 3).
In addition, we complement the risk management of our suppliers with audits that allow us to verify their level of compliance with the various sustainability aspects that we require of them, including respect for human rights. In 2022, we conducted 18,578 administrative or on-site audits. Given the results obtained in these audits, at the end of the year we had 879 suppliers with improvement plans (10% of those awarded contracts) (step 4).
See breakdown of audits by theme in the table below.
| Audited risk aspects | Type of supplier | Region/ country | Ongoing audits and improvement plans |
|---|---|---|---|
| Ethics | |||
| ALLIES PROGRAMME | Labour-intensive collaborator companies. | Spain and six countries in Latin America² | • 8,479 administrative audits. • 9,090 on-site audits. • 268 suppliers with improvement plans. |
| CORPORATE | Germany, Spain and six countries in Latin America³ | • 68 on-site audits. • 66 suppliers with improvement plans. | |
| JAC INITIATIVE | Manufacturing centres in the ICT sector. | 54% in China and the rest in 12 countries⁴ | • 59 on-site audits: 62% on TIER 2 or 3 suppliers. • 24 suppliers with improvement plans. |
| OTHER LOCAL AUDITS | Due to risks associated with the product or service. | Brazil, Colombia, Mexico and Peru | • 135 administrative audits. • 124 suppliers with improvement plans. |
| Brazil and Colombia | • 8 on-site audits. • 1 supplier with improvement plans. | ||
| Brazil, Chile, Ecuador and Germany | • 271 on-site audits. • 106 suppliers with improvement plans. | ||
| Brazil, Colombia, Ecuador and Germany | • 450 on-site audits. • 283 suppliers with improvement plans. | ||
| Chile and Peru | • 18 on-site audits. • 7 suppliers with improvement plans. | ||
| Total audits per aspect | 17,985 | ||
| Suppliers with improvement plans | 471 |
The decision on how to conduct on-site audits has always been subject to compliance with local mobility restrictions for COVID-19 and to ensuring at all times the health of the people involved in the process.
In total, 549 corrective action plans were carried out as a result of the 98 audits carried out by the JAC sector initiative in 2022 (59 of the audits were at Telefónica suppliers). The following graph shows the breakdown of these plans by topic:
Corrective action plans in 2022
The following table provides additional information on the four audited aspects with the most corrective action plans raised in this audit campaign:
| Aspect | Non-compliance | Corrective action | Status at the end 2022 |
|---|---|---|---|
| Health and Safety | Some emergency exits not properly functioning/installed. | Emergency exits can now be passed appropriately (e.g. doorways open outwards, that is, away from the room). | Closed |
| No proper personal protective equipment used where required to control safety hazards and worker exposure. | Training provided for workers on proper use of personal protective equipment, supervision mechanism installed so that workers use it where required. | Closed | |
| Work schedule | The working-hour management and control system is not effective. | Establish systems to record, manage and monitor working hours, including overtime, with reliable and detailed records of workers' working hours. | Closed |
| Workers' overtime hours exceeded local legal requirements and their weekly working hours exceeded 60 hours. | Development of a reasonable production plan, increasing productivity using positive measures (such as bonuses), reducing overtime to no more than three hours per day and training employees on the health and safety hazards posed by excessive overtime. | Closed | |
| Environment | No identification of opportunities/ measures to reduce greenhouse gas emissions; no setting of corresponding reduction targets. | Development of energy savings plan with concrete measures and emissions targets. | Closed |
| The factory does not have a process in place to involve its suppliers in reducing greenhouse gas emissions in their operations. | Development of processes to oblige its suppliers to reduce greenhouse gas emissions in their operations. | Closed | |
| Wages and remuneration | Workers' wages are not regularly reviewed to ensure that a living wage is paid. |
² Argentina, Brazil, Chile, Colombia, Mexico and Venezuela.
³ Argentina, Brazil, Colombia, Ecuador, Mexico and Peru.
⁴ Brazil, Mexico, Italy, Poland, Romania, Tunisia, Nigeria, Bangladesh, Taiwan, India, Vietnam and the United States## 2. Non-financial Information statement _Leading by example
We closely monitor that service providers comply with our standards, including contractors. In 2022, we incorporated Germany into our audit process, promoted to the corporate level within the Allies Programme. In this way, the audit process covered each of our main markets: Brazil, Spain and Germany, and five countries in Hispanoamerica (Argentina, Colombia, Ecuador, Mexico and Peru). Throughout 2022, we audited 68 labour-intensive suppliers. As in previous years, a high level of compliance was achieved, standing at over 87% in the five areas audited (Responsible Business Principles, human resources, health and safety, environment, and security and data protection). These results reflect the good performance of our partners, thanks to the work they continue to do each year.
If we take into account the average number of risks per issue identified in each of the countries, the health and safety section was the one with the highest number, with the risks concentrated around aspects of industrial hygiene and safety, verification and planning. Regarding the human resources section, the most common risks were detected mainly in compliance with the required percentage of staff with disabilities and the lack of programmes for work climate measurement, guarantees and/or insurance taken out for labour claims, in addition to a lack of staff performance evaluation programmes. In environmental processes, the most common risks were related to the environmental management system (failure to identify and/or assess all applicable environmental requirements) and waste management. With regard to the section on security and data protection, the most common risks related to the lack of procedures establishing the criteria for action in the event of security breaches and the lack of employee training on data protection or information confidentiality.
Taking into account the potential social or environmental5 impacts of the risks identified, the most significant issues were as follows:
* The most significant social impacts are mainly related to industrial hygiene and safety, emergency control and accident assessment and control management.
* The environmental impacts are in the noise section.
Our supply chain management goes beyond our direct suppliers. As part of the JAC initiative, we place particular emphasis on carrying out audits of manufacturers that supply components and/or equipment to our suppliers. In 2022, 61% of the audits were conducted at Tier 2 or 3 suppliers. In addition, in Spain, we continue to develop our Comprehensive Prevention and Sustainability Project. Through this initiative, we aim to assess and recognise the performance in prevention and sustainability, with a special focus on aspects related to occupational risk prevention, of the main sub-contractors that collaborate with our contractors in the deployment and maintenance of our network. In 2022, we brought 11 new sub-contractors into the project, bringing the total to 106 Tier 2 suppliers and having an impact on 2,216 employees. The results of the assessments carried out during the first phase of the project allowed us to identify the need for improvements in two processes: (i) communication of the specific prevention measures that sub-contractors' employees must comply with, and (ii) creation of a channel for communicating any incidents detected regarding occupational risk prevention. To this end, we have begun to work with our contractors to identify the current status of each of these processes and to establish the necessary improvement plans in each case to ensure their proper development in the day-to-day relationship between the contractor and their respective sub-contractors.
GRI 204-1 For yet another year, we promoted new capabilities among our suppliers to improve their performance on key sustainability-related issues.
We work on emissions management in the supply chain. Globally, we have two collaborative programmes on climate change to which we invite our most significant suppliers in terms of emissions:
– Firstly, we continued our Supplier Engagement Programme to understand the maturity level of each supplier's corporate-level climate strategies and help them set more ambitious emissions reduction targets. For this purpose, we invited the most significant suppliers in terms of emissions to the CDP Supply Chain Programme. In total, 218 suppliers participated, representing 97% of the emissions from our supply chain.
– In addition, we are working on a new Carbon Reduction Programme, together with our strategic suppliers, on the analysis and reduction of emissions at the product level.
In addition, we encouraged decarbonisation among our SMEs and invited them to join the SME Climate Hub, where they can sign the SME Climate Commitment (through the Hub) and have access to the tools made available to help them achieve their climate goals. We continued to participate in initiatives such as 1.5°C Supply Chain Leaders to reduce CO2 emissions from small and medium-sized suppliers in the SME Climate Hub and in the climate change working group of the JAC initiative. For further information, see chapter 2.2. Energy and climate change.
5 Critical non-conformities identified during audits in each area are considered significant impacts, either social or environmental. Telefónica has implemented a new climate requirement within its procurement process, asking its key suppliers for a decarbonisation plan aligned with SBTi.
Under the JAC initiative, we collected direct feedback from 20,634 employees at 15 supplier factories through an anonymous survey conducted on their own mobile phones. In this way, we assessed aspects related to working conditions, especially with regard to issues concerning the number of hours worked, rest periods, harassment, discrimination, treatment and relationship with their direct manager, overtime, the handling of chemical materials, etc.
In the new Living Wage Working Group within the JAC initiative, we are working to ensure a living wage in the ICT supply chain. Through the JAC protocol, which we apply to all audits conducted under the initiative, we ensure that suppliers pay a fair and reasonable wage to employees that is high enough to maintain a decent standard of living.
We are part of the human rights working group created in 2021 within the JAC initiative to promote respect for human rights throughout our value chain. Together we analyse new regulations and trends that may have an impact on our suppliers, and implement initiatives to counteract potential risks in the ICT supply chain.
We regard our suppliers as partners and help them to meet our high sustainability standards. As a sign of this commitment, since 2019 we have been part of the Supplier Development Programme promoted by JAC and involving other telecommunications operators, a training programme for key suppliers that goes beyond an audit. The aim is to provide support to the supplier for two years in order to enhance its sustainability performance. By participating in this programme, suppliers have been able, for example, to reduce worker turnover and workplace accidents in factories, as well as improve employee satisfaction and productivity rates. For further information, see chapter 2.15. Human rights.
Although we do not have direct business relationships with smelters or refiners, we work actively to tighten controls on the use of these minerals across our value chain.
Policy and clauses
Our Minerals Policy is set out in our Supply Chain Sustainability Policy and is based on the OECD Due Diligence Guidance regarding minerals. All our suppliers have to accept this Policy and therefore commit to responsible sourcing of minerals. In addition, any supplier that submits an offer to us must meet minimum sustainability requirements in the supply chain. These are set out in the Telefónica Group’s General Conditions for the Supply of Goods and Services. They include a contractual minerals clause whereby we require our suppliers to carry out effective due diligence processes to ensure traceability of 3TG minerals and mitigation of associated risks (such as human rights violations).
Identification and management of high-risk suppliers
We support, and participate in, major international and sector initiatives to reduce this type of risk, such as:
a. The Responsible Minerals Initiative (RMI): our activities regarding smelters and refiners are supported by industry initiatives such as the RMI, in which audits are performed, best practices shared, and stakeholder dialogue promoted.
b. The Public-Private Alliance for Responsible Minerals Trade (PPA): we participate in the PPA, a multi-sector, multi-stakeholder initiative that improves conflict-free mineral supply chains.
We have a Concern and Whistleblowing Channel through which our stakeholders can consult us and submit complaints in this regard.
We report on the due diligence of the supply chain through various channels (this Report, the website, dialogue with stakeholders, etc.). Furthermore, as a company listed on the New York Stock Exchange, we comply with Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Once again this year, we have focused on fostering best practice regarding safety, health and well-being in our supply chain, with a particular focus on contractors who assist us in the deployment and maintenance of the network, activities where the main risks are present (work at height, electrical risk and confined spaces). In 2022, we maintained a series of initiatives with our suppliers depending on the situation in the different countries:
Initiative for the coordination of business activities which seeks to create a community of dialogue, sharing practices, addressing queries, proposals for improvement, etc., on an equal footing between supplier and customer.
We see diversity as a competitive advantage, which creates business value and positively impacts our results. Therefore, in addition to promoting it internally in the Company, we also encourage it among our suppliers, as stated in our Supply Chain Sustainability Policy.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 297
In this regard, we promote “Mujeres en Red”, a project that we implement in Colombia and Peru in collaboration with our partner companies to promote the employability and training of women in technical positions in the telecommunications sector, promoting equal opportunities in roles where women are under-represented. By the end of 2022, in both countries, more than 1,000 female technicians had been hired by our partners and over 7,000 people (both technicians and administrative staff) had received training on topics such as “Unconscious Biases”, “Female Empowerment” and “New Masculinities”. For further information, see chapter 2.7. Diversity and Inclusion.
To update the Low Carbon Procurement Instruction, we conducted internal training sessions for the different countries in which we operate. Over 500 purchasers and key internal contract managers, involved in the purchase of equipment consuming energy and/or containing refrigerant gases, participated in the sessions. In Brazil, we trained internal contract managers on how to manage our partners through an online course on our SuccessFactors platform. Also, complementing the training of our buyers and internal contract managers, we maintained our supplier training and communication channels with our suppliers for another year. In 2022, we delivered 11,936 in-person courses and 14,766 online courses involving over 349,001 participants from partner companies in Latin America.
These trainings were delivered in-person or online for our suppliers, addressing the specific needs in each country and the most critical issues according to the service they provide. For example, in Peru, we organised two workshops on “Regulation, Control and Good Practices in Environmental Matters”, with the aim of providing a knowledge base for the staff of the collaborating companies, in which 60 people took part. They learned about the main regulatory changes in the environmental field (comprehensive solid waste management, the circular economy, WEEE management, etc.). In addition, the workshop “Our Chain's Footprint” was also held, in which 14 people took part, with the aim of raising awareness and informing Telefónica's key suppliers about the importance of measuring and reporting the carbon footprint. In Spain, we provide privacy trainings to suppliers with whom we have a high number of contracts in force and that provide us with services involving the processing of personal data. In Colombia, through an online course on digital security, we improved our partners' knowledge of information security by addressing topics such as the workstation, secure passwords, how to change your password and security in the workplace. For further information, see chapter 2.19. Privacy and security.
Furthermore, under our Supplier Engagement Programme, and as part of the annual CDP Supply Chain campaign, we trained our key suppliers on carbon footprint management and reporting. As part of the SME Climate Hub initiative, we invited our SMEs to our “Small Business Saturday” seminar, where we presented the tools that the hub makes available to SMEs to help them achieve their climate goals. We also promoted continuous communication as a key lever to boost their engagement through different channels, such as our newsletter to Allies, the Allies’ Portal and the Supplier’s Portal. The Supplier’s Portal contains all our global policies, as well as specific local requirements. Our suppliers have a confidential channel for queries and complaints related to compliance with our Minimum Standards for Responsible Business.
We also organise in-person and online events (global and local) with suppliers, such as:
An annual meeting point for leaders of the Company’s energy transformation and the main collaborating companies in the field. This is a workshop that reviews and sets out the challenges for the Company in this area. Around 200 professionals from different internal areas and 30 technology partners participated in this edition. During the workshop, multiple initiatives from our different markets were broken down, focusing on reducing fuel consumption (in buildings and mobile sites), the impact of refrigerant gases (reducing leakage), optimising consumption and increasing the use of renewable energy. Changes in the global energy model were also analysed, as well as, the energy market situation, and developments in the industry relating to energy procurement. In addition, for yet another year, the Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement _Leading by example 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 298 Company’s climate change targets were reviewed and the importance of the work carried out by our suppliers to achieve them was made clear. For further information, see chapter 2.2. Energy and climate change.
This was attended by nearly 125 people from 68 companies exposed to practices that may violate human rights, including issues related to occupational health and safety. The event aimed to provide a general understanding of the importance of human rights within the Telefónica business environment and how they affect the Company's relationship with its suppliers.
The event brought together Telefónica Spain, its supply chain (main contractors and sub-contractors), the most prominent operators in the sector, trade unions and ADEMI, the sector's employers' association. All of them share the target of achieving zero accidents in the sector. During the forum, dedicated to the key players in prevention, the close coordination between all the actors in the telco sector was revealed, highlighting the great extent to which managers are involved in achieving the targets set and the importance of, and trust in, people as the cornerstone on which the culture of prevention is built.# Consolidated management report 2022
Another of the aspects addressed was Telefónica Spain's Comprehensive Prevention and Sustainability Plan, which is based on our Responsible Business Principles, the importance of sustainability for the progress of society, and our commitment to the prevention of occupational hazards. For the third consecutive year, an award was presented to one of the companies in our supply chain based on the results obtained in its prevention management, which this year went to the prevention services of the company Cobra Instalaciones y Servicios, S.A. Lastly, a tribute was paid to all those people who throughout the pandemic and especially at the beginning, when as a society we were largely unaware of how to proceed, did not hesitate to continue working to ensure that we remained connected.
| 2021 | 2022 | |
|---|---|---|
| Activity | ||
| Volume of purchases awarded. | 23,737M | 21,863M |
| Suppliers awarded contracts. | 9,368 | 8,526 |
| % purchases awarded locally. | 81% | 83% |
| Ethics and Compliance | ||
| Sustainability risk- related suppliers identified in our global analysis. | 810 | 768 |
| % high-risk suppliers assessed on sustainability aspects through EcoVadis o IntegrityNext. | 71% | 72% |
| % suppliers assessed through Dow Jones Risk & Compliance. | 100% | 100% |
| Suppliers blocked due to integrity/sanctions, sustainability risks or non-compliance. | 9 | 6 |
| Total audits of suppliers. | 17,960 | 18,578 |
| High-risk suppliers with improvement plans. | 610 | 879 |
l 1. Strategy and growth model
2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 299
6 Considering that the activity of Telefónica UK Limited has not been included in the 2022 reporting scope, comparability between the two years is not guaranteed.
l 1. Strategy and growth model
2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 300
Telefónica makes accessible and secure networks and services available to people and organisations so that they can express themselves, share, work collaboratively and enjoy...
Based on the relationship model that brings us together, we distinguish seven key stakeholders:
| TYPE | DESCRIPTION | TARGET | SAMPLE |
|---|---|---|---|
| Report/publicise | Mainly one-way communication from the Company to its stakeholders regarding practices or new developments by which they may be affected. Sharing information can influence the parties involved, creating trust and demonstrating transparency and a willingness to engage. | Keeping them promptly and regularly informed: newsletters, letters, bulletins, reports, presentations, speeches, videos, reports, interviews and open days... Transparency. | |
| Consultation | Telefónica asks stakeholders their opinions to identify trends, evaluate impacts, ascertain risks and take decisions. The main information flow is one-way, but has often led to more detailed conversations. | Measure and evaluate: surveys, focus groups, assessments, public hearings, workshops, discussion forums and hot-lines. Transparencia y escucha: pone en valor los comentarios y puntos de vista de los grupos de interés. | |
| Participation/ dialogue | A two-way and/or multi-party conversation in which stakeholders play a more important role in decision- making. The conclusions are implemented and/or referred up through the Company's hierarchy. | In-depth debate: Consultancy Board, established work groups, interviews, research and analysis. Transparency. Listening Monitoring committee – Collaboration. | |
| Collaborate | Collaboration between two or more parties in an area of mutual interest. The Company and its stakeholders establish synergies and reduce risks by combining resources and areas of expertise. | Active collaboration: establishment of joint committees, joint ventures with stakeholders, alliances, collective bargaining. Transparency. Listening Commitment. Positive relations based on a common goal. | |
| Empower/engage | Stakeholders have a formal channel to influence the Group’s corporate governance and decision-making processes. | Sharing responsibilities: stakeholder representation on the Board of Directors, specific channel for reporting breaches of policy and existence of guarantees. Effective Engagement: sharing purpose and responsibilities. |
l 1. Strategy and growth model
2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 301
GRI 3-2, 3-3
Responsibility towards customers
Digital inclusion
l 1. Strategy and growth model
2. Non-financial Information statement _Leading by example
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A.# Consolidated management report 2022
Guarantee the privacy of users through responsible management of personal data.
Respect and protect the right to freedom of expression. Be transparent in responding to requests from competent authorities.
Offer new, more flexible work methods for employees by facilitating work- life balance (flexibility, teleworking, digital switch-off outside the office, etc.). Care about the safety, health and well-being of employees.
Ensure the protection of data and information systems against possible attacks.
Ensure the physical protection of property and assets, including network security.
Design and implement the necessary policies and processes to ensure the protection of the Company's people, services, interests, obligations and business in the event of a crisis.
Ensure that we have the skills and capabilities necessary to grow our business. Promote practices and policies throughout the employee life-cycle (recruitment, compensation, benefits, development opportunities, etc.) that help us attract and retain the best talent.
Ensure fair and attractive pay practices, aimed at attracting and retaining talent and meeting the Company's strategic targets.
Ensure freedom of association and the right to collective bargaining.
Facilitate and deliver a hybrid, flexible and digital working model, which increases engagement, satisfaction and value delivery of our teams and contributes to work-life balance, while ensuring digital disconnection.
Ensure a safe and healthy environment for employees through models for the prevention of work-related incidents and occupational diseases, as well as the active promotion of well-being and emotional health.
Promote diversity (of gender, abilities, age, background, sexual orientation or identity, etc.), equal opportunities and non-discrimination. Take action to prevent and eliminate workplace harassment.
Strengthen the monitoring of suppliers to manage the risks related to purchasing products that may contain minerals from conflict zones or high-risk areas in terms of human rights.
Facitate the economic sustainability of suppliers through fair procurement conditions.
Establish sustainability criteria in the supply chain. Work with suppliers so they meet social and environmental standards. Encourage collaboration with suppliers who are climate aware and reduce their own emissions.
Preserve the integrity of the Company in relation to the Responsible Business Principles, on issues such as fraud, corruption, bribery, legal compliance, prevention of money laundering, political neutrality and any other conduct related to ethical issues.
Manage legal and social expectations related to monopolistic and anti- competitive practices, including issues such as price-fixing or manipulation, collusive practices and bargaining power, among others.
Establish good governance practices aimed at adequate financial and sustainability accountability. Be transparent and truthful with information.
Incorporate the Company's values into all aspects of the organisation. Guarantee ethical, environmentally-friendly and responsible conduct towards employees, customers and society in general.
Act with honesty, respect for the law and transparency in the management of fiscal affairs.
Calculate, report, reduce and offset/neutralise greenhouse gas emissions to contribute to the fight against climate change. Include climate change adaptation measures in the Company's management.
Improve energy efficiency and switch to renewable energy sources, adapting the Company's operations to the changes in climate that are already being experienced.
Help our customers to increase their energy efficiency and sustainability by reducing their carbon footprint using our products and services (efficient network, connectivity solutions, Eco Smart services, etc.).
Minimise the impact on wild species and/or their natural habitat resulting from land use, earthworks, etc., especially in protected natural areas, through environmental impact assessments.
Properly manage and maintain sources of emissions, noise and vibrations to comply with legally established limits.
Introduce measures to reduce water consumption. Manage sanitary wastewater and its discharge in compliance with applicable legislation.
Encourage the management and treatment of waste, including electrical and electronic equipment, ensuring traceability and legal compliance. Maximise recycling (and sale) of waste resulting from network transformation (copper cable, scrap equipment).
Collect, refurbish and reuse customer household equipment such as routers, set-top boxes, as well as telecommunications network equipment.
The origin of non-financial information
Non-financial information for the Group is reported without figures for Central America, unless specifically indicated.
It comes from the same sources that produce the information included in the Group's Consolidated Annual Accounts Report, audited by PwC.
This comes from the management control systems of Telefónica S.A. and from operations in the countries. The number of the Company's total connections does not have to coincide with the partial amount, country by country, since the Corporate Management Control Area uses consistency criteria to standardise certain connection counting criteria.
The figure comes from corporate human resources management systems and local management areas. In cases where consolidated information is given, the number of persons is used as a factor of proportionality. As part of the improvement processes, in 2022 the management systems of the local and global areas were standardized. As a result, improvements in the integrity and quality of information are incorporated. In addition, it should be noted that the 2021 employee figures have been recalculated due to the joint venture between Telefónica UK and Virgin Media UK that took place in June 2021. Therefore, the “United Kingdom” data for 2021 have been incorporated into the “Others” segment in this report.
The information comes from online questionnaires and other IT media from the Environment and Global Operations Areas and each country. Environment and energy data is consolidated by simple addition and, in the case of climate change, calculated by multiplying the activity data by the emission factor and then adding by simple addition. The sources of the emission factors are highly reputable (GHG Protocol, DEFRA, ministries, etc.) and have been validated by an independent third party (AENOR).
Supplier information comes from the procurement system used by the procurement areas to award contracts to suppliers. The information is consolidated without applying any criteria as a factor of proportionality. It is important to highlight the difference between the procurement data in the Consolidated Financial Statements (in accordance with the accrual method and Telefónica Group's accounting scope of consolidation) and the purchase award criterion used in different sections of this report, which refers to all purchases approved in the period, regardless of how they are accounted for and accrued as an expense.
Corporate scope
A list of the companies comprising the Telefónica Group, their names, main corporate purpose, country, share capital, percentage of effective ownership by the Group, and the company or companies through which the Group's shareholding is obtained, can be found in Appendix I to the 2022 Consolidated Financial Statements (Scope of Consolidation). A reporting scope for non-financial information was developed in the 2021 financial year and during the 2022 financial year the process to update the reporting scope was developed and enhanced. The non-financial reporting scope is based on the financial scope included in the SAP BPC tool, which provides the highest level of corporate detail.# 2. Non-financial Information statement
In addition, it reflects the non-financial indicators grouped into different categories of sustainability information, which are:
For each of these categories, based on both internal and external information (e.g. non-financial regulations or the main reporting standards), specific criteria have been Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 305 identified to estimate the corporate scope corresponding to each of them¹.
The non-financial reporting scope is updated three times a year, in coordination with the Financial Consolidation Area and the Global Areas, which manage non-financial/ sustainability indicators, and reflects corporate changes mainly relating to new companies, divested companies and structural changes.
Other information
All information in this Report is given in euros, unless otherwise stated. The exchange rates applied coincide with those used in the preparation of the Group's Consolidated Financial Statements to facilitate the integral relationship between financial and non-financial variables.
Due to its strategic importance for the Company, the Report contains several specific indicators corresponding to VMED O2 UK (Virgin Media O2), the joint venture created in the United Kingdom between Telefónica UK and Virgin Media UK. This entity began operating on 1 June 2021. The included indicators have been independently verified under limited assurance by KPMG, the entity's external auditor.
GRI 2-14 This Non-Financial Information Statement (NFIS) forms part of Telefónica's 2022 Management Report and includes the progress made at the Company during the year in economic, social and environmental matters across its value chain, together with its strategic, development and market positioning, so that readers can better understand the sustainability of our business model and its materiality, its capacity to generate value in terms of capital and the interaction with stakeholders.
As an integral part of Telefónica's 2022 Consolidated Management Report, the statement has been evaluated and approved by the Board of Directors.
Telefónica reports non-financial information in accordance with applicable regulations and the foremost internationally recognised benchmark standards. In this regard, the main rules and standards are as follows:
a. Law 11/2018 of 28 December, which amends the Commercial Code; the revised text of the Corporations Law approved by Royal Legislative Decree 1/2010 of 2 July, and Law 22/2015 of 20 July on the Auditing of Accounts in terms of non-financial information and diversity. See Law 11/2018 Compliance Table in section 2.21.9. of this chapter
b. The Global Reporting Initiative (GRI) Standards, together with the recommendations of the International Integrated Reporting Council (IIRC). See Law 11/2018 Compliance Table in section 2.21.9. of this chapter
c. The SASB (Sustainability Accounting Standards Board) standard as applied to the telecommunication services sector, in accordance with the Sustainable Industry Classification System ® (SICS®) TC-TL. See SASB Compliance Table in section 2.21.10. of this chapter
d. The recommendations of the Task Force on Climate- related Financial Disclosures (TCFD) on environmental reporting. See TCFD Compliance Table in section 2.21.8. of this chapter
e. The AA1000AS Standard: in addition, the NFIS has been reviewed by PwC according to the principles defined by the AA1000AS Standard, values that seek to “ensure the quality of the organisation's Sustainability Report and of the processes, systems and competencies applied as the basis for its execution by the entire organisation”.
In addition, Telefónica reports on its commitment to the following international treaties and targets:
a. The United Nations Universal Declaration of Human Rights.
b. The United Nations Sustainable Development Goals (SDGs) (see chapter 2.8).
c. The International Covenant on Civil and Political Rights.
d. The International Covenant on Economic, Social and Cultural Rights.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 306
e. The Convention on the Rights of the Child.
f. The Convention on the Rights of Persons with Disabilities.
g. The Conventions of the International Labour Organization.
h. The Basel Convention (hazardous waste).
i. International ICNIRP guidelines.
j. The Montreal Protocol.
The information presented is reported without bias and is a fair representation of the organisation's impacts.
Telefónica presents its information in an accessible and understandable way, attempting to provide it in a form that is clear for users with basic knowledge of the organisation.
The comparability of the information provided is facilitated by using, for example, internationally accepted units, conversion factors, protocols and procedures. Information is also provided on previous years and the statement details the modification of calculation and measurement methodologies, where applicable.
We include the material aspects and their coverage, scope and time, in order to show their significant economic, environmental and social effects. In this way, stakeholders can analyse Telefónica's performance during the period under analysis.
Telefónica contributes to the progress of the communities in which we operate and their social and environmental sustainability throughout our value chain and at local, regional, national and international levels, from working with our suppliers through to respecting consumer rights, including marketing sustainable products and services.
This report covers issues that reflect the Company's significant economic, environmental and social effects and substantially influence our stakeholders' assessments and decisions. To this end, a materiality analysis has been performed at corporate, local and regional level from a dual perspective: significance for our stakeholders and impact on communities.
Telefónica provides all its stakeholders with reliable, material, concise and comparable information on its performance, its business model, its value levers and its strategic lines for the coming years. This information is provided at scheduled intervals, so that our various stakeholders can incorporate it into their decision making.
Telefónica subjects its Non Financial Information Statement to independent verification, under limited assurance, following criteria set by GRI standards. Besides, certain non financial indicators are verified under reasonable assurance (see chapter 2.22). In both cases, verifications have been carried out by PwC , with the exception of the indicators related to energy consumption and greenhouse gases emissions, that were reviewed by other independent verifiers, in compliance with ISO14064-3 rule (reports of the different verifiers are attached at the end of this annex). Besides, the Internal Audit department performs specific reviews on some processes and indicators..
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 307
GRI 3-3 Through its Chairman, Telefónica has been a signatory to the United Nations Global Compact (UNGC) since 2002. The UNGC is a voluntary framework for companies to align their operations and strategies with the 10 principles on human rights, labour, the environment and anti- corruption.
| Principles | Chapter of the report # Consolidated Management Report 2022
GRI 2-28 Telefónica collaborates with associations and other organisations which have a direct impact on our sector and interest groups. In particular:
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Good Job Foundation: a Spanish, nationwide, not-for-profit organisation aimed at the employment and social integration of people at risk of social exclusion.
Ibero-American Business Foundation, an entity that works to facilitate the integration of the countries of the Ibero-American Community through operational proposals. It promotes the internationalisation of multi- Ibero-American companies by putting forward proposals which help to overcome the barriers they encounter in their sphere of action, proposing initiatives to provide content for a realistic and desirable agenda of policy recommendations in the Ibero-American sphere and encouraging the creation of a regulatory framework that facilitates investment and trade for Ibero-American companies.
Máshumano Foundation, an organisation that promotes the humanisation of management models in business and social organisations, proposing work models which respond to the social need to balance personal, family and professional life.
ONCE Foundation, an organisation dedicated to the social and labour inclusion of people with disabilities.
The Princess of Asturias Foundation is a private non-profit institution, whose aims are to contribute to the exaltation and promotion of all scientific, cultural and humanistic values that are universal heritage and to consolidate the existing links between the Principality of Asturias and the title traditionally held by the heirs to the Crown of Spain.
The aim of the Princess of Girona Foundation is to support young people in their professional development, from education to access to the labour market, through training and support and by creating points of reference for young people.
Randstad Foundation: its mission is to achieve equal employment opportunities for people with disabilities.
Global Compact, a United Nations initiative that promotes the implementation of 10 universally accepted principles in the areas of human rights, labour standards, environment and anti-corruption.
Global Digital Women (GDW), an international body of digital pioneering women. Its aim is the networking, visibility and empowerment of inspiring digital minds of our time. GDW offers #femaledigitalheroes in companies, politics, associations and organisations a platform and space to exchange experiences and make their careers visible.
Global Network Initiative (GNI), a coalition of companies, civil society organisations, investors and academics working to protect and promote freedom of expression and privacy in the Information and Communication Technologies (ICT) sector.
Spanish Green Growth Group, an association which aims to tackle environmental challenges through public-private partnerships.
GSMA, an organisation of mobile operators and related companies dedicated to supporting the standardisation, implementation and promotion of the mobile phone system. It has approximately 800 mobile operators and more than 200 related companies as members.
IBGC - Brazilian Institute of Corporate Governance, the leading voice in corporate governance in Brazil and one of the main institutions in the world to advocate high standards of corporate integrity, addressing entrepreneurs, business leaders, investors, board members, executives and politicians.
ICT Coalition, which works for the development of products and services that address the challenge of child safety in the online world.
IDB (Inter-American Development Bank), the leading source of development finance in the region. It aims to improve the quality of life in Latin America and the Caribbean in priority sectors such as health, education and infrastructure through financial and technical support for countries working to reduce poverty and inequality. Its vision is to achieve development using sustainable and climate-friendly methods.
Information Security Forum (ISF), an independent information security body.
Hermes Institute, a non-profit foundation dedicated to identifying, disseminating and defending digital citizenship rights.
Internet Watch Foundation, an NGO that locates and reports images of child sexual abuse globally.
ITU (International Telecommunication Union), the United Nations specialised agency for Information and Communication Technologies (ICT).
Joint Audit Cooperation, a sector-wide initiative of 17 telecommunications operators that have joined forces to verify, assess and develop the implementation of sustainability standards in common supplier factories.
Media Chicas, a non-profit organisation with the aim of bridging the digital gender gap through the democratisation of knowledge.
Mobile UK, the association of the UK mobile network operators EE, O2, Three and Vodafone. Mobile UK's mission is to work with government, regulators, civil society and others to harness the power of mobile devices, improve the lives of customers and the prosperity of the UK as a whole.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
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OECD, the organisation that promotes policies to improve the economic and social well-being of people around the world.
O-RAN Alliance, its mission being to reshape the RAN industry towards more intelligent, open, virtualised and fully interoperable mobile networks. The new O-RAN standards will enable a more competitive and vibrant RAN vendor ecosystem with faster innovation to improve the user experience. O-RAN-based mobile networks will simultaneously improve the efficiency of RAN deployments and mobile operators' operations.
UN Women develops programmes, policies and standards to uphold women's human rights and ensure that all women and girls reach their full potential.
World Tourism Organization (WTO), a specialised agency of the United Nations whose purpose is to promote and develop tourism as an important instrument for world peace and understanding, economic development and international trade.
United Nations, an organisation founded by 51 countries committed to maintaining international peace and security and promoting social progress, better living standards and human rights.
Pride Connection, a network that seeks to promote inclusive work spaces for sexual diversity and generate links to attract LGBTI talent to the various organisations that make up the network.
United Nations Development Programme (UNDP) works to eradicate poverty and reduce inequality and exclusion.
RE100, a global initiative to involve, support and highlight large businesses committed to using 100% renewable energy, demonstrating leadership in the fight against climate change and the development of a low-carbon economy.
Spanish Royal Academy of Engineering, an institution at the forefront of technical knowledge, which promotes excellence, quality and competence in Spanish engineering in its various disciplines and areas of action. Its activities include the “Women and Engineering” programme in which Telefónica collaborates.
Real Instituto Elcano, a think tank for international and strategic studies from a Spanish, European and global perspective. Its purpose is to promote knowledge of the international situation and Spain's foreign relations in society, as well as to stand as a focal point for thought and the generation of ideas that are useful for decision making by political leaders, leaders of private enterprise and public institutions, social players and academics.
Business Network for LGBTI Diversity and Inclusion (REDI), the network of companies and professionals committed to fostering an inclusive and respectful environment in organisations in Spain, where talent is valued regardless of identity, gender expression and sexual orientation.
Responsible Minerals Initiative (RMI), an initiative founded by companies from various sectors to address the challenges related to conflict minerals in the supply chain.
Stonewall, the UK's leading LGBT+ rights and welfare organisation, helps civil society and business to promote inclusive behaviour.
Tele Management Forum provides an open and collaborative environment, together with practical tools and information to assist its members in their digital transformation initiatives. Its services include Catalyst collaborative programmes and proof-of-concept projects, industry research and benchmarking, technology roadmaps, best practice guides, business process guidelines and open APIs, as well as certified training, conferences and research. The forum has over 850 member companies, including the 10 largest telecommunications service providers in the world.
The Valuable 500, an organisation that brings together 500 companies committed, through their CEOs, to promoting the inclusion of people with disabilities on the global agenda.
UNESCO (Global Education Coalition), a partnership to ensure continuity of learning worldwide. This multi-sectoral coalition brings together 175 institutional partners from the UN family, civil society, academia and the private sector working around three central themes: connectivity, teachers and gender equality. The Coalition employs a mission-driven approach to achieve large-scale targets and as a way to implement initiatives: Global Skills Academy, Global Teacher Campus, and Global Learning House.
Women for Women, an organisation that promotes women's development and leadership, and a greater presence in management positions to strengthen organisations.
5G Automotive Association, a global, cross-industry organisation of companies from the automotive, technology and telecommunications industries.# 2.21.8. Table of Climate-related Financial Disclosures (TCFD)
Disclose the organization’s governance around climate-related risks and opportunities.
| Recommendations | References |
|---|---|
| a) Describe the board’s oversight of climate-related risks and opportunities. | 2.2.3. Governance (Energy and climate change) 2.16. Governance and culture of sustainability 3.1. Risk management framework 4.4. The organisational structure of the administrative bodies CDP Climate responses 2022: C1.1 |
| b) Describe management’s role in assessing and managing climate- related risks and opportunities. | 2.2.3. Governance (Energy and climate change) 2.16. Governance and culture of sustainability 3.1. Risk management framework 4.4. The organisational structure of the administrative bodies CDP Climate responses 2022: C1.2, C1.2a |
Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material.
| Recommendations | References |
|---|---|
| a) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term. | 2.2.5. Risks and opportunities (Energy and climate change) 2.20. Responsible supply chain management 3.1. Risk management framework 3.2.2. Main risks from an ESG perspective 3.3. Risk Factors. Operational Risks. CDP Climate responses 2022: C2.1a, C2.3, C2.3a, C2.4, C2.4a. |
| b) Describe the impact of climate- related risks and opportunities on the organization’s businesses, strategy, and financial planning. | 1.1.1. Background: political polarisation, uncertain economic scenario and increased ESG regulation 1.7. Sustainable finance 1.8. European taxonomy for sustainable activities 2.1.4. Risks and opportunities (Responsibility with the environment) 2.2.5. Risks and opportunities (Energy and climate change) 2.4. Digital solutions for the green transition Consolidated Annual Accounts 2022: d) Environmental and climate change matters. CDP Climate responses 2022: C2.3a, C2.4a, C3.1, C3.2a, C3.3, C3.4, C3.5 |
| c) Describe the resilience of the organization’s strategy, taking into consideration different climate related scenarios, including a 2°C or lower scenario. | 2.2.5. Risks and opportunities (Energy and climate change) 2.2.6. Action plan and commitments (Energy and climate change) 2.3.5. Action plan and commitments (Circular economy) 2.4. Digital solutions for the green transition CDP Climate responses 2022: C3.2, C3.2a, C3.2b |
Disclose how the organization identifies, assesses, and manages climate-related risks.
| Recommendations | References |
|---|---|
| a) Describe your organization's processes for identifying and assessing climate-related risks. | 2.2.5. Risks and opportunities (Energy and climate change) 3.1. Risk management framework 3.2. Risk map 3.2.2. Main risks from an ESG perspective 3.3. Risk Factors. Operational Risks. CDP Climate responses 2022: C2.1, C2.2, C2.2a |
| b) Describe the organization's processes for managing climate- related risks. | 2.2.5. Risks and opportunities (Energy and climate change) 3.1. Risk management framework 3.2. Risk map 3.2.2. Main risks from an ESG perspective 3.3. Risk Factors. Operational Risks. Consolidated Annual Accounts 2022: d) Environmental and climate change matters. CDP Climate responses 2022: C2.1, C2.2 |
| c) Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organization’s overall risk management | 2.2.5. Risks and opportunities (Energy and climate change) 2.16.3. Culture aligned with ethical and sustainable management 3.1. Risk management framework 3.2. Risk map 3.2.2. Main risks from an ESG perspective 5.1. Annual Report on Remuneration CDP Climate responses 2022: C2.1, C2.2 |
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.
| Recommendations | References |
|---|---|
| a) Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process. | 2.2.6. Action plan and commitments (Energy and climate change) 2.2.7. Progress in 2022 (Energy and climate change) 2.3.5. Action plan and commitments (Circular economy) 2.3.6 Progress in 2022 (Circular economy) 2.4. Digital solutions for the green transition 2.16.3. Culture aligned with ethical and sustainable management 5.1. Annual Report on Remuneration CDP Climate responses 2022: C4.2, C4.2a, C4.2b, C9.1 |
| b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. | 2.2.6. Action plan and commitments (Energy and climate change) 2.2.7. Progress in 2022 (Energy and climate change) CDP Climate responses 2022: C6.1, C6.2, C6.3, C6.5, C6.7, C6.10 |
| c) Describe the targets used by the organization to manage climate related risks and opportunities and performance against targets. | 2.2.6. Action plan and commitments (Energy and climate change) 2.2.7. Progress in 2022 (Energy and climate change) 2.3.5. Action plan and commitments (Circular economy) 2.3.6 Progress in 2022 (Circular economy) 2.4. Digital solutions for the green transition CDP Climate responses 2022: C4.1, C4.1a, C4.2, C4.2a, C4.2b, C4.2c |
| GRI 1 | Telefónica, S.A. has prepared the report in accordance with the GRI Standards for the period from 1 January 2022 to 31 December 2022. |
|---|---|
| Areas | Contents |
| Business model | Description of the business model, environment, organization and structure. |
| Markets in which it operates. | |
| Objectives and strategies | Statement on sustainable development strategy. |
| Main factors and trends which could affect its future evolution. | |
| Policies and their results | A description of the policies which the Group applies with regard to those issues, which will include: |
| 1.) the due diligence procedures applied for the identification, evaluation, prevention and mitigation of risks and significant impacts. | |
| 2.) the verification and control procedures, including which measures have been adopted. | |
| Main non- financial risks | The main risks related to these issues regarding the Group's activities, including, where relevant and proportionate, its commercial relations, products or services which could have negative effects in those areas, and |
| * how the Group manages those risks, | |
| * explaining the procedures used to detect them and evaluate them in accordance with the national, European and international reference frameworks for each issue. | |
| * It must include information about the impacts which have been identified, giving a breakdown of them, in particular the main risks in the short, medium and long term. | |
| Environmental issues | Global environment |
| 1.) Detailed information about the current and foreseeable effects of the Company's activities on the environment and, where applicable, health and safety, the environmental evaluation or certification procedures; | |
| 2.) The resources dedicated to the prevention of environmental risks; | |
| 3.) The application of the precautionary principle, the quantity of provisions and guarantees for environmental risks (e.g. arising from environmental liability legislation). |
| Reporting criteria | GRI description | Reference/ location | GRI omissions |
|---|---|---|---|
| 2-1 Organisational details. | Direct answer: Telefónica S.A. 4.2. Structure of the Property |
||
| 2-6 Activities, value chain and other business relationships. | 1.3. Business model 1.6. Organisation 1.9. Main indicators and footprint 1.10. Business overview |
||
| Direct answer: Headquarters in Madrid, Spain. 1.9. Main indicators and footprint |
|||
| 2-22 Statement on sustainable development strategy. | 1.2. Mission 1.5. Strategy |
||
| 3-3 Management approach of each area. | 1.1. Context 1.4.2. Double materiality determination process 1.6. Organisation 3.1. Risk management framework |
||
| 407-1 Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk. | 2.20.5.1. Risk management 2.20.6.1. Risk management in 2022 Direct answer: During the financial year 2022, there were no transactions in which employees/suppliers' rights of freedom of association |
||
| 408-1 Operations and suppliers at significant risk for incidents of child labour. | 2.20.5.1. Risk management 2.20.6.1. Risk management in 2022 Direct answer: There were no operations with a significant risk of child or forced labour during the financial year 2022. |
||
| 409-1 Operations and suppliers at significant risk for incidents of forced or compulsory labour. | 2.20.5.1. Risk management 2.20.6.1. Risk management in 2022 Direct answer: There were no operations with a significant risk of child or forced labour during the financial year 2022. |
||
| 3-3 Management approach of each area. 2.1. Responsibility with the environment 2.1.3. |
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
| GRI description | Reference/ location | GRI omissions |
|---|---|---|
| Policies and management systems | 2.1. Responsibility with the environment | |
| Energy and climate change | 2.2. Energy and climate change | |
| Circular economy | 2.3. Circular economy | |
| Policy commitments. | 2.1. Responsibility with the environment | |
| Responsibility with the environment | 2.1. Responsibility with the environment | |
| Energy and climate change | 2.2. Energy and climate change | |
| Circular economy | 2.3. Circular economy | |
| New suppliers that have passed evaluation and selection filters according to environmental criteria. | 308-1 | |
| Risk management in 2022 | 2.20.6.1. | |
| Negative environmental impacts in the supply chain and actions taken. | 308-2 | |
| Action plan and commitments | 2.3.5. | |
| Risk management | 2.20.5.1. | |
| If we focus our risk analysis exclusively on the assessment of specific environmental impacts, given the product or service they supply, we have 878 suppliers with potential or actual significant negative environmental impacts. | ||
| Pollution | ||
| 1.) Measures to prevent, reduce or repair carbon emissions which seriously affect the environment. | 3-3 Management approach to emissions/ biodiversity. 2.1. Responsibility with the environment 2.1.6. Responsible network and biodiversity 2.2. Energy and climate change 2.3. Circular economy |
|
| Reduction of GHG emissions. | 305-5 2.2.6. Action plan and commitments |
|
| 2.) Taking into account any form of specific atmospheric pollution of an activity, including noise and light pollution. | ||
| Emissions of ozone- depleting substances (ODS). | 305-6 | Direct answer: 20.8 tonnes. |
| Nitrogen oxides (NOX), sulphur oxides (SOX) and other significant air emissions. | 305-7 | Reason for omission: Not applicable. This indicator is not considered to be relevant as the emissions of this type of pollutants are not a significant part of our activity. |
| Circular economy, prevention and management of waste | ||
| Circular economy. | 3-3 Management approach to effluents and waste. 2.1. Responsibility with the environment 2.1.6. Responsible network and biodiversity 2.2. Energy and climate change 2.3. Circular economy |
|
| Recycled input materials used. | 301-2 2.3.6. Progress in 2022 > Internal eco-efficiency |
Reason for omission: Not applicable. This indicator is not considered applicable as the products and services offered by Telefónica are not directly related to manufacturing products. |
| Reclaimed products and their packaging materials. | 301-3 2.3.6. Progress in 2022 > Internal eco-efficiency |
|
| Waste: prevention measures, recycling, re-use, other forms of recovery and disposal of waste. | 3-3 Management approach to effluents and waste. 2.1. Responsibility with the environment 2.1.6. Responsible network and biodiversity 2.2. Energy and climate change 2.3. Circular economy |
|
| Waste generation and significant waste-related impacts. | 306-1 2.3.6. Progress in 2022 > Internal eco-efficiency |
|
| Management of significant waste- related impacts. | 306-2 2.3.6. Progress in 2022 > Internal eco-efficiency |
|
| Waste generated. | 306-3 2.1.7. Progress in 2022: Main indicators 2.3.6. Progress in 2022 > Internal eco-efficiency |
|
| Waste diverted from disposal. | 306-4 2.1.7. Progress in 2022: Main indicators 2.3.6. Progress in 2022 > Internal eco-efficiency |
|
| Waste directed to disposal. | 306-5 2.3.6. Progress in 2022 > Internal eco-efficiency |
|
| Actions to combat food waste. | 306-1 Waste generation and significant waste-related impacts. | Reason for omission: Not applicable. This indicator is not considered applicable as the products and services offered by Telefónica are not directly related to food consumption. |
| Sustainable use of resources | ||
| The consumption of water and the supply of water in accordance with local limitations. | 303-5 Water consumption. 2.1.7. Progress in 2022: Main indicators 2.3.6. Progress in 2022 > Internal eco-efficiency |
|
| Consumption of raw mate- rials and the measures adopted to improve efficiency in their use. | 3-3 Approach to materials management. 2.1. Responsibility with the environment 2.1.3. Policies and management systems 2.2. Energy and climate change 2.3. Circular economy |
|
| Materials used by weight or volume. | 301-1 | Reason for omission: Not applicable. As it is a service company, this indicator does not apply. The consumption of materials does not occur for the direct generation of products but for the Company's telecommunications network to provide the services required by our customers. The processes to reduce consumption of materials and re- use them make our network more efficient from this perspective, too. In our administrative activities, the material most used is paper. At Telefónica, efficient use is encouraged through digitalisation of processes. Chapter 2.3. Circular economy includes more details on Telefónica's management of paper consumption. |
| Recycled input materials used. | 301-2 2.3.6. Progress in 2022 > Internal eco-efficiency |
|
| Reclaimed products and their packaging materials. | 301-3 2.3.6. Progress in 2022 > Internal eco-efficiency |
|
| Direct and indirect consumption, of energy, measures taken to improve energy efficiency and the use of renewable energies. | 3-3 Approach to energy management. 2.1. Responsibility with the environment 2.1.3. Policies and management systems 2.2. Energy and climate change 2.3. Circular economy |
|
| Energy consumption within the organisation. | 302-1 2.2.7. Progress in 2022 |
Direct answer: energy consumption reported includes both that used at Telefónica facilities and at external facilities, such as those of other operators or telecommunications tower companies. Energy consumption in own facilities 17,644,187 GJ (2021 data: 17,812,443 GJ). |
| Energy consumption within the organisation. | 302-2 2.2.7. Progress in 2022 |
Direct answer: energy consumption reported includes both that used at Telefónica facilities and at external facilities, such as those of other operators or telecommunications tower companies. Energy consumption in third-party installations: 4,338,332 GJ (2021 data: 4,171,409 GJ). |
| Energy intensity. | 302-3 2.1.7. Progress in 2022: Main indicators 2.2.7. Progress in 2022 |
Direct answer: 175 GJ/PB (2021 data: 194 GJ/PB. Energy intensity has been reduced by 10%). |
| Reduction in energy consumption. | 302-4 2.2.7. Progress in 2022 |
|
| Reductions in energy requirements of products and services. | 302-5 | Reason for omission: Not applicable. This indicator is not considered applicable as the products and services offered by Telefónica are not directly related to our customers' energy consumption. The nature of the products and services offered by Telefónica is mostly related to mobile and fixed connectivity, as well as digital and data services. |
| Climate Change | ||
| The important elements of the greenhouse gas emissions generated as a result of the company's activities, including the use of the goods and services it produces | 3-3 Approach to emissions management. 2.1. Responsibility with the environment 2.1.3. Policies and management systems 2.2. Energy and climate change 2.3. Circular economy |
|
| Direct GHG emissions (Scope 1). | 305-1 2.1.7. Progress in 2022: Main indicators 2.2.7. Progress in 2022 |
Direct answer: Biogenic emissions: 13,873 tCO2eq (2021 data: 9,020 tCO2eq) |
| Indirect GHG emissions from the generation of energy (Scope 2). | 305-2 2.1.7. Progress in 2022: Main indicators 2.2.7. Progress in 2022 |
|
| Other indirect GHG emissions (Scope 3). | 305-3 2.1.7. Progress in 2022: Main indicators 2.2.7. Progress in 2022 |
|
| GHG emissions intensity. | 305-4 2.1.7. Progress in 2022: Main indicators 2.2.7. Progress in 2022 |
|
| Reduction of GHG emissions. | 305-5 2.2.6. Action plan and commitments 2.2.7. Progress in 2022 |
|
| The measures adopted in order to adapt to the consequences of climate change. | 3-3 Approach to emissions management. 2.1. Responsibility with the environment 2.1.3. Policies and management systems 2.2. Energy and climate change 2.3. Circular economy 201-2 Financial implications and other risks and opportunities due to climate change. |
2.2.5. Risks and opportunities |
| The reduction targets voluntarily established in the medium and long term to reduce GHG emissions and the measures implemented to that end. | 3-3 Approach to emissions management. 2.1. Responsibility with the environment 2.1.3. Policies and management systems 2.2. Energy and climate change 2.3. Circular economy 305-5 Reduction of GHG emissions. |
2.2.6. Action plan and commitments |
| Protection of biodiversity | ||
| Measures taken to preserve or restore biodiversity. | 3-3 Management focus. Biodiversity. 2.1. Responsibility with the environment 2.1.6. |
|
| ## Telefónica, S. A. |
Impacts caused by the activities or operations in protected areas.
Total number and distribution of employees by sex, age, country and professional classification.
2-7 Employees.
Annual average of permanent contracts, temporary contracts and part-time contracts by sex, age and professional classification.
2-7 Employees.
Number of dismissals by sex, age, country and professional classification.
405-1 Diversity of governance bodies and employees.
Total number and distribution of types of employment contracts.
2-7 Employees.
5.1.1. Principles of the Remuneration Policy
5.1.2. Our remuneration practices
5.1.6. Application of the Remuneration Policy in 2022
404-2 Programmes for upgrading employee skills and transition assistance programmes.
2.6.3. Progress in 2022
404-3 Percentage of employees receiving regular performance and career development reviews.
2.6.3. Progress in 2022
401-1 New hires and employee turnover.
401-3 Parental leave.
Total number of hours of training by professional categories.
404-1 Average hours of training per year per employee.
2.6.3. Progress in 2022
405-1 Diversity of governance bodies and employees.
Employees with disabilities.
Wage gap, the remuneration of jobs of equal value or the average of the Company.
3-3 Employment + diversity and equality of opportunities.
Ratio of basic salary and remuneration of women to men.
405-2 Ratio of basic salary and remuneration of women to men.
The average remuneration of directors and managers, including variable remuneration, allowances, compensation, payments into long-term savings plans and any other payment, with a breakdown by sexes.
3-3 Approach to diversity and equality management.
Annual total compensation ratio.
2-21
Reason for omission: Confidentiality constraints. Information included in the Report covers the annual compensation ration for the Company's CEO. Information relating to the different countries is not published on specific confidentiality grounds. Information regarding the percentage increase is not published for specific confidentiality reasons.
Ratios of standard entry-level wage by gender compared to local minimum wage.
202-1
Measures adopted to promote equality of treatment of and opportunities for men and women.
2.7.
3-3 Approach to worker- Company relations management.
402-1 Minimum notice periods regarding operational changes.
Measures aimed at facilitating the life-work balance and promoting the co-responsibility of both parents.
3-3 Approach to employment management.
401-3 Parental leave.
3-3 Approach to employment management.
Implementation of end of employment policies.
3-3 Approach to employment management.
Organisation of work time.
3-3 Approach to employment management.
Number of hours of absenteeism.
3-3 Approach to employment management (quantitative data on absenteeism).
403-4 Worker participation, consultation and communication on occupational health and safety.
2.9.4. Action plan and commitments
Percentage of employees covered by collective agreements, by country.
2-30 Collective bargaining agreements.
403-1 Occupational health and safety management system.
403-2 Hazard identification, risk assessment and incident investigation.
2.17.5.3. Complaint and remedy mechanisms: Concern and Whistleblowing Channel
403-3 Occupational health services.
403-5 Training of workers in occupational health and safety.
403-6 Promotion of workers' health.
403-7 Prevention and mitigation of impacts on the health and safety of workers directly linked to business relationships.
403-4 Worker participation, consultation and communication on occupational health and safety.
403-8 Coverage of the occupational health and safety management system.
Occupational accidents, in particular their frequency and severity.
403-9 Injuries due to occupational accidents.
Reason for omission: Information unavailable/ incomplete. The information included in the Report includes only internal employees hired by Telefónica.
Occupational diseases, broken down by sex.
403-10 Occupational diseases and illnesses.
Direct answer: No particular incidence or risk of diseases related to the Company’s activity is apparent.
Reason for omission: Information unavailable/ incomplete. The information included in the Report includes only internal employees hired by Telefónica.
Biodiversity.
2.1. Responsibility with the environment
2.1.6. Responsible network and biodiversity
Social and personnel- related matters
Employment
Total number and distribution of employees by sex, age, country and professional classification.
2-7 Employees.
2.5.7. Staffing indicators
2-8
Workers who are not employees.
Reason for omission: Information unavailable/ incomplete. The information included in the Report includes only internal employees hired by Telefónica.
202-2 Proportion of senior management hired from the local community.
Direct answer: 69% of the CEOs and chairmen in the countries are local.
321
405-1 Diversity of governance bodies and employees.
2.7.6. Staffing and diversity indicators
Total number and distribution of types of employment contracts.
2-7 Employees.
2.5.7. Staffing indicators
Annual average of permanent contracts, temporary contracts and part-time contracts by sex, age and professional classification.
2-7 Employees.
2.5.7. Staffing indicators
405-1 Diversity of governance bodies and employees.
2.5.7. Staffing indicators
Number of dismissals by sex, age, country and professional classification.
401-1 New hires and employee turnover.
2.6.4. Turnover indicators
Average remunerations and their evolution, with a breakdown by sex, age and professional classification or equal value.
405-2 Ratio of basic salary and remuneration of women to men.
2.7.7. Remuneration indicators
Wage gap, the remuneration of jobs of equal value or the average of the Company.
3-3 Employment + diversity and equality of opportunities.
2.7. Diversity and Inclusion
405-2 Ratio of basic salary and remuneration of women to men.
2.7.7. Remuneration indicators
The average remuneration of directors and managers, including variable remuneration, allowances, compensation, payments into long-term savings plans and any other payment, with a breakdown by sexes.
3-3 Approach to diversity and equality management.
2.7.7. Remuneration indicators
2-19 Remuneration policies.
2.6.2. Action plan and commitments
5.1.1. Principles of the Remuneration Policy
5.1.2. Our remuneration practices
5.1.6. Application of the Remuneration Policy in 2022
2-20 Process to determine remuneration.
2.6.2. Action plan and commitments
5.1.7. The process for determining the Remuneration Policy and the Company’s bodies involved
322
2-21 Annual total compensation ratio.
2.7.7. Remuneration indicators
Reason for omission: Confidentiality constraints. Information included in the Report covers the annual compensation ration for the Company's CEO. Information relating to the different countries is not published on specific confidentiality grounds. Information regarding the percentage increase is not published for specific confidentiality reasons.
202-1 Ratios of standard entry-level wage by gender compared to local minimum wage.
2.7.7. Remuneration indicators
201-3 Defined benefit plan obligations and other retirement plans.
2.6.2. Action plan and commitments
401-2 Benefits provided to full-time employees that are not provided to temporary or part- time employees.
Reason for omission: Not applicable. Part-time or temporary percentage of employees is insufficient to be considered material for Telefónica.
Implementation of end of employment policies.
3-3 Approach to employment management.
2.8.3. Action plan and commitments
Employees with disabilities.
405-1 Diversity of governance bodies and employees.
2.7.6. Staffing and diversity indicators
Organisation of work
Organisation of work time.
3-3 Approach to employment management.
2.8.3. Action plan and commitments
Number of hours of absenteeism.
3-3 Approach to employment management (quantitative data on absenteeism).
2.9.6. Main occupational health and safety at work indicators
Measures aimed at facilitating the life-work balance and promoting the co-responsibility of both parents.
3-3 Approach to employment management.
2.8.3. Action plan and commitments
401-3 Parental leave.
2.6.4. Turnover indicators
323
Health and safety
Health and safety conditions at work.
403-1 Occupational health and safety management system.
2.9.4. Action plan and commitments
403-2 Hazard identification, risk assessment and incident investigation.
2.9.4. Action plan and commitments
2.17.5.3. Complaint and remedy mechanisms: Concern and Whistleblowing Channel
403-3 Occupational health services.
2.9.4. Action plan and commitments
403-5 Training of workers in occupational health and safety.
2.9.4. Action plan and commitments
403-6 Promotion of workers' health.
2.9.4. Action plan and commitments
403-7 Prevention and mitigation of impacts on the health and safety of workers directly linked to business relation- ships.
2.9.4. Action plan and commitments
403-8 Coverage of the occupational health and safety management system.
2.9.5. Progress in 2022
2.9.6. Main occupational health and safety at work indicators
Reason for omission: Information unavailable/ incomplete. The information included in the Report includes only internal employees hired by Telefónica.
Occupational accidents, in particular their frequency and severity.
Occupational diseases, broken down by sex.
403-9 Injuries due to occupational accidents.
2.9.6. Main occupational health and safety at work indicators
Reason for omission: Information unavailable/ incomplete. The information included in the Report includes only internal employees hired by Telefónica.
403-10 Occupational dis- eases and illnesses.
2.9.6. Main occupational health and safety at work indicators
Direct answer: No particular incidence or risk of diseases related to the Company’s activity is apparent.
Reason for omission: Information unavailable/ incomplete. The information included in the Report includes only internal employees hired by Telefónica.
324
Labour relations
Organisation of dialogue in labour matters, including procedures to inform and consult employees and negotiate with them.
3-3 Approach to worker- Company relations management.
2.8.3. Action plan and commitments
402-1 Minimum notice periods regarding operational changes.
2.8.3. Action plan and commitments
407-1 Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk.
2.20.5.1. Risk management
2.20.6.1. Risk management in 2022
Direct answer: During the financial year 2022, there were no transactions in which employees/suppliers' rights of freedom of association were violated.
Percentage of employees covered by collective agreements, by country.
2-30 Collective bargaining agreements.
2.8.4. Progress in 2022
The outcome of collective agreements, particularly in the sphere of occupational health and safety.
403-4 Worker participation, consultation and communication on occupational health and safety.
2.8.3. Action plan and commitments
2.9.4. Action plan and commitments
Mechanisms and procedures that the company has in place to promote the involvement of workers in the management of the company, in terms of information, consultation and participation.
3-3 Approach to worker- Company relations management.
2.5. Human capital
Training
The policies implemented in the field of training.
3-3 Management approach to training and education.
2.6. Attraction, retention and talent development
2.16.4. Progress
404-2 Programmes for upgrading employee skills and transition assistance programmes.
2.6.2. Action plan and commitments
2.6.3. Progress in 2022
2.8.3. Action plan and commitments
404-3 Percentage of employees receiving regular performance and career development reviews.
2.6.2. Action plan and commitments
2.6.3. Progress in 2022
Total number of hours of training by professional categories.
404-1 Average hours of training per year per employee.
2.6.3. Progress in 2022
2.6.6. Training indicators
325
Equality
Measures adopted to promote equality of treatment of and opportunities for men and women.
3-3 Diversity Management and Equal Opportunities + Non-discrimination approach.
2.7.# 2. Non-financial Information statement
Equality plans (Chapter III of Organic Law 3/2007, of 22 March, for the effective equality of women and men), measures adopted to promote employment, protocols against sexual harassment and gender- related harassment, the integration and universal accessibility of people with disabilities.
Universal accessibility of people with disabilities.
Human rights
Application of due diligence measures with regard to human rights. Prevention of the risks of violation of human rights and, where applicable, measures to mitigate, manage and repair possible abuses committed.
Reports of cases of violation of human rights.
Promotion and fulfilment of the provisions of the fundamental conventions of the International Labour Organization related to respect for freedom of association and the right to collective bargaining.
Direct answer: During the financial year 2022, there were no transactions in which employees/suppliers' rights of freedom of association were violated.
The elimination of discrimination in employment and occupation.
The elimination of forced or compulsory labour.
Direct answer: There are no operations with a significant risk of child or forced labour during the financial year 2022.
The effective abolition of child labour.
Corruption and bribery
Measures adopted to prevent corruption and bribery.
Measures to combat money laundering.
Contributions to non-profit foundations and entities.
The impact of the Company's activity on local employment and development.
The impact of the Company's activity on the local populations and the territory.
The relations maintained with local community players and the forms of dialogue with them.
Association or sponsorship actions.
Subcontracting and suppliers
Supervision and audit systems and their results.
If we focus our risk analysis exclusively on the assessment of specific social impacts, given the product or service they supply, we have 744 suppliers with potential or actual significant negative social impacts.
Measures for the health and safety of consumers.
Complaint systems, complaints received and their resolution.
Direct answer: in 2022, there were 30 consultations/ complaints on data protection/ privacy issues in the Responsible Business Channel (2021 data: 9 ).
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 330
Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 and related Delegated Regulations - 1.8. European taxonomy for sustainable activities
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 331
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 332
Regarding the references to the information in chapters 1 and 4, only the content required by the applicable non- financial information regulations and the related GRI Standards has been verified. All GRI issues related to the indicators included in this table are considered material to the Company, except 301: Materials, 303: Water and Effluents. However, indicators 301-1, 301-3, 303-3 and 303-5 are considered relevant for reporting purposes and therefore the Company provides information in this area. The GRI Standards used in this Report correspond to the 2016 version, with the exception of the following: GRI 1: Fundamentals (2021), 2: General Contents (2021), 3: Material Issues (2021), 207: Taxation (2019), 303: Water and Effluents (2018), 403: Occupational Health and Safety (2018) and, 306: Waste (2020).
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 333
Table 1. Sustainability disclosure and accounting metrics
| Subject | SASB Code | Metrics | Telefónica's response/comments # Consolidated management report 2022
TC- TL-520a.3 Description of the risks and opportunities associated with net neutrality, paid peering, zero rating and related practices. Telefónica has defined its policy in the Digital Pact (https://www.telefonica.com/en/web/ public-policy/telefonica-digital-deal).
TC- TL-550a.1 Management of systemic risks arising from technological outages
| (1) FIXED NETWORK: Average system outage frequency. | 2 |
| (2) MOBILE NETWORK: Average system outage frequency. | 25 |
| (3) FIXED NETWORK: Average duration of outage for customer. | 0 |
| (4) MOBILE NETWORK: Average duration of outage for customer. | 0 |
TC- TL-550a.2 Discussion of systems to provide unimpeded service during outages. See chapter 2.12.3. Network quality and availability
Notes: (1) Data for Telefónica Spain.
| SASB Code | Metrics | Telefónica's response/comments |
|---|---|---|
| TC- TL-000.A | Total number of mobile accesses (million). | 292 |
| TC- TL-000.B | Total number of fixed accesses (million). | 28 |
| TC- TL-000.C | Number of fixed broadband connections (million). | 26 |
| TC- TL-000.D | Network traffic in petabytes. | 125,790 |
| Topic | Sub-Topic | KPI Name | GSMA Code | Telefónica's response/comments | Scope |
|---|---|---|---|---|---|
| Environment | Emissions | Absolute Scope 1 and 2 emissions (tonnes CO2e) | GSMA- ENV-02 | 353,346 | Absolute Scope 1 and 2 emissions (tonnes CO2e) |
| Absolute Scope 1 and 2 emissions (tonnes CO2e) per 1PB data | 3 | ||||
| Percentage change in absolute Scope 1 and 2 emissions since last reporting period² | Telefónica reports its evolution relative to the base year 2015: -80% | ||||
| Absolute Scope 3 emissions (tonnes CO2e) | 15 | Absolute Scope 3 emissions (tonnes CO2e) | |||
| Absolute Scope 3 emissions (tonnes CO2e) per 1PB data | 0 | ||||
| Percentage change in absolute Scope 3 emissions since last reporting period³ | Telefónica reports its evolution relative to the base year 2016:: -7% | ||||
| Energy | Energy Consumption | Total energy consumed (MWh) | GSMA- ENV-03 | 6,106,255 | Total energy consumed (MWh) |
| Total energy consumed (MWh) per 1PB of data.⁴ | 49 | ||||
| Total Network energy consumed (MWh) | 5,824,828 | Total Network energy consumed (MWh) | |||
| Total Network energy consumed (MWh) per 1PB of data | 46 | ||||
| Percentage grid renewable | 75 % | ||||
| Percentage grid non renewable | 25 % | ||||
| Percentage off grid renewable | It is not representative for Telefonica's activity. | ||||
| Percentage off grid non renewable | It is not representative for Telefonica's activity. |
2 The evolution compared to the previous period is -34%
3 The evolution compared to the previous period is -7%
4 Telefónica reports its evolution relative to the base year 2015: -87%
| Topic | Sub-Topic | KPI Name | GSMA Code | Telefónica's response/comments |
|---|---|---|---|---|
| Environment | Waste Reduction | Percentage of Network equipment repaired or reused, by units. | GSMA- ENV-04 | |
| Materials | Percentage of reused network equipment in tons (GRI 306). | Telefónica uses as denominator the total of network equipment managed as waste and not the total deployed equipment: 39% | ||
| Percentage of Network equipment repaired or reused, by purchase price. | Telefónica does not report waste indicators calculated by purchase price, as this variable may be influenced by various factors (inflation, asset depreciation, etc.). | |||
| Percentage of Handset and CPE repaired or reused, by units. | ||||
| Percentage of reused Handsets and CPE in tons (GRI 306). | Telefónica use as denominator the total of devices managed as waste and not the total deployed devices: 56% | |||
| Percentage of Handset and CPE repaired or reused, by purchase price. | Telefónica does not report waste indicators calculated by purchase price, as this variable may be influenced by various factors (inflation, asset depreciation, etc.). | |||
| Waste Generated | Total waste generated (tonnes) per 1PB of data | GSMA- ENV-05 | Telefónica reports the total waste generated in tons (GRI 306): 58,463 | |
| Network waste (tonnes) per 1PB of data | Telefónica reports Network waste in tons (GRI 306): 9,234 | |||
| Handsets and other Customer premises equipment (CPE) waste (tonnes) per 1PB of data | Telefónica reports Handsets and CPE in tons (GRI 306): 3,498 | |||
| All other waste (tonnes) per 1PB of data | Telefónica reports All other waste in tons (GRI 306): 45,732 |
| Topic | Sub-Topic | KPI Name | GSMA Code | Telefónica's response/comments |
|---|---|---|---|---|
| Environment | Waste Reduction | Percentage of Network waste (from 1.5b) recycled (units) | GSMA- ENV-06 | |
| Materials | Percentage of recycled network equipment in tons (GRI 306). | Telefónica uses as denominator the total of network equipment managed as waste and not the total deployed equipment: 61% | ||
| Percentage of purchase price of recycled Network waste | Telefónica does not report waste indicators calculated by purchase price, as this variable may be influenced by various factors (inflation, asset depreciation, etc.). | |||
| Percentage of Handsets and CPE waste (from 1.5c) recycled (units) | ||||
| Percentage of Handsets and CPE recycled in tons (GRI 306). | Telefónica uses as denominator the total of devices managed as waste and not the total deployed devices: 44% | |||
| Percentage of purchase price of recycled Handsets and CPE waste | Telefónica does not report waste indicators calculated by purchase price, as this variable may be influenced by various factors (inflation, asset depreciation, etc.). | |||
| Percentage of all other waste (from 1.5d) recycled (units) | Telefónica reports Percentage of all other waste in tons: 97% | |||
| Percentage of purchase price of all other recycled waste | Telefónica does not report waste indicators calculated by purchase price, as this variable may be influenced by various factors (inflation, asset depreciation, etc.). |
| Topic | Sub-Topic | KPI Name | GSMA Code | Telefónica's response/comments | Breakdown by: |
|---|---|---|---|---|---|
| Digital Inclusion | Network Coverage | Percentage of population covered by operator's mobile network. | GSMA- INC-01 | 4G: 90.2% | 3G, 4G, 5G |
| Affordability | Cost of the most affordable data- enabled phone, as percentage of monthly GDP per capita | GSMA- INC-02 | It is not possible to report this indicator due to services with convergent tariffs. | ||
| Average cost of 1GB of data, as percentage of monthly GDP per capita | It is not possible to report this indicator due to services with convergent tariffs. | ||||
| Digital Skills | Number of people (excluding employees) that have completed a digital skills training programme, divided by total subscribers | GSMA- INC-03 | 1,305,715⁵ |
⁵ A total of 1,305,718 people have been trained under the projects: Lanzaderas, Conecta Empleo, Piensa en Grande and Escuela 42.
| Topic | Sub-Topic | KPI Name | GSMA Code | Telefónica's response/comments |
|---|---|---|---|---|
| Digital Integrity | Data Protection | Number of data breaches, per million subscribers | GSMA- INT-01 | Total number of digital security breaches or incidents classified as serious: 26 |
| Percentage of data breaches involving personally identifiable information (PII) | 100% | |||
| Number of customers affected, per million subscribers | 3,673⁷ | |||
| Number of regulatory actions for data protection violations (e.g. marketing related complaints, data breaches, etc), per million subscribers | 0 | |||
| Digital Rights | Is there a policy specifically covering Digital rights protection and transparency, Privacy, Freedom of expression, Government mandates to shut down or restrict access, and/or Government requests for data? (yes/ no) | GSMA- INT-02 | Yes | |
| Online Safety | Online Safety Measures | Do you have controls or programmes in place to improve online safety for children and other vulnerable groups? (yes/no) | GSMA- INT-03 | Yes |
| Supply Chain | Sustainable Supply Chain | Do you have a Sustainable Procurement Policy in place? (yes/no) | GSMA- SUP-01 | Yes |
| If yes, how many of the following elements does it cover? | ||||
| Organizational governance: decision making processes and structures | Yes | |||
| Human rights | Yes | |||
| Labour practices | Yes | |||
| Environment | Yes | |||
| Fair operating practices | Yes | |||
| Consumer issues | Yes | |||
| Community involvement and development | Yes | |||
| Supplier Assessments | Percentage of suppliers screened against the Sustainable Procurement Policy using company defined and documented assessment procedure, within the previous two years | GSMA- SUP-02 | 100⁸ | |
| Percentage of suppliers assessed against the Policy through site visits, within the previous 2 years | 72⁹ |
Other (as justified by the Chief Security Officer).
Number of customers affected by data breaches divided by total accesses of Telefónica x 1,000,000
| Adverse Sustainability Indicator | Metric | 2022 |
|---|---|---|
| Mandatory climate and other environment-related indicators | ||
| 1. GHG Emissions | ||
| Scope 1 | 131,809 tCO2e | |
| Scope 2 GHG Emissions (market-based) | 221,537 tCO2e | |
| Scope 3 GHG Emissions | 1,930,051 tCO2e | |
| Total GHG Emissions | 2.283.397 tCO2e | |
| 2. Carbon Footprint | Carbon footprint | 2.283.397 tCO2e |
| 3. GHG intensity | GHG Intensity (scope 1 + 2+3) (per revenues) | 0.00005 tCO2e/M€ |
| 4. Exposure to companies active in the fossil fuel sector | Investment in companies active in the fossil fuel sector | N/A |
| 5. Share of non- renewable energy consumption and production | Proportion of consumption and production of non-renewable energy in comparison with renewable energy sources (proportion with respect to the total number of Energy sources) | 18% |
| 6. Energy consumption intensity per high impact climate sector | Energy consumption in MWh per million EUR of revenue | 0.00015 MWh/M€ |
| Biodiversity | ||
| 7. Activities negatively affecting biodiversity- sensitive areas | Headquarters or operations sites located in or near sensitive areas in terms of biodiversity | 2% |
| Water | ||
| 8. Emissions to water | Tons of emissions to water generated | N/A. Water use is mostly sanitary and to a lesser extent, losses associated with air conditioning. Therefore, there are no pollutant emissions into the water beyond the sanitary discharges associated with the staff. |
| Waste | ||
| 9. Hazardous waste and radioactive waste ratio | Tons of hazardous waste generated | 0.05 |
| Adverse Sustainability Indicator | Metric | 2022 |
|---|---|---|
| Mandatory social and employee, respect for human rights, anti-corruption and anti-bribery matters indicators | ||
| Social and employee matters | ||
| 10. Violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises | Violations of the principles of the United Nations Global Compact and the OECD Guidelines for Multinational Enterprises # Other information |
9. Lack of a human rights policy
Entities without human rights policy
We have a Global Human Rights Policy in place that was adopted by our Board of Directors and is applicable to all companies of the Telefónica Group.
10. Lack of due diligence
Entities without a due diligence process to identify, avoid, mitigate and address adverse human rights incidents
We have a longstanding human rights due diligence process in place, which is elaborated on in greater detail in our Global Human Rights Policy. Please see chapter 2.15.6. Action plan and commitments (Human Rights).
11. Lack of processes and measures for preventing trafficking in human beings
Companies invested without proper processes and measures for preventing trafficking in human beings
As part of our Global Human Rights Policy, we prohibit any form of human trafficking within our operations as well as supply chain and conduct risk- based due diligence to minimise any possible risks in our supply chains.
12. Operations and suppliers at significant risk of incidents of child labour
Operations and suppliers at significant risk of incidents of child labour in terms of geographic areas or types of operation
No significant risk identified. Please see chapter 2.20.5. Action plan and commitments (Responsible supply chain management).
13. Operations and suppliers at significant risk of incidents of forced or compulsory labour
Operations and suppliers at significant risk of incidents of forced or compulsory labour in terms of geographic areas or types of operation
No significant risk identified. Please see chapter 2.20.5 Action plan and commitments (Responsible supply chain management).
14. Number of identified cases of severe human rights issues and incidents
Number of identified cases of severe human rights issues and incidents
See answer to "Violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises". No cases of severe human rights issues and incidents. Having said that, we report the number of consultations/ complaints on human rights in our Responsible Business Channel. Please see chapter 2.15. Human rights.
15. Lack of anti- corruption and anti- bribery policies
Entities without anti-corruption and anti-bribery policies consistent with the United Nations Convention against Corruption
Please see our Anti-corruption Policy
16. Cases of insufficient action taken to address breaches of standards of anti-corruption and anti- bribery
Cases of insufficient action taken to address breaches of standards of anti-corruption and anti-bribery
Please see chapter 2.17.5. Action Plan and Commitments (Ethics and compliance).
17. Number of convictions and amount of fines for violation of anti-corruption and anti- bribery laws
Number of convictions and amount of fines for violation of anti- corruption and anti-bribery laws
Please see Note 29 b) in Consolidated Annual Accounts.
Telefónica is aware of the growing importance of reporting non-financial/sustainability information to our stakeholders. This is a growing demand not only from our customers and society as a whole, but also from investors and regulators. In Spain specifically, the Good Governance Code of Listed Companies (revised in June 2020) strengthens the roles allocated to the Audit Committee. The document recommends allocating roles related to the oversight and assessment of non-financial information preparation and integrity to this committee, as well as the oversight and assessment of non-financial risk management and control systems. It also recommends revising compliance with regulatory requirements, the appropriate definition of the scope of consolidation and the correct application of accounting criteria in line with the guidelines previously established in 2017 under Technical Guidelines 3/2017 of the Spanish National Securities Market Commission (CNMV).
For that reason, Telefónica began designing the Non- Financial Information Internal Control System (NFIICS) in 2019. This project covers risk management, control activities, information and disclosure processes, and oversight activities for the entire non-financial reporting process. The aim is to provide a control framework for the non-financial/sustainability information to be reported in the Consolidated Management Report of the Telefónica Group. The project has led to the production of a reasonable assurance report by the external verifier PwC since 2020.
Suppliers were updating their ESG assessment processes in 2022 in line with the proposed European Directive on Corporate Sustainability Due Diligence. Telefónica has therefore replaced certain indicators that reflect our performance in the supply chain. As a result, our reasonable assurance report has been drawn up according to the following six indicators:
As referred to in section 2.21.5. Principles for preparing the Non-Financial Information Statement (NFIS), Telefónica reports non-financial/sustainability information according to the GRI and SASB standards and frameworks, among others. The reasonable assurance procedures followed by the external verifier covered the Telefónica Group’s main operators in Spain, Brazil and Germany for the purposes of the Integrated Report of the Telefónica Group as at 31 December 2022. Our Company will continue to implement this project with a view to further strengthening our NFIICS.
| Indicator | Valor |
|---|---|
| Awarded suppliers | 3,562 |
| Volume of purchases awarded | 14,375 M€ |
| NPS | 31 |
| Severe digital security breaches with an impact on the personal data of customers | 1 |
| Fines for privacy/data protection issues | 14 |
| Stemming from a security breach or incident | 0 |
¹ Aggregate data for Telefónica Spain, Telefónica Germany and Telefónica Brazil, and their subsidiaries, the scope of consolidation for which is given in Appendix I: Scope of consolidation for the Consolidated Financial Statements 2022. The companies "Bluevia Fibra" and "Vita IT Comércio e Serviços de Soluções" are excluded as they were incorporated into the Group in the last quarter of 2022.
The total number of suppliers registered in the procurement system to which the procurement of products/services was allocated under the following premises:
Total amount (in euros) of purchases allocated by the Telefónica Group with an impact on the budgetary year corresponding to the Consolidated Management Report.
NPS is defined as the willingness of a Telefónica customer to recommend products/services under the Movistar, O2 and Vivo brands. The calculation refers to the % of customers classified as promoters (score of 9 and 10) minus the % of customers classified as detractors (score from 1 to 6, inclusive). To obtain the % of customers in each category (promoters and detractors), a survey is conducted on a representative sample of customers* and then weighted to represent the reality for Telefónica’s customers in each country/segment/sub-segment. The weighting applied to the NPS results is based on the following variables:
The reported NPS refers to the mobile average from the final quarter of the year, except for segments from the countries listed below:
In certain specific cases, where the required samples for a given segment are not obtained, half-yearly averages are used to ensure sample representativeness.
*Sample size calculation: To calculate the sample size needed for the NPS study on each of the segments, the following formula should be used:
Where:
* n: sample size.
* k = 1.96 (Reliability Factor associated with a confidence level of 95%).
* VARNPS: NPS variance.
* C.I.: desired Confidence Interval.
The NPS variance is calculated as:
Where:
* %P: the percentage of Promoters; %N = the percentage of Neutrals; and %D = the percentage of Detractors.
* NPS = %P - %D.
* N: total customers in the sample
The segment level formula to be applied for calculating the NPS standard error is as follows:
The Standard Error for the weighted country total is calculated from the standard error of each segment and the respective segment weights:
Where:
* W: Weight of the segment in the country total.
* EE: Standard Error.
Total number of digital security breaches or incidents classified as serious by the Telefónica Group which have compromised the security of customers’ personal data as a result of a cyberthreat or cyberattack. A “digital security breach or incident” is understood as any event which has a real adverse impact on the security of networks and information systems and is caused by a cyberthreat. Of such events, those classified as serious (critical severity) are the ones which have a high impact for the Group company concerned and meet one of the following criteria:
A “cyberthreat” is understood as a potential cause of an unexpected incident which could result in damage to an information asset, or to the organisation, and is implemented via the internet or communication networks. A “cyberattack” is understood as the realisation of a cyberthreat.
Total number of definitive financial penalties for privacy and data protection matters related to customers, employees or others (e.g. potential customers, non-customer web users, etc.) issued by a competent authority with no option to appeal under applicable local law.
In addition to the total number, those penalties that meet the above definition, and which are also the consequence of a personal data security breach, are reported as a subset of the “Privacy and data protection fines” indicator. A “personal data security breach” is understood to be a single or series of unexpected or unwanted security events which have a significant likelihood of compromising business operations and threatening information security vis-à-vis confidentiality, integrity or availability, and that result in the accidental or unlawful destruction, loss or alteration or unauthorised disclosure of or access to personal data transmitted, stored or otherwise processed, or the unauthorised disclosure of or access to such data, such as those stemming from lost or stolen devices, data leakage, ransomware or unintentional communications.
GRI 2-12, 3-3
Aligning risks with the Group's strategy is essential to achieve our objectives, contributing to value creation. Our enterprise risk management (ERM) framework facilitates preventive action against risks, both globally and in the main Group operating businesses. Training and involving employees in the risk management culture, encouraging them to identify risks and actively participate in their mitigation is one of the basic principles that guide risk management.
Telefonica has a Risk Management Framework, based on the model established by the Committee of Sponsoring Organizations of the Treadway Commision (COSO1). This framework has been implemented homogeneously throughout the Group’s main operations, so that the Company Managers, within their scope of action, can perform a timely identification, assessment, response and monitoring of the main risks. This model, which is inspired by best practices, facilitates the prioritization and development of coordinated actions against risks, both from a global Group perspective, and a specific focus on its main operations.
The Telefónica’s Business Principles specifically state that: “ We establish appropriate controls to evaluate and manage all relevant risks to the Company”
Extract from Responsible Business Principles of Telefónica.
In this sense, the Company has a Risk Management Policy, approved by the Board of Directors, and a Corporate Risk Management Manual, both based on experience, best practices and Good Corporate Governance recommendations; contributing to the continuous improvement in business performance.
Telefónica Risk management remains embedded in our planning process and is fully aligned with our strategy, in line with the requirements of COSO ERM 2017.
1 COSO ERM framework, “Enterprise Risk Management -Integrating with Strategy and Performance”, released in September 2017 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO is one of the most importance reference on internal control, enterprise risk management, and fraud deterrence
COSO ERM Framework
“The main risks are linked to the Company´s strategic objectives”.
Go to chapter 1.5 Startegy
Some of the risks most directly related to the Company's strategy relate mainly to the need for anticipation and adaptation, in an appropriate time, to constant technological changes and new forms of connectivity (For example: Internet of Things), as well as changes in customer preferences in the industry.
Both the Telefonica’s Business Principles and the Risk Management Policy mentioned above, establish that the entire organization has the responsibility to contribute to the identification and management of risks. For the coordination of these activities, the following roles have been established:# Consolidated Annual Report 2022 Telefónica, S. A. 366
The Regulations of the Board of Directors of Telefónica, SA, establish that the primary duty of the Audit and Control Committee (ACC) shall be to support the Board of Directors2 in its supervisory duties, including the supervision of the risk management framework, including tax risks. In relation to them, it shall be responsible for proposing to the Board of Directors a risk control and management policy, which shall identify at least the following: the types of risk facing the company; the setting of the risk level that the Company deems acceptable; the measures to mitigate the impact of the identified risks, should they materialize; and the control and information systems to be used to control and manage the above-mentioned risks.
To support the Audit and Control Committee in the development of these oversight activities, a risk management function has been established, within Internal Audit, independent of the management, in order to promote, support, coordinate and monitor the implementation of the provisions of this Policy both at Group level and in its main operating businesses.
In order to ensure an adequate supervision of the Telefónica's risk management framework by the Audit and Control Committee, various sessions are held at that committee, through:
Furthermore, the Audit and Control Committee reports regularly on these matters to the Board of Directors.
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1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 367
2 The profile of the Directors and their competences in the different matters are detailed in the Annual Corporate Governance Report.
Risk owners actively participate in the risk strategy and in the important decisions about their assurance and control. To this end, each of the identified risks will be assigned a person (normally a Director) with full responsibility for the risk and its management, drawing up a plan for its assurance and control (measures to avoid, mitigate or partially transfer the risks) and effectively monitoring its evolution.
Specifically, with respect to fiscal risks, the Group's Fiscal Directorate performs the fiscal control function through the Regional Fiscal Directorates, and the local fiscal control officers in the different subsidiaries in accordance with the principles defined in the Group's Fiscal Control Policy, approved by the Company's Board of Directors.
The Company has a level of risk tolerance or acceptable risk established at corporate level; which means its willingness to assume a certain level of risk, to the extent that it allows the creation of value and the development of the business, achieving an adequate balance between growth, performance and risk.
For the risk assessment, the different typology of the risks that could affect the Company is considered, as described below:
The risk management process takes the Company’s strategy and objectives as a reference for the identification of the main risks that could affect its achievement. The process consists of four stages, which are described below:
Risk Management Process
The risks are identified by the managers, taking into account both the factors that cause them and the effects they may have on the achievement of the objectives. In this identification phase, risks associated with the strategic plan are considered, as well as potential “emerging risks”, meaning those risks that could eventually have an adverse impact on future performance; although its outcome and time horizon is uncertain and difficult to predict.
The objective of the risk assessment is to establish an order of magnitude or relevance of the risks, by considering both their eventual impact and their likelihood of occurrence. For impact purposes, both the economic impact (quantified-whenever possible -in terms of operational Cash-flow, considering OIBDA3 plus CAPEX4) and the reputational impact (from the variables used in RepTrak5 ) are considered, as well as its potential impact on compliance.
Consolidated management report 2022
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1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 368
3 OIBDA: Operative Income Before Depreciations and Amortizations.
4 CAPEX: Capital Expenditure.
5 Reptrak: Model developed by the Reputation Institute that allows evaluating how different stakeholders perceive the company.
Other qualitative additional factors are also considered, such as the historical trend, the level of assurance or control; or the perspectives on their future evolution.
In addition to identification and assessment of the risks, the Risk Management Framework considers reasonable response and monitoring mechanisms for said risks. In this sense, it contemplates procedures to respond to the new challenges that arise through the alignment between the strategic objectives and the risks that could affect the fulfillment of such objectives. The different types of risk response are described below:
Risk response
Global measures, mainly involving the use of financial derivatives, are undertaken to mitigate certain financial risks such as those relating to exchange-rate and interest-rate fluctuations. In relation to tax risks, the main issues are identified are monitored. Likewise, for a large part of operational risks, the Group uses Multinational insurance Programs, or insurance policies negotiated locally in each country, depending on the type of risk and cover required.
In accordance with the different typology of risks, the monitoring and response mechanisms include global initiatives, promoted and coordinated in a homogeneous way in the main operating businesses of the Group, and / or actions specifically aimed at addressing specific risks in some companies at the local level.
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1. Strategy and growth model
2. Non-financial Information statement
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4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 369
A management framework based on the existing assurance allows prioritizing and being more specific in the actions to be carried out in the area of Risk Management and Internal Control.
Business Assurance framework
In order to have a comprehensive model, oriented to the needs and the Group's own configuration, the ERM Framework considers a risk assessment through four complementary perspectives:
Perspectives of the Risk Management Framework
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2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 370
In addition to the individual assessment of each risk, the Telefónica Group considers, within its model, the concept of interdependence. In other words, if a risk materializes, it may have an impact on other risks in the model, thus increasing its criticality.In this regard, an analysis of the interdependence between the risks of the model is carried out together with the risk management areas, in order to identify those that can potentially have an impact on other risks of the model and to ensure that they are adequately weighted. As an example, it can be pointed out the relationship between cybersecurity, supply chain or compliance risks with the economic and political environment, which has been heightened by the conflict between Russia and Ukraine. In addition, this analysis of the interdependence of risks also allows the Company to design stress scenarios that increase, in many ways, the interdependence between the risks of the model when adverse socio-economic situations happens (e.g. COVID, war in Ukraine, supply chain crisis, etc.).
In accordance with the provisions of the Telefónica's Risk Management Policy, one of the basic principles that guide this activity is: “Train and involve employees in the risk management culture, encouraging them to identify risks and actively participate in their mitigation.” In this sense, Telefonica promotes the following actions:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 371
With the aim of managing and supervising risks, Telefonica owned a Risk Management tool, which facilitate the reporting, analysis, assessment and management of risk information within Telefónica Group. These tools are common to all Group Companies that report risks, and their main features are the following:
Continuous improvements are developed in risk management tools to improve or expand their functionalities.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 372
GRI 3-3 PUNTOS CLAVE
The current context and the dynamic nature of technology and digitization makes us constantly face new risks and opportunities. When identifying our risks, we also consider those emerging risks that could have an impact on the development of the Company or the sector in the long term. The ESG risks perspective is becoming increasingly relevant considering aspects such as environmental impact, climate change or the respect for human rights in our operations. Taking as a reference the objectives identified in the Company’s Strategic Plan, the risks that could affect the achievement of these objectives are identified, both from a global perspective (main global Group areas) and a local one (local managers and the respective local Steering Committees). An assessment of the impact and probability of the identified risks is made, which facilitates their prioritization and the definition of the response plans to mitigate them, ensuring the necessary coordination between global and local initiatives in order to face the risks.
Risk Heatmap
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 373
In order to facilitate the risk identification process by the management of the Company, the Telefónica Group has a general risks catalogue, updated periodically, and which allows the information to be homogenized and consolidated, and to comply with the internal and external reporting requirements on the main risks. Telefónica's risk catalogue considers the following four risk categories:
This catalogue is updated periodically, taking into account the current dynamic context and the new synergies that have arisen among the risks, with an increasing relevance of those risks related to intangibles and of global significance, such as Sustainability (ESG) aspects and other issues, such as the geopolitical environment, the Ukrainian conflict, supply chain problems, inflation and energy prices.
Regarding the sustainability topics and the nature of the business, we are exposed to various types of ESG risks (environmental, social and governance). The Risk Management process takes the Company's strategy and objectives as a reference and basis for identifying the main risks that could affect their achievement, including those emerging risks with a medium and long-term impact, in order to analyze, control and prevent the possible repercussions that the business may suffer. We have taken into account as a reference the identification of global risks performed by the World Economic Forum. Combined with the company's dual materiality study, Human Rights Due Diligence and the expectations of our stakeholders, the company considers risks directly related to sustainability, as well as other risks with potential ESG impact, highlighting those most relevant in the context of Telefónica's operations.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 374
| Related Risks | |
|---|---|
| Sustainability and ESG | |
| Adequacy with ESG requirements | |
| Environmental and electromagnetic fields | |
| Climate Change | |
| Human rights | |
| Customer commitment | |
| Privacy | |
| Cybersecurity | |
| Network and systems security | |
| Customer satisfaction | |
| Third parties management | |
| Diversity management | |
| Talent management | |
| Compliance | |
| Fiscal transparency | |
| Universal Service | |
| Quality and continuity of services | |
| Supply chain | |
| Technological innovation, digitalisation and changes in the business model |
For more details, see chapter 2.2 Energy and climate change.
In the process of identifying new risks, Telefónica also considers emerging risks. Emerging risks are those issues identified recently and which are expected to have an adverse impact on the future development of the company or the sector in the long term; although its outcome and time horizon is still uncertain and difficult to predict. As emerging risks to consider in a long-term scenario, the following should be highlighted:
◦Mitigation actions: The main actions already adopted by the Telefónica Group to mitigate general cybersecurity risks are: early vulnerabilities detection, access control measures, proactive log review of critical systems, network segregation in zones and the deployment of protective systems such as firewalls, intrusion prevention systems and virus scanners among other physical and logical security measures. In particular, to mitigate the emerging risk caused by the possible increase in the sophistication of cybercrime, the Telefónica Group is focusing on the following aspects: • Adoption of zero trust models (ZeroTrust and ZTNA). • Ensuring the security of cloud services. • Monitoring of cyber-attacks complemented with cyber intelligence activities. • Digital security controls in the supply chain. • Cybersecurity training and awareness activities for users.
In the event that these activities do not prevent damage to systems or data, there are backup systems designed for total or partial recovery of information, as well as insurance programs and coverage that include cyber risks. For further information, please refer to the section "Information technology is a relevant element of our business and is exposed to cybersecurity risks" in chapter 3.3 Risk Factors.
•Technological changes, AI and data ethics:
◦Risk description: risk related to the possible consequences derived from continuous technological progress, on people, companies, ecosystems and/or economies. Mainly, those related to data ethics and governance, or those that could affect the fundamental rights of users of artificial intelligence systems managed by the company.
◦Impact: If the Company were not able to anticipate and adapt to changes and trends in the sector, or adequately select the investments to be made, this could negatively affect the Group's business, financial situation, operating results and/or cash flows.
◦Mitigation actions: We consider that security must be managed within a cycle of continuous improvement, and with this aim various actions associated with privacy and security are being developed (see section 2.19 Privacy and Security). Regarding the new responsible design framework, ethical principles and sustainable development criteria are incorporated in new digital solutions (see section 2.12 Responsibility in our products and services). Various actions are also described for the safe and responsible use of technology (see section 2.10 Digital inclusion) and in Human Rights (see 2.15.6 Telefónica's due diligence in Human Rights).
•Climate change:
◦Risk description: risks mainly from the transition to a decarbonized economy (regulatory, technological, market and reputational risks), due to the tightening of measures to limit Greenhouse Gas (GHG) emissions to the atmosphere or adaptation to climate change e.g. due to resource scarcity.
◦Impact: The main impacts that these risks may have on the company are mainly in the medium and long term. These impacts can be translated mainly into an increase in operating costs due to the possibility of new carbon taxes that affect us directly or indirectly, for example by increasing the price of energy or carbon offset credits. There may also be a potential reputational impact associated with increased demands from different stakeholders for us to meet or increase our climate commitments.
◦Mitigation actions: Within Telefonica's climate change risk analysis, we include this type of risk (transition risk). For its evaluation we use the IEA NZE 2050 scenario, which describes the efforts needed to reduce Greenhouse Gases and reach net zero emissions by 2050 globally. Likewise, having long-term renewable energy purchase agreements in place not only guarantees us an emission-free electricity supply, but also provides us with a fixed price that protects us against possible price increases due to new rates or market changes. More information in the 2.2 Energy and climate change chapter.
•Geopolitical context:
◦Risk description: Risks associated with the uncertainty and deterioration of the economic environment due, for example, to geopolitical factors, pandemics, war conflicts, inflationary environment (global increase in the costs of energy, raw materials, etc.), as well as the socio-political situation of each country, which affect the development of operations and, therefore, in the economic results.
◦Impact: Telefónica's international presence enables the diversification of its activities across countries and regions, but it exposes Telefónica to diverse legislation, as well as to the political and economic environments of the countries in which it operates. Any adverse developments in this regard, including exchange rate or sovereign-risk fluctuations, and the growing geopolitical tensions, may adversely affect Telefónica's business, financial position, cash flows and results of operations and/or the performance of some or all of the Group's financial indicators.
◦Mitigation actions: Continuous monitoring of macro and market conditions, financial flexibility of the Group and coverage of established commitments, maintenance of optionality in those markets that are not considered core, reinforcement of cybersecurity and data protection measures. Additionally, other emerging risks are managed in Telefónica, such as the management of professional skills and corporate culture, in line with what is described below:
•Managing skills for the future and corporate culture: The need to acquire, retain and evolve the skills necessary to execute the Company's strategic plan, in an environment of technological disruption, dynamic working conditions and critical skills shortages in the market. With an increasing percentage of professionals working remotely, levels of employee disconnection from organizations are on the rise. This presents a challenge for companies to maintain, improve and control their organizational culture, aligned with their purpose and values. Finally regarding mitigation actions, they can be seen in more detail in section 2.5 Human Capital.
We are a technological company that is at the heart of the digital revolution that we are experiencing, the telecommunications and technology market has been able to play a determining role, much more dynamic, which has placed the sector as one of the main economic engines in the new societies. The demand for technology is increasing, and there has been an increasing impact of digitization on all sectors of the economy and on people's lives. For the telecommunications sector in general and for Telefónica in particular, there are opportunities based on:
•Investment in fixed (Fibre) and mobile ultra- broadband infrastructures (with the launch of 5G)
The imminent access of companies to new fixed (fibre- based) and mobile ultra-broadband alternatives (with the boost of 5G in the coming years) configure a future scenario based on connectivity, which implies an exponential growth in the number of connected objects and data traffic, as well as in digital services over said connectivity. Specifically, the firm commitment to investment in fixed and mobile ultra-broadband infrastructures led by Telefónica in its markets is the basis on which to build the economy of the future. We are aware that broadband is a strategic pillar to accelerate progress in achieving the Sustainable Development Goals (SDGs) and the basis for the development of new digital services that allow improving education, facilitating access to health or addressing climate change.
•Acceleration of movements towards the digitization of all sectors of our economy (education, health, entertainment, commerce, industry, etc.) as an engine of development
The telecommunications industry plays a key role for societies, as a connectivity supplier and an enabler of technological advances, collaborating in the evolution towards a more digital and sustainable world:
In the sphere of corporations (companies of all sizes and public administrations), there has been a strong acceleration of the movement towards the digitization of the main functions, in order to meet more quickly the demands of their customers. Telefónica is strongly committed to growth in this sector through T-Tech, our unit specialized in business solutions offering the most demanded services by companies (Cloud Computing, Cybersecurity, Internet of Things, Big Data).
For our residential customers, technology can offer a new world of possibilities, driving new solutions, services and increasingly innovative content that allow us to connect people's lives. During the last year we have witnessed a substantial increase in the use of digital services for entertainment, remote work, health, etc.In this sense, we offer new ecosystems of relevant digital services for our customers, in certain sectors (Movistar Money for financial services, Movistar Salud or Vida V for telemedicine, Movistar Prosegur Alarms for security, etc.).
The Company tracks materialized risks. The strategy and management of Telefónica Group's activities tend to minimize the impact of materialized risks, as well as to counterbalance the negative effects of some issues with the favourable evolution of others. During the year, Russia’s invasion of Ukraine, the energy crisis, inflationary pressures, and the rising interest rates, among other factors, have affected various areas and operations of the Company, the most important aspects and their impact being highlighted in section 3.3 Risk Factors.
In this regard and 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, investments accounted for by the equity method, deferred tax assets, or other assets, such as intangible assets, and property, plant and equipment. In the case of goodwill, the potential loss of value is determined by the analysis of the recoverable value of the cash-generating unit (or group of cash-generating units) to which the goodwill is allocated at the time it is originated, and such calculation requires significant assumptions and judgment.
In 2022 impairment losses in other assets of Telefónica Argentina were recognized for a total of 77 million euros. In addition, Telefónica may not be able to realize deferred tax assets on its statement of financial position to offset future taxable income. The recoverability of deferred tax assets depends on the Group’s ability to generate taxable income over the period for which the deferred tax assets remain deductible. If Telefónica believes it is unable to utilize its deferred tax assets during the applicable period, it may be required to record an impairment against them resulting in a non-cash charge on the income statement. 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.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 378
The risks of Telefónica Group are prioritized based on their level of criticality, which is obtained from the combination of impact and likelihood assessments for each of them. For public disclosure purposes, Telefonica’s risks are presented under four categories, as described above, presenting the risk factors in descending order of importance within each category, in line with the requirements of ESMA (European Securities and Markets Authority). The detail on the main risk factors disclosed by the Company is included in the following section.
Prioritisation of risks
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 379
The Telefónica Group’s business 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 rest of this Annual Report.
These risks are currently considered by the Telefónica Group to be material, specific and relevant in making an informed investment decision in respect of Telefónica. However, the Telefónica Group is subject to other risks that have not been included in this section based on the Telefónica Group’s assessment of their specificity and materiality based on the Telefónica Group’s assessment of their probability of occurrence and the potential magnitude of their impact.
The assessment of the potential impact of any risk is both quantitative and qualitative considering, among other things, potential economic, compliance, reputational and environmental, social and governance ("ESG") impacts. The Telefónica Group, taking into account the global risks identified by the World Economic Forum, as well as the increase in legal information requirements and the expectations of stakeholders in this area, monitors risks directly related to sustainability, as well as other risks with potential impact on ESG, highlighting those most relevant in the context of Telefónica's operation, including the adaptation to ESG expectations and information requirements and climate change.
Risks are presented in this section grouped into four categories: business, operational, financial, and legal and compliance.(according to the definitions included in section 3.2. above). These categories are not presented in order of importance. However, within each category, the risk factors are presented in descending order of importance, as determined by Telefónica at the date of this Annual Report. Telefónica may change its vision about their relative importance at any time, especially if new internal or external events arise.
Risks Related to Telefónica's Business Activities.
Telefónica's competitive position in some markets could be affected by the evolution of competition and market consolidation. The Telefónica Group operates in highly competitive markets and it is possible that the Group may not be able to market its products and services effectively or respond successfully to the different commercial actions carried out by its competitors, causing it to not meet its growth and customer retention plans, thereby jeopardizing its future revenues and profitability. The reinforcement of competitors, the entry of new competitors (either new players or providers of OTT Services), or the merger of operators in certain markets (for example, market consolidation in the United Kingdom following a potential merger of mobile operators Vodafone UK and Three UK), may affect Telefónica’s competitive position, negatively affecting the evolution of its revenues and market share or increasing its costs. In addition, changes in competitive dynamics in the different markets in which the Telefónica Group operates, such as in Chile, Colombia, Peru, Mexico and Argentina, where there are aggressive customer acquisition offers, including unlimited data and discounts on certain services, among others, can affect the competitive position and the efficiency of Telefónica’s operations. If Telefónica is not able to successfully face these challenges, the Group's business, financial condition, results of operations and/or cash flows could be adversely affected.
The Group requires government concessions and licenses for the provision of a large part of its services and the use of spectrum, which is a scarce and costly resource. The telecommunications sector is subject to laws and sector-specific regulations. The fact that the Group's business is highly regulated affects its revenues, operating income before depreciation and amortization ("OIBDA") and investments.# Risks
Many of the Group’s activities (such as the provision of telephone services, Pay TV, the installation and operation of telecommunications networks, etc.) require licenses, concessions or authorizations from governmental authorities, which typically require that the Group satisfies certain obligations, including minimum specified quality levels, and service and coverage conditions. If the Telefónica Group breaches any of such obligations, it may suffer consequences such as economic fines or other measures that would affect the continuity of its business. In addition, in certain jurisdictions, the terms of granted licenses may be modified before the expiration date of such licenses or, at the time of the renewal of a license, new enforceable obligations could be imposed or the renewal of a license could be refused. Additionally, the Telefónica Group could be affected by the regulatory actions of antitrust authorities. These authorities could prohibit certain actions, such as new acquisitions or specific practices, create obligations or impose heavy fines. Any such measures implemented by the antitrust authorities could result in economic and/or reputational loss for the Group, in addition to a loss of market share and/or harm to the future growth of some of its businesses. Any of the foregoing could have an adverse effect on the business, financial condition, results of operations and/or cash flows of the Group.
The Group requires sufficient spectrum to offer its services. The Group's failure to obtain sufficient or appropriate spectrum capacity in the jurisdictions in which it operates, or its inability to assume the related costs, could have an adverse impact on its ability to maintain the quality of existing services and on its ability to launch and provide new services, which may materially adversely affect Telefónica’s business, financial condition, results of operations and/or cash flows.
The intention of the Group is to maintain current spectrum capacity and, if possible, to expand it, through the participation of the Group in spectrum auctions which are expected to take place in the next few years, which will likely require cash outflows to obtain additional spectrum or to comply with the coverage requirements associated with some of the related licenses.
In Spain, the Ministry of Economic Affairs and Digital Transformation launched a public consultation on the National Frequency Allocation Table, raising the possibility of making available 450 MHz of the 26 GHZ spectrum band, to companies, industries and organizations operating in a specific sector, that deploy private networks to support their connectivity needs (verticals). This could mean more competition in the private corporate network segment.
In the UK, in May 2022, the Office of Communications ("Ofcom") launched a public consultation on opening access to the 26 GHz and 40 GHz bands for mobile use. This is the first of a series of detailed consultations on the award, with a process possible towards the end of 2024 at the earliest. The consultation outlines the proposal to offer a range of local and city-wide licenses, differentiating between low- and high-density areas.
In Latin America, several auction processes are expected in the near term:
(i) in Colombia, in December 2022, the Ministry of Information Technologies and Communications (“MinTIC”) asked the industry to express their interest in participating in a possible auction for the spectrum that remains available in the 700 MHz, 1900 MHz and 2500 MHz bands as well as for 5G spectrum (3.5 GHz and 26 GHz bands). In such expression of interest, which is non-binding, Telefónica expressed its interest in obtaining spectrum in all the proposed bands except 26GHz. In its expression of interest Telefónica also highlighted the need to delay all spectrum auctions until the review on the spectrum pricing methodology currently underway is completed, and there is an alignment between spectrum cost and its value generation capacity, and until measures to avoid an excessive control of this resource by the dominant operator are defined. To date, no specific dates have been proposed for an eventual spectrum auction;
(ii) in Peru, the authorities have indicated their interest in resuming the auction on the 1750 – 1780 MHz, 2150 – 2180 MHz and 2300 – 2330 MHz bands, but no specific date or conditions have been set for it. With regards to 5G and the spectrum auction for the 3.5 GHz and 26 GHz band, the government has not yet taken a decision; and
(iii) in Argentina, the government has made public its intention to auction 5G spectrum in 2023, but no specific date for the process has been published. Pursuant to Resolution 2385/2022 published on December 28, 2022, the Ente Nacional de Comunicaciones (Enacom) approved the General Rules for Intelligent and Reliable Telecommunications Services that preliminarily sets the conditions for the implementation of 5G in Argentina;
iv) in Uruguay on December 28, 2022 the Executive Power signed the decree authorizing an auction process for the 3.5 GHz band to occur in the first quarter of 2023.
The revocation or failure to renew the Group’s existing licenses, authorizations or concessions, or any challenges or amendments to their terms, could materially adversely affect Telefónica’s business, financial condition, results of operations and/or cash flows.
In Spain, and in accordance with the new Telecommunications Act (second transitory provision), Telefónica requested the Administration to extend the duration of its spectrum licenses up to a maximum of 40 years.
In Germany, in the allocation procedure for the frequencies at 800 MHz, 1800 MHz and 2.6 GHz, which will partially expire at the end of 2025, the Bundesnetzagentur has submitted a position paper for consultation as a follow-up to the consultation of orientation points which were connected with an initial survey of demand. In the position paper, it considers a spectrum scarcity to be obvious and is considering an auction as the award format. In order to reflect the importance of the 800 MHz band for mobile coverage, the Bundesnetzagentur proposes a swap in the term of the frequencies to be awarded at 800 MHz with an equal amount of 900 MHz frequencies. The frequencies at 900 MHz, 1800 MHz and 2.6 GHz would then be auctioned off. The frequencies at 800 MHz would have a term until the end of 2033. Next steps in the spectrum allocation procedure in the form of cornerstones and a formal demand survey are expected in the first half of 2023.
In the UK, mobile spectrum licenses are generally indefinite in term, subject to an annual fee after a fixed period (usually 20 years) from the initial auction. There are no fee decisions now pending until 2033, when the fixed term for VMO2’s 800 MHz licenses will expire.
With respect to Latin America:
In Brazil, the Agencia Nacional de Telecomunicações (“ANATEL”) approved on February 8, 2021, Resolution 741/2021 which sets the Regulation for the Adaptation of Fixed Commuted Telephony Service (“STFC”) concessions. ANATEL has presented an estimated value for calculating the migration balancing from the concession to the authorization regime, which will be validated by the Federal Court of Accounts. There is a risk that consensus between the parties on the migration calculation may not be reached. In any case, if a decision is made by Telefónica not to migrate, the STFC concession held by Telefónica will remain in force until December 31, 2025. In addition, Resolution 744/2021 of April 8, 2021 (the “Continuity Regulation”) establishes that, at the end of the life of the concession contracts, the transfer of the right of use of shared-use assets will be guaranteed under fair and reasonable economic conditions, in the event that the granting authority or the company that succeeds the provider wishes to make use of these assets to maintain the continuity of the provision of STFC under the public regime. In relation to the process that is being carried out before the Federal Court of Accounts, the technical area of the Court proposed the revision of the Continuity Regulation's terms so that it provides for the reversion, to the concessionaires, of the assets used in the provision of STFC. This proposal is still subject to deliberation by the Plenary of the Federal Court of Accounts. In addition, on December 8, 2022, ANATEL revoked Telefónica's 450 MHz spectrum authorization (451-458 MHz and 461-468 MHz) covering the states of Alagoas, Ceará, Minas Gerais, Paraíba, Pernambuco Piauí, Rio Grande do Norte, Sergipe and part of São Paulo. The decision was motivated by the fact that Telefónica could not provide evidence of service activation in the 450 MHz band as a result of the unavailability of a 450 MHz devices ecosystem. The revocation of the spectrum license does not impact the services currently provided by Telefónica. Furthermore, regarding the extension of the 850 MHz band authorizations, if the legal and regulatory requirements are met, ANATEL agreed to extend the current authorizations for the use of radio frequencies in Bands A and B, proposing their approval, on a primary basis, until November 29, 2028.However, specific conditions for renewal, including those related to the economic valuation criteria and obligations, were challenged by the affected service providers (including Telefónica). After ANATEL dismissed the appeals filed by the providers, ANATEL referred the case to the federal court of accounts of Brazil (“TCU”), and in September 2022, TCU decided that the possibility of successive extensions brought by Law 13.879/19 should be considered as an exception, applicable only when certain requirements are met (art. 167 of Law 13.879/19 and article 12 of decree 10.402/20). Telefónica appealed that decision, defending the successive extension of licenses as a rule and not as an exception, in accordance with Law 13.879/19. Additionally, in August 2022, when deciding on an extension request made by the provider TIM for the 850 MHz, 900 MHz and 1.8 GHz bands, ANATEL issued a decision for the possibility of extending the 900 MHz and 1.8 GHz bands only until 2032, when the Agency intends to carry out a refarming action of these bands. This decision may impact Telefónica’s extension requests for the aforementioned bands. In Peru, an arbitration process was started by Telefónica, to challenge the decision adopted by the Ministry of Transportation and Communications (“MTC”), denying the renewal of concessions for the provision of fixed-line services, valid until 2027, which ended with a favorable award for Telefónica. The award recognizes that the methodology applied to assess compliance with the concession obligations in the concession renewal process was not in accordance with the provisions of the concession contract. The MTC, following this award, must issue a new regulation for renewals in a period of time yet to be determined. Nevertheless, Telefónica del Perú S.A.A. holds other concessions for the provision of fixed- line services that allow it to provide these services beyond 2027. The renewal of the 1900 MHz band in all of Peru, except for Lima and Callao, which expired in 2018, and of other licenses to offer telecommunications services were requested by the Group and a decision by the MTC is still pending. Nevertheless, these concessions are valid while the procedures are in progress. In Colombia, in 2023, Telefonica will have to renew 30 MHz of spectrum in the AWS band. The spectrum renewal process has not been initiated. In Argentina, in connection with Decree of Necessity and Urgency 690/2020 (“DNU 690/2020”), Telefónica de Argentina, S.A. and Telefónica Móviles Argentina, S.A. (collectively, “Telefónica Argentina”) filed a lawsuit against the Argentine State, in relation to a series of Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 382 contracts for licenses to provide services and spectrum use authorizations entered into between Telefónica Argentina and the Argentine State, including the licenses resulting from the 2014 spectrum auction. These contracts and their regulatory framework stated that the services provided by Telefónica Argentina were private and prices would be freely set by Telefónica Argentina. However, DNU 690/2020, by providing that the services will be “public services” and that prices will be regulated by the Argentine State, substantially modifies the legal status of those contracts, affecting the compliance with their obligations and substantially depriving Telefónica Argentina of essential rights derived from those contracts. The lawsuit filed by Telefónica Argentina was rejected in September 2021 and Telefónica Argentina appealed this decision. On December 17, 2021, the first instance ruling was revoked and the application of articles 1, 2, 3, 5 and 6 of DNU 690/2020 and Resolutions 1666/2020, 204/2021 and 1467/2020 (relating to the control of tariffs and the universal basic service) was suspended for six months or until the final decision is adopted. On June 10, 2022, the Federal Contentious Administrative Court extended the precautionary suspension of the effects of DNU 690/2020 for an additional six months in Telefónica's favor. On December 27, 2022, the Federal Contentious Administrative Court extended the precautionary suspension of the effects of DNU 690/2020 for another six months in Telefónica's favor. During this period, Telefónica Argentina will not be subject to the provisions contained in the DNU 690/2020 in relation to price and public service regulations. In Ecuador, Telefónica will seek to renew in 2023 the concession contract that authorizes the provision of telecommunication services and includes the spectrum licenses (25 MHz in the 850 MHz band and 60 MHz in the 1900 MHz band). During 2022, the Group’s consolidated investment in spectrum acquisitions and renewals amounted to 173 million euros, mainly due to the acquisition of spectrum in Colombia (compared to 1,704 million euros in 2021, mainly due to the acquisition of spectrum in Brazil and the United Kingdom, and to 126 million euros in 2020). In the event that the licenses mentioned above are renewed or new spectrum is acquired, it would involve additional investments by Telefónica. Further information on certain key regulatory matters affecting the Telefónica Group and the concessions and licenses of the Telefónica Group can be found in Appendix VI of the Consolidated Financial Statements. Telefónica could be affected by disruptions in the supply chain or international trade restrictions, or by the dependency on its suppliers. The existence of critical suppliers in Telefónica's supply chain, especially in areas such as network infrastructure, information systems or handsets with a high concentration in a small number of suppliers, poses risks that may affect Telefónica’s operations. In the event that a participant in the supply chain engages in practices that do not meet acceptable standards or does not meet Telefónica’s performance expectations (including delays in the completion of projects or deliveries, poor-quality execution, cost deviations or reduced output due to the suppliers own stock shortfalls), this may harm Telefónica's reputation, or otherwise adversely affect its business, financial condition, results of operations and/or cash flows. Further, in certain countries, Telefónica may be exposed to labor contingencies in connection with the employees of such suppliers. As of December 31, 2022, the Group depended on three handset suppliers (none of them located in China) and seven network infrastructure suppliers (two of them located in China), which, together, accounted for 81% and 80%, respectively, of the aggregate value of contracts awarded in the year ended December 31, 2022 to handset suppliers and network infrastructure suppliers, respectively. One of the handset suppliers represented 40% of the aggregate value of contracts awarded in the year ended December 31, 2022 to handset suppliers. If suppliers cannot supply their products to the Telefónica Group within the agreed deadlines or such products and services do not meet the Group’s requirements, this could hinder the deployment and expansion plans of the network. This could in certain cases affect Telefónica’s compliance with the terms and conditions of the licenses under which it operates, or otherwise adversely affect the business and operating results of the Telefónica Group. In addition, the possible adoption of new protectionist measures in certain parts of the world, including as a result of trade tensions between the United States and China, and/or the adoption of lockdown or other restrictive measures as a result of the COVID-19 pandemic or any other crisis or pandemic, as well as those derived from geopolitical tensions such as the current war in Ukraine, could disrupt global supply chains or may have an adverse impact on certain of Telefónica’s suppliers and other players in the industry. The semiconductor industry in particular is facing various challenges, as a result mainly of supply problems at a global level, which in turn is affecting multiple sectors (including technology) through delivery delays and price increases, which could affect the Telefónica Group or others who are relevant to its business, including its customers, suppliers and partners. During 2020, 2021 and 2022 a specific monitoring has been carried out and action plans have been developed by the Group with respect to the supply chain challenges resulting from the COVID-19 pandemic, the armed conflict in Ukraine as well as the potential discontinuation of use of some suppliers as a result of tensions between the United States and China. The imposition of trade restrictions and any disruptions in the supply chain, such as those related to international transport, could result in higher costs and lower margins or affect the ability of the Telefónica Group to offer its Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 383 products and services and could adversely 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 are shrinking, while new sources of revenues are increasingly derived from connectivity and digital services. Examples of these services include video, Internet of Things (IoT), cybersecurity, big data and cloud services.
One of the technologies currently being developed by telecommunications operators, including Telefónica (in Spain and Latin America), is the new FTTx type networks which allow the offering of broadband accesses over fiber optics with high performance. However, the deployment of such networks, in which the copper of the access loop is totally or partially replaced by fiber, requires high levels of investment. As of December 31, 2022, in Spain, fiber coverage reached 28.0 million premises. There is a growing demand for the services that these new networks can offer to the end customer. However, the high levels of investment required by these networks result in the need to continuously consider the expected return on investment, and no assurance can be given that these investments will be profitable.
In addition, the ability of the Telefónica Group's IT systems (operational and backup) to adequately support and evolve to respond to Telefónica's operating requirements is a key factor to consider in the commercial development, customer satisfaction and business efficiency of the Telefónica Group. While automation and other digital processes may lead to significant cost savings and efficiency gains, there are also significant risks associated with such transformation processes. Any failure by the Telefónica Group to develop or implement IT systems that adequately support and respond to the Group's evolving operating requirements could have an adverse effect on the Group's business, financial condition, results of operations and/or cash flows.
The changes outlined above force Telefónica to continuously invest in the development of new products, technology and services to continue to compete effectively with current or future competitors. Any such investment may reduce the Group’s profit and margins and may not lead to the development or commercialization of successful new products or services.
To contextualize the Group’s total research and development effort, the total expenditure in 2022 was 656 million euros (835 million euros in 2021, with the year- on-year change being impacted by deconsolidation of the entities that comprised our former Telefónica United Kingdom segment in June 2021, and 959 million euros in 2020) representing 1.6% of the Group’s revenues (2.1% and 2.2% in 2021 and 2020, respectively). These figures have been calculated using the guidelines established in the Organization for Economic Co-operation and Development (“OECD”) manual.
If Telefónica is not able to anticipate and adapt to the technological changes and trends in the sector, or to properly select the investments to be made, this could negatively affect the Group's business, financial condition, results of operations and/or cash flows.
The Telefónica Group's strategy, which is focused on driving new digital businesses and providing data-based services, involves exposure to risks and uncertainties arising from data privacy regulation. The Telefónica Group’s commercial portfolio includes products and/or services which are based on the use, standardization and analysis of data, as well as the deployment of advanced networks and the promotion of new technologies related to Big Data, cloud computing, cybersecurity, Artificial Intelligence and IoT. The large amount of information and data that is processed throughout the Group (related to approximately 383.1 million accesses associated with telecommunications services, digital products and services and Pay TV as of December 31, 2022 and an average number of employees of 102,563 in 2022), increases the challenges of complying with privacy regulations. Moreover, there is a risk that measures adopted in response to these regulations may stifle innovation. Conversely, the Group’s efforts to promote innovation may result in potential increased compliance privacy risks and, where applicable, costs.
Telefónica is subject to Regulation (EU) 2016/679 of the European Parliament and Council of April 2016, on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (“GDPR”), whose content has become the common standard for all countries where the Telefónica Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 384 Group operates. In addition, progress continues to be made on the proposal for a future European regulation concerning the respect for privacy and protection of personal data in electronic communications (“e-Privacy Regulation”), which would repeal Directive 2002/58/EC. If approved, this proposal could establish additional and more restrictive rules than those established in the GDPR, with the consequent increase in the risks and costs that this could entail for Telefónica.
Moreover, considering that the Telefónica Group operates its business on a global scale, it frequently carries out international data transfers concerning its customers, users, suppliers, employees and other data subjects to countries outside the EEA that have not been declared to have an adequate level of data protection by the European Commission, either directly or through third parties. In this context, it is particularly relevant to have the necessary controls in place to ensure that such international data transfers are carried out in accordance with the GDPR, in an environment marked by uncertainty on this issue as to the adequate and effective measures to mitigate such risks.
One of the relevant contractual measures to ensure the lawfulness of international data transfers to any country outside the EEA not found by the European Commission to have an adequate level of data protection, is the signing, between the data importer and the data exporter, of the new standard contractual clauses (“SCC”) approved by the European Commission according to Implementing Decision (EU) 2021/914 of June 4, 2021. These new SCC, which entered into force on June 27, 2021, repeal the old SCC and include a modular set of clauses for their application according to the data processing role of both the exporter and the importer.
Furthermore, the entry into force of the new SCC obliges companies that are going to use them for their transfers to assess and adopt additional measures deemed appropriate for the due protection of the data transferred to the third country. This is because SCC, in general, according to the Court of Justice of the European Union (CJEU), are not sufficient for this purpose, as the public authorities of the third country, in accordance with their local regulations, may have the power to access or request access to the data transferred. The additional measures to be adopted are mainly technical such as data encryption and derive in particular from the impact analysis of each transfer and the country of destination, all following the guidelines issued by the European Data Protection Board in its Recommendations 01/2020.
Furthermore, the adoption of the new SCC by the European Commission as the main legal tool for transfers, obliges companies to replace the old SCC, as the old SCC ceased to be legally valid at the end of 2022 in accordance with the aforementioned Implementing Decision. The implementation of the new SCC and their module structure and dispositive parts, which need to be negotiated between data exporters and importers, the obligation to assess and analyze each international transfer, the changing nature of the local regulations of the countries of destination, as well as the obligation to renew all agreements that include the old SCC, pose a challenge for the Group and, with it, a potential risk of non-compliance in the performance of international data transfers in accordance with the GDPR.
With regard to the international data transfer to the United States of America, on October 7, 2022, the U.S. President signed an executive order directing the steps that the United States will take to implement the U.S. commitments to improve the European Union–U.S. Data Privacy Framework in light of the judgment of the CJEU C-311/18. In connection with this U.S. initiative, the European Commission published in December 2022 a draft adequacy decision that would facilitate the transfer of data to the United States of America, which, like its predecessors, the International Safe Harbor Privacy Principles and the EU-U.S. Privacy Shield, is based on a self-regulatory approach, whereby U.S. companies that undertake to comply with the principles set out in the Privacy Framework will be able to self-certify as "adequate undertakings". They will thus be able to import data from the EU to the U.S. if they commit to providing an adequate level of protection to the data transferred.While this represents an improvement in the regulatory landscape for international data transfers and the risks associated with them, the approval of this new adequacy decision for the United States is subject to the non-binding review by the European Data Protection Committee and the Civil Liberties Committee of the European Parliament, as well as the mandatory and binding approval by the Member States in the Council, which is not expected to occur until mid-2023. In addition, the United Kingdom's exit from the European Union on January 1, 2021 means that the Group must monitor how its operations and business in the United Kingdom are affected in terms of applicable privacy regulations and, specifically, the flow of data to and from the United Kingdom. The European Commission declared the United Kingdom as a country with an adequate level of data protection according to the Adequacy Decision of June 28, 2021. Accordingly, entities that transfer data between both territories will not be required to adopt additional tools or measures for international transfers. The Adequacy Decision establishes an initial period of validity of four years, which may be extended only if the United Kingdom demonstrates that it continues to ensure an adequate level of data protection. In this regard, since European Union regulations no longer apply in the United Kingdom, the UK government has published a draft reform of its local privacy and data protection regulations in June 2022, which, if it finally passes through parliamentary procedures and is approved, aims to update these regulations to address new technological challenges and business opportunities in the use of data. The result and approval of this amendment could impact the Telefónica Group’s business in the United Kingdom and the Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 385 aforementioned international data transfers to and from the United Kingdom, either because additional regulatory restrictions or impositions are imposed that reduce the capacity for innovation and the development of new services and products, or because the European Union authorities consider that the United Kingdom is no longer a country with an adequate level of data protection, in which case the Telefónica Group may face similar challenges and risks as it is currently facing with respect to data transfers to the United States or other territories not declared as having an adequate level of protection. In Latin America, Law No. 13,709 in Brazil imposes standards and obligations similar to those required by the GDPR, including a sanctioning regime which is in force from August 2021, with fines for non-compliance of up to 2% of the Group’s income in Brazil in the last financial year subject to a limit of 50 million Brazilian reais (approximately 9.1 million euros based on the exchange rate as of December 31, 2022) per infraction which may increase compliance risks and costs. In addition, in 2022 the Brazilian data protection authority, Autoridade Nacional de Proteção de Dados (ANPD), became an independent agency not linked to the presidency of the Republic, thus providing it with additional autonomy to develop its control and supervision functions. Furthermore, in Ecuador, the Organic Law on Data Protection has entered into force, aligned with the principles of the European GDPR, although the effectiveness of the sanctioning regime is postponed for a two-year adaptation period which ends in 2023. In addition, Argentina has ratified Convention 108+, which is an international treaty of the Council of Europe which is open to accession by any state outside Europe, and which regulates the protection of the rights of individuals with regard to the automated processing of their data, in a very similar way to the protection granted by virtue of the GDPR. Likewise, in Chile and other territories in the region where Telefónica operates, there are regulatory proposals to bring regulation more in line with the provisions set forth in the GDPR, which may increase compliance risks and costs. Data privacy protection requires careful design of products and services, as well as robust internal procedures and rules that can be adapted to regulatory changes where necessary, all of which entails compliance risk. Failure to maintain adequate data security and to comply with any relevant legal requirements could result in the imposition of significant penalties, damage to the Group’s reputation and the loss of trust of customers and users. Telefónica’s reputation depends to a large extent on the digital trust it is able to generate among its customers and other stakeholders. In this regard, in addition to any reputational consequences, it is important to note that, in the European Union, very serious breaches of the GDPR may entail the imposition of administrative fines of up to the larger of 20 million euros or 4% of the infringing company’s overall total annual revenue for the previous financial year. Furthermore, once it is approved, the e- Privacy Regulation may set forth sanctions for breaches of it similar to those provided for in the GDPR. Any of the foregoing could have an adverse effect on the business, financial condition, results of operations and/or cash flows of the Group. Telefónica may not anticipate or adapt in a timely manner to changing customer demands and/or new ethical or social standards, which could adversely affect Telefónica's business and reputation. To maintain and improve its position in the market vis-à-vis its competitors, it is vital that Telefónica: (i) anticipates and adapts to the evolving needs and demands of its customers, and (ii) avoids commercial or other actions or policies that may generate a negative perception of the Group or the products and services it offers, or that may have or be perceived to have a negative social impact. In addition to harming Telefónica's reputation, such actions could also result in fines and sanctions. In order to respond to changing customer demands, Telefónica needs to adapt both (i) its communication networks and (ii) its offering of digital services. The networks, which had historically focused on voice transmission, are evolving into increasingly flexible, dynamic and secure data networks, replacing, for example, old copper telecommunications networks with new technologies such as fiber optics, which facilitate the absorption of the exponential growth in the volume of data demanded by the Group's customers. In relation to digital services, customers require an increasingly digital and personalized experience, as well as a continuous evolution of the Group’s product and service offering. In this sense, new services such as “Smart Wi-Fi”, “Connected Car”, “Smart Cities”, “Smart Agriculture” and “Smart Metering” which facilitate certain aspects of the Group’s customers’ digital lives, are being developed. Furthermore, new solutions for greater automation in commercial services and in the provision of the Group’s services are being developed, through new apps and online platforms that facilitate access to services and content, such as new video platforms that offer both traditional Pay TV, video on demand or multi- device access. However, there can be no assurance that these and other efforts will be successful. For example, if streaming television services, such as Netflix or others, become the principal way television is consumed to the detriment of the Group’s Pay TV service, the Group’s revenues and margins could be affected. In the development of all these initiatives it is also necessary to take into account several factors: firstly, there is a growing social and regulatory demand for companies to behave in a socially responsible manner, Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 386 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 (for example, by focusing on the security measures adopted by the Group’s providers and other third parties), as well as to ensure the security of the services in the cloud. Telecommunications companies worldwide face continuously increasing cybersecurity threats as businesses become increasingly digital and dependent on telecommunications, computer networks and cloud computing technologies. As a result of the circumstances brought by the COVID pandemic, remote access and teleworking of employees and collaborators has spread and is now a common practice, increasing the use of cloud services; thus, the risks associated with their use, and forcing companies to review the security controls beyond the perimeter of the corporate network. Further, the Telefónica Group is aware of the possible cybersecurity risks arising from the conflict in Ukraine, monitoring cyberattacks that may affect our infrastructure, and maintaining contact with national and international organizations to obtain cyberintelligence information, without having so far detected a significant increase in attacks in our perimeter compared to other previous periods, though this may change in the future. Cybersecurity threats may include gaining unauthorized access to the Group’s systems or propagating computer viruses or malicious software, to misappropriate sensitive information like customer data or disrupt the Group’s operations. In addition, traditional security threats, such as theft of laptop computers, data devices and mobile phones may also affect the Group along with the possibility that the Group’s employees or other persons may have access to the Group’s systems and leak data and/or take actions that affect the Group’s networks or otherwise adversely affect the Group or its ability to adequately process internal information or result in regulatory penalties. In particular, in the past three years, the Group has suffered several cybersecurity incidents. Attacks during this period include (i) intrusion attempts (direct or phishing), exploitation of vulnerabilities and corporate credentials being compromised; (ii) Distributed Denial of Service (DDoS) attacks, using massive volumes of Internet traffic that saturate the service; and (iii) exploitation of vulnerabilities to carry out fraud through online channels, usually through the subscription of services without paying for them. None of these incidents had material consequences for the Telefónica Group, but this may change in the future. Although Telefónica seeks to manage these risks by adopting technical and organizational measures as defined in its digital security strategy, such as the use of early vulnerabilities detection, access control, log review of critical systems and network segregation, as well as the deployment of firewalls, intrusion-prevention systems, virus scanners and backup systems, it can provide no assurance that such measures are sufficient to avoid or fully mitigate such incidents. Therefore, the Telefónica Group has insurance policies in place, which could cover, subject to the policies terms, conditions, exclusions, limits and sublimits of indemnity, and applicable deductibles, certain losses arising out of these types of incidents. To date, the insurance policies in place have covered some incidents of this nature, however due to the potential severity and uncertainty about the evolution of the aforementioned events, these policies may not be sufficient to cover all possible losses arising out of these risks.
Climate change, natural disasters and other factors beyond the Group's control may result in physical damage to our technical infrastructure that may cause unanticipated network or service interruptions or quality loss or otherwise affect the Group's business. Climate change, natural disasters and other factors beyond the Group's control, such as system failures, lack of electric supply, network failures, hardware or software failures, theft of network elements or cyber-attacks can Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 387 damage our infrastructure and affect the quality of, or cause interruption to, the provision of the services of the Telefónica Group. Further, changes in temperature and precipitation patterns associated with climate change may increase the energy consumption of telecommunications networks or cause service disruption due to extreme temperature waves, floods or extreme weather events. These changes may cause increases in the price of electricity due to, for example, reduction in hydraulic generation as a result of recurrent droughts. Further, as a result of global commitments to tackle climate change, new carbon dioxide taxes may be imposed and could affect, directly or indirectly, Telefónica, and may have a negative impact on the Group’s operations results. Telefónica analyses these risks in accordance with the recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”). Network or service interruptions or quality loss or climate- related risks could cause customer dissatisfaction, a reduction in revenues and traffic, the realization of expensive repairs, the imposition of sanctions or other measures by regulatory bodies, and damage to the image and reputation of the Telefónica Group, or could otherwise have an adverse effect on the business, financial condition, results of operations and/or cash flows of the Group.
Financial Risks.
Worsening of the economic and political environment could negatively affect Telefónica's business. Telefónica’s international presence enables the diversification of its activities across countries and regions, but it exposes Telefónica to diverse legislation, as well as to the political and economic environments of the countries in which it operates. Any adverse developments in this regard, including inflationary pressures, rapid normalization of monetary policy, exchange rate or sovereign-risk fluctuations, as well as growing geopolitical tensions, may adversely affect Telefónica’s business, financial position, debt management, cash flows and results of operations and/or the performance of some or all of the Group’s financial indicators.
Russia’s invasion of Ukraine opened a period that has been characterized by extraordinary uncertainty and the simultaneous concurrence of multiple negative shocks. Inflationary pressures, arising from bottlenecks associated with the rapid recovery from the pandemic, have been exacerbated by two phenomena that are closely related to the Russian invasion; i) the largest energy crisis since 1970s (17.7% of GDP spent on energy in 2022 vs. 10.2% in 2019 in OECD countries) and ii) the highest increase in world food prices in recent history, resulting in inflation rates not seen in the last 40 years. The persistence of shocks led inflationary pressures to become more broad-based, with higher costs increasingly being passed through to the final prices of other goods and services, leading to strong response from central banks (interest rate hikes and liquidity withdrawal) and a significant loss of consumer purchasing power. Further, it is likely that the transmission of past increases in energy prices and other imported goods to final prices has not yet been completed, which will continue to put some upward pressure in the short term. These inflationary pressures have also been contributed to by the increasing wage demands that have been observed at the international level, reflecting both the strength of labor markets, especially those of the main developed economies, and the prevalence (although to a lesser extent than in the past) of wage indexation mechanisms. Moreover, there is a risk that global liquidity reduction and high interest rates could generate greater financial volatility leading to episodes of stress, such as those observed in the United Kingdom, especially if inflation turns out to be more persistent than previously expected. Also, premature monetary easing by central banks could lead to inflationary rebound that could generate a new period of stagflation as in the 1970s. Going forward, elements that could worsen the effects of the current situation include the escalation of the armed conflict and potential disruptions to energy supply and possible further increases in commodity prices, with a potential de- anchoring of inflation expectations and higher-than- expected wage demands, prolonging and amplifying the inflation-recession scenario. As a result of the above, economic growth is expected to decelerate further in the near term, with a significant risk of recession in many parts of the world. So far, the main European countries where the Group operates have been affected through the price channel (higher commodity prices, intermediate inputs and salary costs, among others), as their trade and financial exposure is limited. However, in Europe there is concern about the energy situation for both this and next winter if climate conditions worsen in the face of a possible gas shortage. Latin America could be affected by lower external demand associated with slower global growth, deteriorating terms of trade and tighter financial conditions.As of December 31, 2022, the contribution of each segment to Telefónica Group's total assets was as follows: Telefónica Spain 25.5% (22.9% as of December 31, 2021), VMO2 9.8 % (11.1% as of December 31, 2021), Telefónica Germany 17.5% (18.3 % as of December 31, 2021), Telefónica Brazil 22.7% (19.7% as of December 31, 2021) and Telefónica Hispam 14.5% (14.3% as of December 31, 2021). Part of the Group's assets are located in countries that do not have an investment grade credit rating (in order of importance, Brazil, Argentina, Ecuador and Venezuela). Likewise, Venezuela and Argentina are
considered countries with hyperinflationary economies in 2022 and 2021. The main risks are detailed by geography below:
In Europe, there are several risks of an economic and political nature. First, the development of the armed conflict between Russia and Ukraine constitutes the main risk factor on growth and inflation prospects. Any worsening of the supply of gas, oil or food (such as the total shutdown of flows from Russia) would have a negative impact on their prices with a consequent impact on disposable income. In the medium term, this could lead to a stronger pass-through to final consumer prices, which could result in higher-than-expected wage increases, a persistent rise in inflation expectations and an even tighter monetary policy. All of the above would be added to the economic risks existing prior to the conflict, such as the consequences of an increase in the cost of financing conditions, both for the private and public sectors (more accelerated than expected a few months ago) which could trigger episodes of financial stress. Finally, there is a risk of financial fragmentation in the transmission of monetary policy in the Eurozone, which means that interest rates may react differently in different countries across the Eurozone, leading to differences in the yields of bonds issued by peripheral countries (such as Spain) and those issued by central countries, which would make access to credit more difficult for the former.
There are several local sources of risks. One of them stems from the risk that supply disruptions will have a more persistent negative economic impact than expected, and high commodity prices and/or the emergence of second round effects, prolonging the inflationary episode with a deeper impact on household income. Secondly, and although the disbursement of European funds (NGEU) appears to be gaining traction, further delays or even designing flaws could limit their final impact on GDP growth and employment. In addition, as one of the most open countries in the world, from a commercial point of view, being among the top ten countries in respect of capital outflows and inflows globally, the rise of protectionism and trade restrictions could have significant implications. Lastly, the impact of rising interest rates could be a source of financial stress due to high public indebtedness and lead to a possible correction in the real estate market.
In the short term, the main sources of risk relate to the country’s energy supply (as 35% of energy came from Russia before the conflict) and the prolongation of bottlenecks in the supply of raw materials and intermediate goods in the manufacturing sector, which could continue to limit the expansion of economic activity. Among the risks associated with energy supply, there is a risk of unusually low temperatures that could lead to higher gas consumption requirements and may affect the ability to secure necessary gas supplies. On the other hand, there is concern that higher-than-expected wage growth could lead to a stronger inflationary cycle. As for the medium to long term, there is a risk that a potential escalation of geopolitical tensions could reduce international trade, with a consequent impact on the country’s potential growth, which is dependent on exports. In addition, long-term challenges remain, such as the aging of the population.
An intensification of inflationary pressures could weigh on consumption and further depress economic growth. In particular, there is a concern that wage growth could lead to a further increase in the prices of goods and services, preventing inflation rates from normalizing as quickly as anticipated. On the other hand, although the UK economy has few direct trade links with Russia and Ukraine, it is vulnerable to developments in the global energy market as it is the second European economy with the largest share of gas in the energy mix. In addition, Britain imports gas and electricity from the European continent during the coldest months, so a confluence of an abnormally cold winter and a cut-off of Russian gas to Europe could lead to energy shortages. On the political front, recent social polarization could detract political capital from the incoming executive, becoming another source of uncertainty in the short to medium term. Finally, the formal exit of the United Kingdom from the European Union on December 31, 2020 (Brexit) has created new barriers to trade in goods and services, mobility and cross-border exchanges, which will entail an economic adjustment in the medium term. Northern Ireland's post-Brexit status and the difficulties associated with the implementation of the Northern Ireland Protocol will continue to be a source of tension.
The exchange risk is moderate but may increase in the future. The end of electoral events and rapid central bank actions to contain inflation may, at least partially, limit the impact of external risks (global trade tensions, abrupt movements in commodity prices, concerns about global growth, tightening U.S. monetary policy and financial imbalances in China) and internal risks (managing the monetary normalization and the possible underlying fiscal deterioration).
Fiscal sustainability remains the main domestic risk, especially considering the recent approval of extraordinary spending of ~2% of GDP by 2023. The new administration’s initial signals are towards greater economic interventionism, the repeal of the spending cap and the review of the privatization agenda. Political negotiations could be affected by social polarization. Uncertainty now centers on the unknown economic guidelines for the coming years of the new government, including the definition of a new fiscal rule, expenditure increase and the economic reform agenda. Given this context, domestic asset prices, including the exchange rate, continue to show high volatility. In addition, higher fiscal risks have also affected inflation expectations,
which have increased since December 2022, remaining above the targets for the monetary policy’s relevant horizon (2023 and 2024). In this regard, there is a risk that interest rates will be above the levels expected a few months ago, which would imply a downward bias for GDP growth in 2023.
Macroeconomic and exchange rate risks remain high. The main domestic challenges are achieving political consensus to reduce the public deficit and rebuilding international reserves in a context of high inflation, in order to allow the country to meet the targets agreed with the International Monetary Fund. On the external front, a global slowdown resulting in lower demand for exported products and their prices would imply lower hard currency inflows, which would increase vulnerability to volatility in international financial markets. Finally, the application of unorthodox price control measures and increasing foreign exchange restrictions could affect Telefónica's profitability.
These countries are exposed not only to changes in the global economy, given their vulnerability and exposure to changes in commodity prices, but also to tightening of global financial conditions. On the domestic side, existing political instability and the possibility of further social unrest and the resurgence of populism could have a negative impact in both the short and medium term. In this regard, measures that result in excessive growth in public spending that jeopardize fiscal balance could have a negative impact on sovereign credit ratings, further deteriorating local financing conditions. High inflation threatens to be more persistent than expected, which would limit central banks' ability to respond to an abrupt drop in activity levels and would also increase the risk on financial stability. In political terms, uncertainty prevails both in Chile, due to the new constituent process underway, and in Colombia, due to the impact that the tax and pension reforms promoted by the President may have on private investment. In Peru, political instability could continue despite the installation of the new government due to the lack of support both in chambers and at the grassroots level.
As discussed above, the countries where the Group operates are generally facing significant economic uncertainties and, in some cases, political uncertainties. The worsening of the economic and political environment in any of the countries where Telefónica operates may materially adversely affect the Group’s business, financial condition, results of operations and/or cash flows. The Group has and, in the future, could experience impairment of goodwill, investments accounted for by the equity method, deferred tax assets or other assets.# Risks
In accordance with current accounting standards, the Telefónica Group reviews on an annual basis, or more frequently when the circumstances require it, the need to introduce changes to the book value of its goodwill (which as of December 31, 2022, represented 16.8% of the Group’s total assets), investments accounted for by the equity method (which represented 10.6% of the Group's total assets as of December 31, 2022), deferred tax assets (which as of December 31, 2022, represented 4.5% of the Group’s total assets), or other assets, such as intangible assets (which represented 11.0% of the Group’s total assets as of December 31, 2022), and property, plant and equipment (which represented 21.6% of the Group’s total assets as of December 31, 2022).
In the case of goodwill, the potential loss of value is determined by the analysis of the recoverable value of the cash-generating unit (or group of cash-generating units) to which the goodwill is allocated at the time it is originated, and such calculation requires significant assumptions and judgment.
In 2022 impairment losses in other assets of Telefónica Argentina were recognized for a total of 77 million euros. In 2021 impairment losses in the goodwill of Telefónica del Perú were recognized for a total of 393 million euros and in 2020 impairment losses in the goodwill and other assets of Telefónica Argentina were recognized for a total of 894 million euros.
In addition, Telefónica may not be able to realize deferred tax assets on its statement of financial position to offset future taxable income. The recoverability of deferred tax assets depends on the Group’s ability to generate taxable income over the period for which the deferred tax assets remain deductible. If Telefónica believes it is unable to utilize its deferred tax assets during the applicable period, it may be required to record an impairment against them resulting in a non-cash charge on the income statement. By way of example, in 2021 deferred tax assets corresponding to the tax Group in Spain amounting to 294 million euros were derecognized (101 million euros in 2020). Further impairments of goodwill, deferred tax assets or other assets may occur in the future which may materially adversely affect the Group’s business, financial condition, results of operations and/or cash flows.
The Group faces risks relating to its levels of financial indebtedness, the Group's ability to finance itself, and its ability to carry out its business plan. The operation, expansion and improvement of the Telefónica Group's networks, the development and distribution of the Telefónica Group's services and products, the implementation of Telefónica's strategic plan and the development of new technologies, the renewal of licenses and the expansion of the Telefónica Group's business in countries where it operates, may require a substantial amount of financing.
The Telefónica Group is a relevant and frequent issuer of debt in the capital markets. As of December 31, 2022, the Group’s gross financial debt amounted to 39,079 million euros (42,295 million euros as of December 31, 2021), and the Group’s net financial debt amounted to 26,687 million euros (26,086 million euros as of December 31, 2021).
As of December 31, 2022, the average maturity of the debt was 13.1 years (13.6 years as of December 31, 2021), including undrawn committed credit facilities.
A decrease in the liquidity of Telefónica, or a difficulty in refinancing maturing debt or raising new funds as debt or equity could force Telefónica to use resources allocated to investments or other commitments to pay its financial debt, which could have a negative effect on the Group's business, financial condition, results of operations and/or cash flows.
Funding could be more difficult and costly to obtain in the event of a deterioration of conditions in the international or local financial markets due, for example, to monetary policies set by central banks, including increases in interest rates and/or decreases in the supply of credit, increasing global political and commercial uncertainty and oil price instability, or if there is an eventual deterioration in the solvency or operating performance of Telefónica.
As of December 31, 2022, the Group’s gross financial debt scheduled to mature in 2023 amounted to 4,020 million euros, and gross financial debt scheduled to mature in 2024 amounted to 2,010 million euros. In accordance with its liquidity policy, Telefónica has covered its gross debt maturities for the next 12 months with cash and credit lines available as of December 31, 2022.
As of December 31, 2022, the Telefónica Group had undrawn committed credit facilities arranged with banks for an amount of 11,737 million euros (11,434 million euros of which were due to expire in more than 12 months). Liquidity could be affected if market conditions make it difficult to renew undrawn credit lines. As of December 31, 2022, 2.6% of the aggregate undrawn amount under credit lines was scheduled to expire prior to December 31, 2023.
In addition, given the interrelation between economic growth and financial stability, the materialization of any of the economic, political and exchange rate risks referred to above could adversely impact the availability and cost of Telefónica's financing and its liquidity strategy. This in turn could have a negative effect on the Group's business, financial condition, results of operations and/or cash flows. Finally, any downgrade in the Group’s credit ratings may lead to an increase in the Group's borrowing costs and could also limit its ability to access credit markets.
The Group's financial condition and results of operations may be adversely affected if it does not effectively manage its exposure to interest rates or foreign currency exchange rates.
Interest rate risk arises primarily in connection with changes in interest rates affecting: (i) financial expenses on floating-rate debt (or short-term debt likely to be renewed); (ii) the value of long-term liabilities at fixed interest rates; and (iii) financial expenses and principal payments of inflation-linked financial instruments, considering interest rate risk as the impact of changes in inflation rates.
In nominal terms, as of December 31, 2022, 88% of the Group’s net financial debt had its interest rate set at fixed interest rates for periods of more than one year. The effective cost of interest payments for the last 12 months was 3.86% as of December 31, 2022 compared to 3.77% as of December, 2021.
To illustrate the sensitivity of financial expenses to variations in short-term interest rates as of December 31, 2022: (i) a 100 basis point increase in interest rates in all currencies in which Telefónica had a financial position at that date would have led to an increase in financial expenses of 34 million euros, whereas (ii) a 100 basis point decrease in interest rates in all currencies (even if negative rates are reached), would have led to a reduction in financial expenses of 34 million euros. For the preparation of these calculations, a constant position equivalent to the position at that date is assumed of net financial debt.
Exchange rate risk arises primarily from: (i) Telefónica’s international presence, through its investments and businesses in countries that use currencies other than the euro (primarily in Latin America and the United Kingdom); (ii) debt denominated in currencies other than that of the country where the business is conducted or the home country of the company incurring such debt; and (iii) trade receivables or payables in a foreign currency to the currency of the company with which the transaction was registered.
According to the Group’s calculations, the impact on results, and specifically on net exchange differences, due to a 10% depreciation of Latin American currencies against the U.S. dollar and a 10% depreciation of the rest of the currencies to which the Group is most exposed, against the euro would result in exchange gains of 11 million euros as of December 31, 2022 and a 10% appreciation of Latin American currencies against the U.S. dollar and a 10% appreciation of the rest of the currencies to which the Group is most exposed, would result in exchange losses of 11 million euros as of December 31, 2022. These calculations have been made assuming a constant currency position with an impact on profit or loss for 2022 taking into account derivative instruments in place.
In 2022, the evolution of exchange rates positively impacted the Group’s results, increasing the year-on-year growth of the Group’s consolidated revenues and OIBDA by an estimated 4.5 percentage points and 3.0 percentage points, respectively, mainly due to the evolution of the Brazilian real (negative impact of 2.3 percentage points and 2.7 percentage points, respectively, in 2021). Furthermore, translation differences as of December 31, 2022 had a positive impact on the Group’s equity of 1,169 million euros (4,088 million euros as of December 31, 2021).
The Telefónica Group uses a variety of strategies to manage this risk including, among others, the use of financial derivatives, which are also exposed to risk, including counterparty risk. The Group's risk management strategies may be ineffective, which could adversely affect the Group's business, financial condition, results of operations and/or cash flows.# Risks
Telefónica and Telefónica Group companies are party to lawsuits, antitrust, tax claims and other legal proceedings. Telefónica and Telefónica Group companies operate in highly regulated sectors and are and may in the future be party to lawsuits, tax claims, antitrust and other legal proceedings in the ordinary course of their businesses, the outcome of which is unpredictable.
The Telefónica Group is subject to regular reviews, tests and audits by tax authorities regarding taxes in the jurisdictions in which it operates and is a party and may be a party to certain judicial tax proceedings. In particular, the Telefónica Group is currently party to certain tax and regulatory proceedings in Brazil, primarily relating to the ICMS (a Brazilian tax on telecommunication services) and the corporate tax. Telefónica Brazil maintained provisions for tax contingencies amounting to 446 million euros and provisions for regulatory contingencies amounting to 336 million euros as of December 31, 2022. In addition, Telefónica Brazil faces possible tax contingencies for which no provisions are made (see Note 25-Tax Litigation in Telefónica Brazil, to the Consolidated Financial Statements). Further, the Group makes estimates for its tax liabilities that the Group considers reasonable, but if a tax authority disagrees, the Group could face additional tax liability, including interest and penalties. There can be no guarantee that any payments related to such contingencies or in excess of our estimates will not have a significant adverse effect on the Group’s business, results of operations, financial condition and/or cash flows. In addition to the most significant litigation indicated above, further details on these matters are provided in Notes 25 and 29 to the Consolidated Financial Statements. The details of the provisions for litigation, tax sanctions and claims can be found in Note 24 of the Consolidated Financial Statements.
Telefónica Group is also party to certain litigation in Peru concerning certain previous years' income taxes in respect of which Telefónica has been notified that the judicial resolutions which resolve the contentious administrative processes are unfavorable to the Group and will require it to pay taxes related to prior years. At the end of the relevant proceedings, the Tax Administration, through an administrative act, will determine the amount of the payment obligation. The estimated impact of the aforementioned judicial resolutions is already provisioned in Telefónica's financial statements, with the total provision as of December 31, 2022 amounting to 3,849 million Peruvian soles (approximately 945 million euros at the exchange rate at such date). An adverse outcome or settlement in these or other proceedings, present or future, could result in significant costs and may have a material adverse effect on the Group's business, financial condition, results of operations and/or cash flows.
Increased scrutiny and changing expectations from stakeholders, evolving reporting and other legal obligations and compliance with the Company's own goals regarding ESG matters, may expose the Company to various risks. The Telefónica Group may be unable to adapt to or comply with increasingly demanding expectations from analysts, investors, customers and other stakeholders and new regulatory reporting or other legal requirements related to ESG issues. Further, expectations and requirements may differ from region to region, may be based on diverging calculation or other criteria and may experience material changes as they still are at their emerging phase. Further, the Group's disclosure of information on its ESG objectives and initiatives in its public reports and other communications (including its CO2 emission reduction targets) 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 CO2 emission reduction targets), 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 Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 392 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 the Group's business, financial condition, results of operations and/or cash flows.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 393
GRI 2-9, 2-17
Telefónica’s basic corporate governance principles are set forth in its Bylaws, in the Regulations of its Board of Directors, in the Regulations for the General Shareholders’ Meeting, in the Regulations for the Audit and Control Committee, in the Regulations for the Nominating, Compensation and Corporate Governance Committee, in the Internal Code of Conduct for Securities Markets Issues, and in certain Policies relating to this matter; particularly noteworthy, among others, are the Diversity Policy in relation to the Board of Directors and the Selection of Board Members, the Disclosure, Contact and Engagement Policy for Shareholders, Institutional Investors and Proxy Advisors, the Remuneration Policy of the Directors of Telefónica, S.A. and the Responsible Business Policy. These regulations determine the action principles of the Board, govern its organization and operation, and set the rules of conduct of its members.
The principles underlying Telefónica’s corporate governance are the following:
a. the maximization of the value of the Company in the interest of the shareholders,
b. the essential role of the Board of Directors in the supervision of the management of the Company, and
c. transparency as regards information in relations with its stakeholders including employees, shareholders, investors and customers, among others.
As provided in the Regulations of the Board of Directors, the Board will take the necessary measures to ensure:
(i) that the Company’s management team pursues the creation of value for the shareholders,
(ii) that such management team is under its actual supervision,
(iii) that no person or small group of persons holds a decision-making power that is not subject to checks and balances or controls, and
(iv) that any shareholder receives privileged treatment compared to the others.
Telefónica undertakes the firm commitment to continuously improve its corporate governance framework by expanding, enhancing and consolidating best practices in this subject. In relation to the above, the Company carries out an ongoing analysis and review of its corporate governance structures and the degree of compliance with the main recommendations existing in the subject of good governance, always in consideration of possible initiatives to make short and medium term improvements and seeking out the formula for governance that best defends the interests of its shareholders and value creation.
In this context, as it has done throughout the 2021 financial year, Telefónica has continued to improve and strengthen its corporate governance framework in 2022 by, among other measures:
i) the continuous implementation of Training and Information Programmes to all members of its Board of Directors for the purpose to continue to comply with the best practices and recommendations in Corporate Governance;
ii) the celebration, for the first time, of the General Meeting of Shareholders in hybrid format, for the purposes of ensuring an effective commitment with the Company’s shareholders; and
iii) the update of part of its regulations and internal policies in those matters where it has been required (for example, the Equality Policy of the Telefónica Group).
The detail of the matters indicated in the above paragraphs is given below:
Training and Information Programme
Telefónica continually offers all members of its Board of Directors training programmes and refresher courses on those aspects of special importance to the performance of their duties. In this regard, throughout the 2022 financial year, training and information sessions have been imparted to the members of the Board of Directors related to the following topics, among others:
In addition, the Company has an onboarding process for new Board Members, which provides them with a welcome pack with important information about the Company. The purpose is for new member of the Board of Directors or its Committees can have the right support they need to rapidly get up to speed regarding the Company and its Group, in such way that from they can actively perform their duties immediately after their appointment. Some of the most important documents provided to the new Board Members are:
(i) the basic corporate regulations (Bylaws, Regulations for the General Shareholders’ Meeting, Regulations of the Board of Directors, Regulations of the Audit and Control Committee, and Regulations for the Nominating, Compensation and Corporate Governance Committee. Similarly, the Diversity Policy in relation to the Board of Directors and the Selection of Board Members, the Remuneration Policy of the Directors, and the Disclosure, Contact and Engagement Policy for Shareholders, Institutional Investors and Proxy Advisors);
(ii) the Internal Code of Conduct for Securities Markets Issues (RIC), which establishes a series of communication obligations and restrictions on carrying out operations with securities issued by companies of the Telefónica Group;
(iii) the Responsible Business Policy;
(iv) the Schedule of ordinary sessions of the Board of Directors and of the Board Committees; and
(v) the presentation of the Company's governing bodies and the organisational structure.
General Shareholders’ Meeting 2022
The General Shareholders’ Meeting held on April 8, 2022, took place for the first time in a hybrid mode, that is, with the attendance of shareholders in-person and online. However, as a consequence of the health crisis caused by COVID-19, and given the possibility that, on the date scheduled for the General Shareholders' Meeting, there might be some type of regulatory limitation or recommendation from the health authorities that would affect people's mobility or their ability to convene, the Company's Board of Directors recommended that shareholders or their representatives participate remotely in the General Meeting (by granting a proxy or casting a vote prior to the Meeting, or by attending the meeting remotely) following the Meeting by audiovisual means through the Company's corporate website, advising against physical attendance.
The objective pursued by Telefónica was to offer a format for the General Meeting of Shareholders that was attractive and accessible, to thus ensure the Company’s effective commitment to its shareholders. In following, the key points highlighted at the General Meeting of Shareholders of Telefonica S.A. in 2022 are detailed:
Update of Corporate Regulations and Policies
Throughout 2022, the Board of Directors has approved the following corporate regulations and policies:
(i) updating the Telefónica Energy Management Policy;
(ii) the Competition Law Policy of the Telefónica Group;
(iii) the Equality Policy of the Telefónica Group;
(iv) updating of the Regulations on Procurement of Goods and Services (NCC-003); and
(v) the Regulations on Sanctions.
The main priorities of Telefónica in corporate governance matters for 2023 are:
Other information# Consolidated management report 2022
Strategy and growth model
As of December 31, 2022, some key issues of the Board of Directors of Telefónica, S.A. are detailed below:
Similarly, regarding the diversity of the Board, the following aspects stand out:
| % Directors with the following Knowledge and Skills | % Directors with Professional Experience in the following sectors | Nationality |
|---|---|---|
| Spanish | 12 | |
| English | 1 | |
| Austrian | 1 | |
| Brazililan | 1 |
Likewise, shown below is the composition of the Board of Directors along with each of its Committees as of December 31, 2022. Additional information can be found in section 4.4 of the Annual Corporate Governance Report, and in section C of the Annual Corporate Governance Report statistical annex.
| Name | Post | Board of Directors | Board Committees |
|---|---|---|---|
| Executive Commission | |||
| Mr. José María Álvarez-Pallete López | Chairman | X | C |
| Mr. Isidro Fainé Casas | Vice- Chairman | X | VC |
| Mr. José María Abril Pérez | Vice- Chairman | X | VC |
| Mr. José Javier Echenique Landiríbar | Vice- Chairman and Lead Independent Director | X | VC |
| Mr. Ángel Vilá Boix | Chief Operating Officer (C.O.O.) | X | M |
| Mr. Juan Ignacio Cirac Sasturain | Member | X | M |
| Mr. Peter Erskine | Member | X | M |
| Ms. Carmen García de Andrés | Member | X | M |
| Ms. María Luisa García Blanco | Member | X | M |
| Mr. Peter Löscher | Member | X | M |
| Ms. Verónica Pascual Boé | Member | X | M |
| Mr. Francisco Javier de Paz Mancho | Member | X | M |
| Mr. Francisco José Riberas Mera | Member | X | |
| Ms. María Rotondo Urcola | Member | X | M |
| Ms. Claudia Sender Ramírez | Member | X | M |
Chairman: X
VC: ViceChairman
M: Member
It also details the individual attendance of directors at meetings of the Board of Directors and each of its Committees during the year 2022.
Attendance at meetings of the Board and its Committees in 2022
| Name | Board of Directors | Board Committees |
|---|---|---|
| Executive Commission | ||
| Mr. José María Álvarez-Pallete López | 14/14 | 14/15 |
| Mr. Isidro Fainé Casas | 14/14 | 13/15 |
| Mr. José María Abril Pérez | 13/14 | 15/15 |
| Mr. José Javier Echenique Landiríbar | 14/14 | 15/15 |
| Mr. Ángel Vilá Boix | 14/14 | 15/15 |
| Mr. Juan Ignacio Cirac Sasturain | 14/14 | 10/10 |
| Mr. Peter Erskine | 12/14 | 13/15 |
| Ms. Carmen García de Andrés | 14/14 | 12/12 |
| Ms. María Luisa García Blanco | 14/14 | 12/12 |
| Mr. Peter Löscher | 13/14 | 13/15 |
| Ms. Verónica Pascual Boé | 13/14 | 7/9 |
| Mr. Francisco Javier de Paz Mancho | 14/14 | 14/15 |
| Mr. Francisco José Riberas Mera | 12/14 | |
| Ms. María Rotondo Urcola | 14/14 | 11/12 |
| Ms. Claudia Sender Ramírez | 14/14 | 10/10 |
Note. The table details the attendance of directors who have personally attended the meetings of the Board of Directors or its committees, not counting the attendance of directors made by proxy. The total number of meetings held by the Board of Directors and the Committees in 2022 amounted more than 80, demonstrating the intense activity of these bodies and the Directors's firm undertaking to perform their duties with dedication and commitment.
As of December 31, 2022, the share capital of Telefónica, S.A. was set at 5,775,237,554 euros and is 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.
On April, 22, 2022, the share capital reduction deed was registered, for an amount of 139,275,057 euros, in which 139,275,057 own shares that were in treasury stock were redeemed, with a nominal value of 1 euro each. Following the share capital reduction, the share capital was set at 5,639,772,963 euros.
On June 24, 2022, the deed granted was registered for a paid-up capital increase in the amount of 135,464,591 euros, in which 135,464,591 ordinary shares with a par value of 1 euro each were issued against reserves as part of the scrip dividend. Following the share capital increase, the share capital was set at 5,775,237,554 euros.
The shares of Telefónica, S.A. are represented by book entries that are listed on the Spanish Electronic Market (within the selective Ibex 35 index) and on the four Spanish Stock Exchanges (Madrid, Barcelona, Valencia and Bilbao), as well as on the New York and Lima Stock Exchanges (on these latter two Exchanges through American Depositary Shares (ADSs), with each ADS representing one share of the Company).
As of December 31, 2022, the total number of shareholders of Telefónica, S.A. amounted to 1.1 million, and the distribution by investors categories was as follows:
| Investor Category | % Share Capital |
|---|---|
| Domestic Institutional | 21% |
| Foreign Institutional | 49% |
| Retail | 30% |
At its meeting held on May 31, 2017, the Board of Directors of the Company approved the General Framework for Discretionary Treasury Shares Operations of Telefónica, S.A., as provided in articles 16.2 and 17.6 of Telefónica’s Internal Rules of Conduct in Matters Relating to the Securities Markets (the “IRC”). Such General Framework sets forth the discretionary action principles for the management of treasury shares, observing and respecting the provisions of the above-mentioned Rules, particularly as regards restrictions on price, volume and timing of the transactions.
As of the closing date of the 2022 fiscal year, the number of direct shares held as treasury shares stood at 85,217,621 (1.48% of the share capital). As for the changes in treasury shares that occurred during the fiscal year, see Note 17 (Equity) of the Consolidated Accounts of Telefónica, S.A. for fiscal year 2022.
Furthermore, and in connection with the authorization granted to the Board of Directors by the shareholders at the General Shareholders’ Meeting to acquire the Company’s own shares, the shareholders acting at the Ordinary General Shareholders’ Meeting of Telefónica held on June 8, 2018 resolved to renew the aforementioned authorization granted by the shareholders themselves at the General Shareholders’ Meeting of May 30, 2014 for the derivative acquisition of own shares, either directly or through companies of the Group, on the terms that are literally set forth below:
"A)To authorize, pursuant to the provisions of Section 144 et seq. of the Spanish Companies Act (Ley de Sociedades de Capital), the derivative acquisition by Telefónica, S.A., either directly or through any of the subsidiaries, at any time and as many times as it deems appropriate, of its own fully-paid in shares through purchase and sale, exchange or any other legal transaction. The minimum acquisition price or minimum value consideration shall be equal to the par value of the shares of its own stock acquired, and the maximum acquisition price or maximum value consideration shall be equal to the listing price of the shares of its own stock acquired by the Company on an official secondary market at the time of the acquisition. Such authorization is granted for a period of five years as from the date of this General Shareholders’ Meeting and is expressly subject to the limitation that the par value of the Company’s own shares acquired directly or indirectly pursuant to this authorization added to those already held by Telefónica, S.A. and
any of its subsidiaries shall at no time exceed the maximum amount permitted by the Law at any time, and the limitations on the acquisition of the Company’s own shares established by the regulatory Authorities of the markets on which the shares of Telefónica, S.A. are traded shall also be observed. It is expressly stated for the record that the authorization granted to acquire shares of its own stock may be used in whole or in part to acquire shares of Telefónica, S.A.# Authorisation to increase share capital
As regards the authorizations conferred in respect of the share capital, and in addition to the authorization already described to acquire the Company’s own shares, the shareholders acting at the Ordinary General Shareholders’ Meeting held on June 12, 2020 resolved to delegate to the Board of Directors, as broadly as required by Law, pursuant to the provisions of Section 297.1.b) of the Companies Act, the power to increase the share capital on one or more occasions and at any time, within a period of five year 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 Companies Act. However, the power to exclude pre-emptive rights is limited to 20% of the share capital on the date on which the resolution is adopted. In accordance with the above-mentioned authorization, as of the end of fiscal year 2022, the Board would be authorized to increase the share capital by the maximum nominal amount of 2,596,065,843 euros.
Furthermore, the shareholders at 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 Bylaws, the power to issue debentures, bonds, notes and other fixed-income securities and hybrid instruments, including preferred shares, which may in all cases be simple, exchangeable and/or convertible and/or grant the holders thereof a share in the earnings of the Company, as well as 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. 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.
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.
Furthermore, 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.
As for the existence of restrictions on the transfer of securities and/or voting rights, in accordance with article 26 of the Company’s Bylaws, no shareholder may exercise a number of votes exceeding 10 percent of the total share capital with voting rights existing at any time, regardless of the number of shares held, all of the foregoing with full and mandatory submission to the provisions of the Law. In determining the maximum number of votes that each shareholder may cast, only the shares held by the shareholder in question shall be computed, not including those held by other holders who have delegated their representation to that shareholder, without prejudice to the application of the same percentage limit of 10% to each of the shareholders represented individually.
The limitation established in the preceding paragraph shall also apply to the maximum number of votes that may be cast -either jointly or separately- by two or more shareholder companies belonging to the same group of entities, as well as to the maximum number of votes that may be cast by an individual or legal entity that is a shareholder, and the entity or entities, also shareholders, that the former directly or indirectly controls. For the purposes indicated in the preceding paragraph, in order to consider the existence of a group of entities, as well as the control situations indicated above, the provisions of section 18 of the Companies Act shall apply.
Establishing in the Bylaws the maximum number of votes that may be cast by the same shareholder or by shareholders belonging to the same group (article 26 of the Bylaws) is warranted because the purpose of such measure is to establish an appropriate balance and to protect the position of minority shareholders, preventing a possible concentration of votes on a small number of shareholders, which could affect the furtherance of the corporate interest or the interest of all the shareholders as a guide for the actions of the shareholders at the General Shareholders’ Meeting. Telefónica believes that this measure does not constitute a mechanism to block public tender offers but rather a guarantee that the acquisition of control will require sufficient consensus among all the shareholders since, as is natural and may be seen from experience, potential offerors may condition their offer to the removal of such requirement.
In addition, and in accordance with section 527 of the Companies Act, at listed companies, bylaw provisions that directly or indirectly establish, in general terms, the maximum number of votes that may be cast by a single shareholder, companies belonging to the same group or those acting in concert with the foregoing shall cease to have effect when, following a public tender offer, the offeror has reached a percentage equal to or greater than 70 percent of the capital carrying voting rights, unless such offeror is not subject to equivalent neutralization measures or has not adopted them.
On the other hand, the provisions of Law 19/2003, of July 4, on the Legal System of Transfers of Capital and of Financial Transactions with Foreign Countries (the Law 19/2003) also apply, which provisions establish that the Government may decide the suspension of the regime of deregulation on foreign investments set out therein in the event of acts, businesses, transactions or operations that, because of their nature, form or conditions of performance, affect or may affect activities related, even if only occasionally, to public order or activities directly related to the national defense, or activities that affect or may affect public order, public safety and public health, as well as the provisions of Royal Decree 664/1999, of April 23, on foreign investments.
In addition, account should be taken of the latest amendments to Law 19/2003 (introduced by Royal Decree-Law 8/2020 of March 17, Royal Decree-Law 11/2020 of March 31, Royal Decree-Law 34/2020 of November 17, Royal Decree-Law 12/2021 of June 24, Royal Decree-Law 27/2021 of November 23, and Royal Decree- Law 20/2022 of December 27) which, in addition to maintaining the aforementioned regime, establishes the suspension of the liberalisation regime for certain investment operations, particularly affecting foreign direct investment in Spain in certain sectors, including the telecommunications sector.# 4.2. Significant Shareholders and Directors' Shareholdings
This regime establishes a compulsory process, based on reasons of security, public order and public health, which implies that the closure of certain investment operations in Spain is subject to prior administrative authorisation, when the circumstances provided for in the aforementioned regulation are met. On the other hand, the shareholders at a General Shareholders’ Meeting of Telefónica, S.A. have not resolved to adopt any neutralization measure in the event of a public tender offer in reliance on the provisions of the Securities Market Act.
According to the information existing at the Company, there is no individual or legal entity that directly or indirectly, individually or jointly with others, exercises or may exercise control over Telefónica on the terms set out in section 5 of the Securities Market Act. As of the closing date of fiscal year 2022, there are, however, certain shareholders holding interests that may be considered significant within the meaning of Royal Decree 1362/2007, of October 19, and which are the following:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 403
| Name or corporate name of shareholder | % voting rights attributed to shares | % of voting rights through financial instruments | % of total voting rights |
|---|---|---|---|
| Direct | Indirect | Direct | Indirect |
| Banco Bilbao Vizcaya Argentaria, S.A. (*) | 4.85 | 0.02 | 0.00 |
| CaixaBank, S.A. (**) | 3.50 | 0.00 | 0.00 |
| BlacRock, Inc.(***) | 0.00 | 4.32 | 0.00 |
(*) Based on the information provided by Banco Bilbao Vizcaya Argentaria, S.A. for the Annual Corporate Governance Report of Telefónica, S.A. for the 2022 financial year. Furthermore, according to the aforementioned information provided by BBVA, the percentage of economic rights attributed to the shares of Telefónica, S.A. owned by BBVA at December 31, 2022 amounts to 4.97% of the company's share capital.
(**) Based on information provided by CaixaBank, S.A. for the Annual Corporate Governance Report of Telefónica, S.A. for 2022.
(***) Based on the information notified by BlackRock, Inc. to the CNMV on March 31, 2020, as updated per the share capital of Telefónica, S.A. as of December 31, 2022. Based on the Schedule 13G/A filed with the SEC, on October 7, 2022, BlackRock, Inc. beneficially owned 4.96% of Telefónica, S.A. shares (4.49% of voting rights).
Breakdown of indirect interest:
| Name or corporate name of indirect owner | Name or corporate name of direct owner | % voting rights attributed to shares | % of voting rights through financial instruments | % of total voting rights |
|---|---|---|---|---|
| Banco Bilbao Vizcaya Argentaria, S.A. | BBVA Seguros, S.A. de Seguros y Reaseguros | 0,02 | 0 | 0,02 |
| CaixaBank, S.A. | Vida-Caixa, S.A. de Seguros y Reaseguros | 0.00 | 0.00 | 0.00 |
| BlackRock, Inc. | BlackRock Group | 4.32 | 0.16 | 4.48 |
It is hereby stated for the record that Telefónica is not aware of the existence of family, commercial, contractual or corporate relationships (whether significant or not arising in the ordinary course of business) among the holders of significant interests in its share capital.
Below is a description of the commercial, contractual or corporate relationships existing between the holders of significant interests and Telefónica, S.A. and/or its Group of companies (except for those of little significance or arising in the ordinary course of business):
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 404
| Name of related party | Nature of relationship | Brief description |
|---|---|---|
| Banco Bilbao Vizcaya Argentaria, S.A. | Corporate | Shareholding of Banco Bilbao Vizcaya Argentaria, S.A. (or any of the companies of its Group), together with Telefónica, S.A. and with CaixaBank, S.A., in Telefónica Factoring España, S.A., TFP, S.A.C., Telefónica Factoring Colombia, S.A., Telefônica Factoring do Brasil, Ltda.,Telefónica Factoring México, S.A. de C.V., SOFOM, E.N.R., Telefonica Factoring Chile, S.A. (indirectly through Telefónica Factoring España, S.A.) and Telefónica Factoring Ecuador, S.A. (indirectly through TFP, S.A.C.). |
| Banco Bilbao Vizcaya Argentaria, S.A. | Corporate | Shareholding of Ciérvana, S.L. (a company which belongs to Grupo BBVA), together with Telefónica Compras Electrónicas, S.L.U., in Adquira España, S.A. |
| Banco Bilbao Vizcaya Argentaria, S.A. | Contractual | Memorandum of understanding executed by Telefónica Digital España, S.L.U. with the aim of exploring a potential collaboration to offer loans to consumers and SME in Argentina, Colombia, and Perú. |
| Banco Bilbao Vizcaya Argentaria, S.A. | Contractual | Financial Collaboration Agreement signed with Banco Bilbao Vizcaya Argentaria, S.A., with special conditions for the Employees, Retirees and Pre-retirees group of the Telefónica Group. |
| Banco Bilbao Vizcaya Argentaria, S.A. | Corporate | Joint venture agreement executed between Telefónica Digital España, S.L.U. and Compañía Chilena de Inversiones, S.L., an affiliated company of BBVA, related to the incorporation of a subsidiary in Colombia with the aim of commercializing loans to consumers and SME in such country. On January 5, 2021, this company was incorporated as a 50% joint venture between the two companies, under the name Movistar Consumer Finance Colombia, S.A.S. |
| CaixaBank, S.A. | Corporate | Shareholding of CaixaBank, S.A., with Telefónica, S.A. and with Banco Bilbao Vizcaya Argentaria, S.A. (or with any of the companies of its Group), in Telefónica Factoring España, S.A., TFP, S.A.C., Telefónica Factoring Colombia, S.A., Telefônica Factoring do Brasil, Ltda.,Telefónica Factoring México, S.A. de C.V., SOFOM, E.N.R., Telefonica Factoring Chile, S.A. (indirectly through Telefónica Factoring España, S.A.) and Telefónica Factoring Ecuador, S.A. (indirectly through TFP, S.A.C.). |
| CaixaBank, S.A. | Corporate | Shareholding of Caixabank Payments & Consumer, E.F.C., E.P., S.A.U. (subsidiary of CaixaBank, S.A.) together with Telefónica, S.A., in Telefónica Consumer Finance, E.F.C., S.A. |
| CaixaBank, S.A. | Corporate | Shareholding of Caixabank Payments & Consumer, E.F.C., E.P., S.A.U. (subsidiary of CaixaBank, S.A.) together with Telefónica, S.A., in Telefónica Renting, S.A. |
| CaixaBank, S.A. | Contractual | Financial Collaboration Agreement signed with CaixaBank, S.A., with special conditions for the Employees, Retirees and Pre-retirees group of the Telefónica Group. |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 405
Similarly, below is a description of the relationships and/or positions of some of the Directors of Telefónica, S.A. with its significant shareholders:
| Name or company name of related director or representative | Name of company name of related significant shareholder | Company name of the group company of the significant shareholder | Description of relationship/post |
|---|---|---|---|
| Mr. José María Abril Pérez | Banco Bilbao Vizcaya Argentaria, S.A. | Banco Bilbao Vizcaya Argentaria, S.A. | Formerly General Manager of Wholesale and Investment Banking in Banco Bilbao Vizcaya Argentaria, S.A. |
| Mr. Isidro Fainé Casas | CaixaBank, S.A. | CaixaBank, S.A. | - |
Remarks
As of December 31, 2022, the total percentage of voting rights (attributed to shares and financial instruments) held by the Board of Directors was 0.366%. Specifically, as of such date, and as an indication of their commitment to the Company, the interest in Telefónica, S.A. held by the Executive Chairman, Mr. José María Álvarez-Pallete López and by the Chief Operating Officer, Mr. Ángel Vilá Boix, amounted to 0.078% and to 0.041% of the total voting rights, respectively.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 406
GRI 2-9, 2-10
The Bylaws of Telefónica, S.A. provide for a single class of shares (common shares), giving all the holders thereof identical rights. There are no non-voting shares or shares, or a loyalty vote, carrying more than one vote or with privileges in the distribution of dividends, or reinforced quorum or qualified majorities other than those established by law. There is no provision for the shareholders at a General Shareholders´ Meeting having to approve decisions entailing an acquisition, disposition or the contribution to another company of essential assets or similar corporate transactions other than those established by law.
This section describes some of the main rights of the shareholders of the Company.
Right to receive information
The General Shareholders’ Meeting is called as much in advance as required by law, through a notice published in, at a minimum, (i) the Official Gazette of the Commercial Registry or one of the widest circulation dailies in Spain, (ii) the website of the National Securities Market Commission and (iii) the Company’s corporate website.# Notice of General Shareholders’ Meeting
The notice published on the Company’s corporate website remains accessible on a continuous basis at least until the holding of the General Shareholders’ Meeting. Likewise, the Board of Directors may publish notices in other media, if it deems appropriate, in order to ensure public and effective dissemination of the call to meeting.
From the date of publication of the notice of the call to the General Shareholders’ Meeting, the Company makes available to its shareholders the documents and information that must be provided to them in accordance with legal or bylaw-mandated requirements in connection with the various items included on the agenda; such items and documents are posted on the Company’s website from the above-mentioned date. Notwithstanding the foregoing, shareholders may obtain such documents and information immediately and free of charge at the Company’s registered office, and request that they be delivered or mailed to them free of charge, in the cases and on the terms established by law.
In addition, from the date of publication of the call to the General Shareholders’ Meeting and until the fifth day prior to the date set for the holding of the meeting on first call, any shareholder may request in writing such information or clarifications or ask such questions in writing as it deems relevant concerning the matters included on the Agenda of the call to meeting, or concerning the information accessible to the public that the Company may have provided to the National Securities Market Commission since the holding of the immediately preceding General Shareholders’ Meeting, or concerning the auditor’s report.
The Board of Directors will be required to provide in writing, until the day of the holding of the General Shareholders’ Meeting, the requested information or explanations, as well as to reply, also in writing, to the questions asked. The replies to the questions and to the requests for information will be sent through the Secretary of the Board of Directors by any of the members of the Board or by any person expressly authorized by the Board of Directors for such purpose.
During the holding of the General Shareholders’ Meeting, shareholders may request such information or explanations as they deem appropriate concerning the matters included on the Agenda or with respect to the information accessible to the public provided by the Company to the National Securities Market Commission since the holding of the last General Shareholders’ Meeting or concerning the auditor’s report. In the event that it is impossible to satisfy the shareholder’s right at that time, the Board of Directors will be required to provide such information in writing within seven days of the end of the General Shareholders’ Meeting.
The Board of Directors will be required to provide the requested information as described in the two preceding paragraphs in the manner and within the periods established by law, except in those cases where (i) such information is unnecessary for the protection of the shareholder’s rights or there are objective reasons to consider that it could be used other than for corporate purposes, or the dissemination thereof would harm the Company or its related companies; (ii) the request for information or explanations does not relate to matters included on the Agenda or, in the case of paragraph two of this subsection (Right to Receive Information), to information accessible to the public that was provided by the Company to the National Securities Market Commission since the holding of the last General Shareholders’ Meeting; and (iii) it is so established in statutory or regulatory provisions. The exception described in subsection (i) above shall not apply if the
407 information was requested by shareholders representing at least one-fourth of the share capital. The replies to shareholders attending the General Shareholders’ Meeting from a distance electronically and simultaneously and exercising their right to receive information through such procedure shall be provided, where applicable, during the meeting itself, or in writing, within seven days following the General Shareholders’ Meeting.
Shareholders representing at least three percent of the share capital may request that a supplement to the call to the Ordinary General Shareholders’ Meeting be published, including one or more items on the Agenda, provided the new items are accompanied by a rationale or, if appropriate, by a duly substantiated proposed resolution.
In addition, and on the terms set forth in section 519 of the Companies Act (Ley de Sociedades de Capital), shareholders representing at least three percent of the share capital may, within five days following publication of the notice of the call to meeting, submit duly substantiated proposed resolutions on matters already included or that must be included on the Agenda. Such rights shall be exercised by means of duly authenticated notice, which must be received by the Company in accordance with the provisions of the Law.
Shareholders holding at least 300 shares registered in their name in the respective book-entry register five days prior to the General Shareholders’ Meeting and providing evidence thereof through the respective attendance card or certificate issued by the Company or by any of the Depositary Entities Members of Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A.U. (IBERCLEAR) or in any other form allowed by applicable legislation. may attend the General Shareholders’ Meeting called.
Any shareholder having the right to attend may be represented at the General Shareholders’ Meeting by another person, even if such person is not a shareholder. Proxies may be granted through the proxy forms printed on the attendance cards or in any other manner allowed by law, without prejudice to the provisions of the Companies Act regarding cases of representation by family members and the grant of general powers of attorney.
The documents granting the proxy for the General Shareholders’ Meeting shall include instructions concerning the direction of the vote. Unless the shareholder granting the proxy expressly states otherwise, it shall be deemed that such shareholder issues precise voting instructions in favor of the proposed resolutions submitted by the Board of Directors on the matters included on the Agenda.
If there are no voting instructions because the shareholders acting at the General Shareholders’ Meeting could decide on matters that, while not included on the Agenda and therefore not known on the date on which the proxy is granted, might be put to a vote at the General Shareholders’ Meeting, the proxy shall cast the vote in the direction the proxy considers best, taking into account the interest of the Company and that of the shareholder the proxy represents. The same provisions shall apply when the respective proposal or proposals submitted to a decision of the shareholders at the General Shareholders’ Meeting were not made by the Board of Directors.
It is expressly stated for the record that the notice of call of the last Ordinary General Shareholders’ Meeting expressly provided that unless the shareholder granting the proxy expressly stated otherwise, such shareholder would be deemed to issue precise instructions to vote against the respective resolution on any matter that, while not included on the Agenda and therefore not known on the date on which the proxy was granted, might be put to a vote at the General Shareholders’ Meeting.
If the proxy document does not state the specific person to whom the shareholder grants his proxy, it shall be deemed to have been granted to the Chair of the Board of Directors of the Company or to the person who may replace him as Chair of the General Shareholders’ Meeting. If the appointed proxy should be in a situation of conflict of interest regarding the vote on any of the proposals which, whether or not included on the Agenda, are submitted at the General Shareholders’ Meeting and the shareholder granting the proxy has not issued precise voting instructions, the proxy shall be deemed to have been granted to the Secretary for the General Shareholders’ Meeting.
Shareholders who are not holders of the minimum number of shares required to attend may also grant a proxy in writing with respect to such shares to a shareholder with the right to attend or form a group with other shareholders in the same situation until they have the necessary number of shares, and grant a proxy in writing to one of them.
Every share present in person or by proxy at the General Shareholders’ Meeting shall entitle the holder thereof to one vote. Resolutions shall be adopted by simple majority, meaning that proposed resolutions will be approved when the number of votes in favor of each proposal is greater than the number of votes against it (regardless of the number of blank votes and abstentions), without prejudice to the reinforced voting quorums established in the law and in the Bylaws.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A.# 408
The Bylaws and Regulations for the General Shareholders’ Meeting of Telefónica confer upon the shareholders acting at a General Shareholders’ Meeting the power to approve the amendment of the Bylaws (articles 15 and 5, respectively), subject to applicable legal provisions for all other matters. The procedure for amending the Bylaws is established in sections 285 and seq. of the Companies Act, and must be approved at the General Shareholders’ Meeting complying with the quorum and majorities required in sections 194 and 201 of the same law. In particular, if the General Shareholders’ Meeting is summoned to deliberate on Bylaw amendments, including capital increases or reductions, on eliminating or restricting pre- emptive rights in respect of new shares and on the transformation, merger, spin-off or the global assignment of assets and liabilities and the relocation of the registered office abroad, then shareholders that own at least fifty percent of the subscribed capital with voting rights will have to be present or be represented by proxy on first call. If there is no sufficient quorum, the General Shareholders’ Meeting will be held on second call, in which case at least twenty-five percent of the subscribed capital with voting rights will need to be present, either in person or by proxy. When shareholders that represent less than fifty percent of the subscribed capital with voting rights are present at the Meeting, either in person or by proxy, the resolutions referred to above may only be approved when two-thirds of the capital, present or represented by proxy at the Meeting, vote in favor of the resolution. Pursuant to section 286 of the Companies Act, if the Bylaws are amended, the Directors or, if appropriate, the shareholders who made the proposal must draw up in full the text of their proposed amendment and a written report justifying the amendment, which must be made available to the shareholders when the General Shareholders’ Meeting is called to deliberate on the amendment. Furthermore, and pursuant to section 287 of the Companies Act, the notice calling the General Shareholders’ Meeting must clearly state the items that might be amended, and note that all the shareholders are entitled to analyze the full text of the proposed amendment and the report on such amendment at the registered offices, as well as to request such documents to be delivered or sent to them free of charge. Pursuant to section 291 of the Companies Act, when new obligations are established for the shareholders due to an amendment of the Bylaws, the resolution must be passed with the approval of the affected shareholders. Furthermore, if the amendment directly or indirectly affects a type of shares, or part of them, the provisions of section 293 of such Act shall apply. The procedure for voting on proposed resolutions at the General Shareholders’ Meeting is regulated in section 197 bis of the Companies Act and in the internal regulations of Telefónica (in particular, article 23 of the Regulations for the General Shareholders’ Meeting). This article states, among other things, that when amendments are made to the Bylaws, each article or group of articles which is materially different will be voted on separately.
Telefónica complies with applicable legislation and best practices in terms of the content of its website concerning Corporate Governance. In this respect, it fulfills both the technical requirements for access to and content of the Company website, including information on General Shareholders’ Meetings, through direct access from the homepage of Telefónica, S.A. (www.telefonica.com) in the “Shareholders and Investors” section (https://www.telefonica.com/en/shareholders- investors/), which includes not only all of the information that is legally required but also information that the Company considers to be of interest.
The Regulations for the General Shareholders’ Meeting and the Regulations of the Board of Directors of Telefónica devote several of their sections to governing the channels whereby relations between the Board of Directors and the shareholders of the Company (both individual shareholders and institutional shareholders and investors) are established in order to thereby ensure the greatest possible transparency in such relations. It is further expressly provided that the Board of Directors undertakes to guarantee equal treatment in its relations with the shareholders. The purpose of the Company’s actions in this area, based on the paramount standard of transparency, is the distribution of all public information generated by the Company, making it accessible to all its shareholders simultaneously and in a non-discriminatory manner, complying with their need for information and ensuring that published information satisfies the standards of quality, clarity and truthfulness. In addition, and within this context, the Board of Directors of the Company, at its meeting held on November 25, 2015, approved the Policy on Information, Communication and Contacts with Shareholders, Institutional Investors and Proxy Advisors, the second and third edition of which was also approved by the Board at its meetings of November 4, 2019 and December 16, 2020, respectively, to include new developments and the latest trends on the matter. In the latest edition of December 16, 2020, the name of said Policy was changed to Disclosure, Contact and Engagement Policy of Telefónica, S.A. for shareholders, institutional investors and proxy advisors. In connection therewith, and as provided in such Policy, the Board of Directors of Telefónica is the body responsible for establishing and supervising appropriate mechanisms of communication and relationship with Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 409 shareholders, institutional investors and proxy advisors that fully respect the rules prohibiting market abuse and that provide similar treatment to shareholders in the same position. Thus, the Board of Directors, acting through its corresponding decision-making bodies, endeavors to defend, protect and facilitate the exercise of the rights of shareholders, institutional investors and the markets in general and, in particular, their right to information, within the framework of protecting the corporate interest, which is understood as the achievement of a profitable and sustainable business over the long-term, which fosters its continuity and the maximization of the economic value of the company, all in accordance with the following principles:
a) Transparency, truthfulness, immediacy, equality and symmetry in the diffusion of economic/financial, non- financial and corporate information by dissemination thereof through the reporting and communication channels provided in this Policy, which contribute to maximizing the dissemination and quality of information available to the market, to investors and to other stakeholders.
b) Published information shall be clearly written and must be true, complete in all material respects and comply with all applicable legal requirements, such that it reasonably provides a true and fair view of the financial and nonfinancial position, the profits/losses and the business of the Company in all material respects.
c) Information shall be subjected to an internal control system of a Coordination and Control Committee, and to supervision by the Internal Audit directorate, the Audit and Control Committee, the Board of Directors and the External Auditor.
d) Encouraging the engagement within the Company of shareholders and institutional investors, particularly by providing access to information relevant to the exercise by shareholders of their rights, mainly the rights to attend and vote at the General Meeting.
e) Development of information disclosure tools that take advantage of new technology in order to communicate rapidly and effectively using economical means.
f) Compliance with applicable law, particularly the Market Abuse Regulation, and the internal rules of the Company, especially the Internal Code of Conduct for Securities Markets Issues.
Telefónica disseminates to the market and communicates to its shareholders and institutional investors and to its other stakeholder groups, its information through various channels:
▪ Communications to the National Securities Market Commission (Comisión Nacional del Mercado de Valores) (CNMV) and other international official bodies
The Company sends to the CNMV all information that under applicable law is classified as privileged or material, periodic financial and non-financial information, and corporate information as required by law. Likewise, the Company delivers each and every one of the communications that it has filed for these purposes with the CNMV to other foreign supervisory authorities and bodies in all markets on which its shares are admitted to listing. Information sent to the CNMV is immediately disseminated on the CNMV's website and is subsequently published on the Company's website.# Telefónica, S. A.
Within this context, Telefónica mainly publishes the following financial, non-financial and corporate information: i) Communications of Inside Information and Other Relevant Information (ORI); ii) Quarterly results information; iii) Semi-annual results information; iv) Annual Information (Annual Financial Statements and Management Report, which includes the Statement of Non-financial Information, the Annual Corporate Governance Report (IAGC) and the Annual Report on Directors’ Remuneration (IARC), together with the External Auditor’s Report); and iv) Annual Informational Reports (including the Universal Registration Document filed on an annual basis with the CNMV, or the 20-F report, filed with the Securities and Exchange Commission (SEC) in the United States).
Access routes to the Shareholders and Investors and “Shareholders’ Area” tabs of the corporate website are the following:
https://www.telefonica.com/en/shareholders-investors/
https://www.telefonica.com/en/shareholders-area/
In compliance with applicable legal provisions, the Company has a corporate website (www.telefonica.com), which is an official channel of communication to allow for the exercise by shareholders of the right to obtain information and to disseminate information of interest to investors and other stakeholders, favoring transparency, immediacy and the subsequent access to information. The information is published simultaneously in Spanish and English, with the Spanish version taking precedence in the event of any inconsistency. Telefónica’s corporate website also provides access to the following information; i) General information regarding the Company; ii) economic/financial and non-financial information; iii) Inside Information Communications and Other Relevant Information issued by the Company; iv) Share information; v) information on corporate governance; and vi) specific information for shareholders
(section “Shareholders’ Area” of the corporate website) focused solely on minority shareholders. In particular, the presentations of annual, semi-annual and quarterly results, as well as other types of significant institutional or economic/financial presentations, are published through Telefónica’s corporate website. Telefónica also streams webcasts and conference calls regarding presentations of quarterly results and other significant communications for the market, allowing access to shareholders, analysts and any other persons who so desire. Virtual events are also held for minority shareholders, which are hosted on the Zona- Shareholders website. All documents required by applicable legal provisions regarding the call to and holding of General Shareholders’ Meetings are also published on the corporate website, which promotes informed participation and the exercise of the rights to information and participation.
As already mentioned in preceding paragraphs, the Board of Directors encourages informed and responsible participation by the shareholders at the General Shareholders` Meeting, and adopts such measures and guarantees as may be appropriate to ensure that the shareholders at the General Shareholders’ Meeting effectively perform their duties under the law and the Company’s corporate governance principles. In addition, from the call to the General Shareholders’ Meeting, the shareholders can access the Office of the Shareholder, in order to resolve questions that might be raised and respond to and inform those persons who wish to take the floor. The Office of the General Secretary of the Company, with the support of the Investor Relations, People and Sustainability Area, is responsible for maintaining ongoing contact and dialogue with proxy advisors, answering their questions regarding proposed resolutions submitted at the General Shareholders’ Meeting and providing the clarifications they deem to be required, so that their voting recommendations can be based on a real understanding of the Company and its situation. Likewise, Telefónica must also monitor the policies and recommendations of such proxy advisers, as well as international developments and trends in corporate governance, and evaluate the recommendations and principles issued by proxy advisers in relation to corporate governance standards, taking into account the particular circumstances of the Company and its environment and, in any event, the legal provisions that may apply to the Company.
The Disclosure, Contact and Engagement Policy of Telefónica, S.A. for Shareholders, Institutional investors and Proxy advisors requires the Company to inform, communicate with and respond appropriately to its shareholders and investors with transparency, truthfulness, immediacy, equality and symmetry in the dissemination of information. Telefónica communicates directly with its shareholders, institutional investors and financial analysts through the Investor Relations area. This area, which includes the Office of the Shareholder, is in charge of and responsible for this communication, and therefore, any contact with shareholders, institutional investors or financial analysts must be channeled through it, and it will validate and coordinate any communication that it makes, whether verbal or written, requesting the participation of other areas of the Telefónica Group whose purview covers the issues for which the consultation is made, such as the Office of the General Secretary, People or Sustainability. Furthermore, the Group’s Investor Relations department will coordinate communication by the various subsidiaries with the market in order to ensure that it is proper, consistent and coherent at all times.
In charge of continuously responding to questions and suggestions made by institutional investors and financial analysts on an individualized basis through:
* An e-mail address ([email protected]).
* A telephone number (+34 91 482 87 00) and a mailing address (Distrito Telefónica - Edificio Central Pl. 2ª C/ Ronda de la Comunicación s/n 28050 Madrid).
* In addition, to provide detailed reports on the evolution, strategy and results of the Company and to answer questions from analysts and institutional investors, informational meetings and roadshows are organized at the main financial centers worldwide. These meetings are held by both Investor Relations and Telefónica’s management team, which are virtual when required, as for example in the context of the situation generated by the COVID-19. During 2022, contact was maintained with 725 institutional investors, with a total of 11 roadshows, both in person and virtual. Attendance at forums and conferences in the telecommunications sector or generally in Europe/Latin America and in Environmental, Social and Governance matters (ESG), is also a natural channel for Telefónica’s communication with institutional investors. Thus, during 2022, Telefónica has been present at 12 sectoral or general conferences organized by bank. There are also presentations to and meetings with analysts and institutional investors that delve into strategic issues of the Company, which supplement the published information and may be necessary or appropriate to facilitate communication and the long-term creation of value.
Within this context and for some years now, Telefónica has an Engagement Program with the Company’s main investors, informing them transparently and on an ongoing basis of, among other things, business strategy, financial performance, corporate governance (composition of the Board of Directors and Good Governance practices), remuneration and sustainability. In addition to Investor Relations, other areas of the Telefónica Group responsible for matters concerning which queries are received, such as the Office of the General Secretary, People or Sustainability, also participate in this program. The Company is committed to the main investors in ESG, and regularly makes telephone calls, roadshows and holds face-to-face meetings in London, Paris and USA, or in virtual format if necessary, mainly from COVID-19. All these measures are used to coordinate and manage communication with the market in order to ensure that it is appropriate, consistent and coherent at all times. Communication with institutional investors, analysts and shareholders may not take place during the periods prior to publication of the results of the Group or of subsidiaries that are subject to securities market rules.
Through the Office of the Shareholder, Telefónica ensures transparent, agile and fluid communications with its shareholders, providing the same information in time and form as that provided to institutional shareholders. The Company distributes to all of them a communication service consisting of the sending of e-mails with information of interest regarding the Company, significant events, news, quarterly results, a monthly newsletter, the Acción Telefónica magazine, stock market information, etc. to encourage transparency and communication between the Company and its shareholders. This type of information is sent to shareholders who request this service and is available for viewing and or downloading at the “Shareholders’ Area” section of the corporate website (www.telefonica.com/shareholders-area).In the Shareholders’ Area, in 2022 the "Shareholders Offers Area" where the shareholders can register to enjoy more than 400 discounts on various products and services of different recognized brands. These offers range from travel to training and culture, through health, sports, etc. Also, this year, they have been included in the website “Shareholders’ Area”, a current affairs section that includes the most listened to podcasts and the most interesting current affairs blogs, both published by the company. Another update of 2022 on the web is the offer of free training courses for shareholders about the most outstanding subjects of the moment allowing them to improve their knowledge of the digital and financial world. The Office of the Shareholder also holds periodic meetings with shareholders in the various Spanish provinces with the largest number of shareholders, reporting on the Company’s strategy and the latest published results, thereby offering personalized service to shareholders and meeting the requirements of transparency in offering the same information to individual and institutional shareholders. Two-way communication is established between the Company and its shareholders at these meetings, where there can be an exchange of viewpoints. During 2022, these meetings have been held virtually. The virtual meetings are hosted on the "Zona-Shareholders" section of the website for viewing. Personal communication is maintained with the shareholders throughout the year, by telephone, electronic, postal and virtual means, and especially upon the presentation of results and on occasion of the principal communications of privileged or significant information, such as distribution of dividends, calls to General Shareholders´ Meetings, corporate transactions... Furthermore, in order to improve dialogue between the Company and its shareholders, there may be periodic Informational Meetings in which the shareholders participate upon established terms in order to discuss current issues regarding the Telefónica Group that are considered to be of particular interest for this group. These issues can cover regulatory developments in the area of listed companies, aspects relating to the performance of the business or other issues. The Company publishes the quarterly magazine “Acción Telefónica,” with financial information that includes an explanatory summary of periodic public information of a financial and operational nature, interviews on current events and exclusive campaigns that can be accessed. It is available in digital format in the "Shareholders’ Corner" and may also be viewed on IOS and Android devices by installing the respective app. The Company also distributes to its shareholders a monthly newsletter with stock market information, new developments, technological advances, news, videos, offers, promotions, cultural visits, upcoming events, sponsorships, recognitions, etcétera. The newsletter includes links to a selection of blogs and podcasts published by the Company. Upon the holding of the General Shareholders’ Meeting, the channels of communication with shareholders are expanded to facilitate their participation therein. The Office of the Shareholder can be contacted directly through a form within a specific microsite for the Meeting. Shareholders can use this medium to ask questions relating to items on the agenda, the delivery of documentation relating thereto, and the procedure for participating in the General Shareholders’ Meeting, either in person or by proxy, with a section of frequently asked questions and a virtual assistant to facilitate information Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 412 and an explanatory video of participation in the Meeting, as well as information on the communication channels with the Shareholders' Office: free telephone and email. The channels for contacting Telefónica's Office of the Shareholder are: •Toll-free information number (900 111 004 from Spain) open from 9:00 a.m. to 7:00 p.m., Monday to Friday, except national holidays. This call center is staffed by qualified personnel specializing in the economic/ financial field. Information is provided regarding communications of privileged or significant information made by the Company, including the dividend policy, results and corporate transactions, among other things. •E-mail address ([email protected]) for responding to questions and suggestions from the Company’s shareholders. This channel of communication is attended to in Spanish as well as in English. •Postal mail. Distrito Telefonica, Edificio Central Pl. 2ª Ronda de la Comunicación s/n Madrid 20850, Spain •Specific section for shareholders ("Shareholders’ Area") on the corporate website. www.telefonica.com/shareholders-area Furthermore, throughout the year, the Office of the Shareholder collects and manages the suggestions and requests of the shareholders regarding other areas of the Telefónica Group, such as customer service, billing, sales, etc. and is thus a means for bringing the Company closer to the shareholders. The engagement activities carried out in the year are indicated below: ▪4 virtual meetings and 21 telematic communications (Quarterly magazine, monthly newsletter, Shareholders' Meeting communications and informative call center) and more than 100 communications of relevant information and of cultural and informative interest to the shareholder. ▪14,000 shareholders contacted. ▪Social Media. Telefónica's social media profiles: Twitter, Linkedin, YouTube, Instagram, Facebook and Flickr, etc., have become a channel for the communication of corporate, business, event and conference information. In addition, and subject to securities market regulations on the communication of inside information, the Company may use social media to simultaneously communicate inside information as an additional or complementary channel to the CNMV, provided that the Company complies with the requirements of applicable legal provisions on the communication of inside information and other relevant information and with the other internal rules of the Company. ▪Mass Media. Based on the circumstances, and every time, the Company consider the suitability of summoning the media for the presentation of its annual results, with the participation, when appropriate, of Telefónica’s management team, in order to inform the media regarding the progress of the Company and its projects, always subject to the principles of non-disclosure of inside information and other relevant information that has not already been published and the equal treatment of shareholders.
The Ordinary General Shareholders' Meeting held on April 8, 2022 was held at the offices of Telefónica, S.A. located in Distrito Telefónica, Ronda de la Comunicación s/n, Auditorio del Edificio Central, giving the attendees the possibility to participate by telematic means, in accordance with the provisions of article 21 of the Bylaws and article 18 of the Regulations of the General Shareholders' Meeting. As a result of the health crisis caused by COVID-19 and in view of the possibility that, on the date scheduled for the General Shareholders' Meeting, there were regulatory restrictions or recommendations from health authorities affecting the mobility of people or their ability to hold a meeting, the Board of Directors of the Company recommended that shareholders or their representatives participate remotely in the General Meeting (by granting a proxy or casting a vote prior to the Meeting, or by attending the Meeting remotely) and follow the Meeting by audiovisual means through the corporate website of the Company, discouraging physical attendance. To this end, the Company set up mechanisms on the corporate website to enable shareholders (or their proxies) to remotely attend the Ordinary General Shareholders' Meeting. Similarly, and as at the Ordinary General Shareholders' Meetings of the Company held in 2019, 2020 and 2021, the 2022 Shareholders' Meeting was broadcast live on Telefónica's corporate website, which enabled shareholders not present, investors and interested persons in general to be fully informed of the results and the matters discussed.
At the 2022 Ordinary General Shareholders’ meeting, the quorum was 58.58%, higher percentage than that obtained at 2021 General Meeting, whose quorum amounted to 56.90%.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 413
Such quorum breaks down as follows:
| Attendance data | % physically present | % present by proxy | % distance voting | Total |
|---|---|---|---|---|
| Date of general meeting | ||||
| 08/04/2022 | 0.08% | 56.26% | 0.75% | 58.58% |
| Of which, free float | 0.01% | 37.35% | 0.75% | 38.27% |
Note: The table above has been formatted based on the provided text, assuming "Total" column is the sum and "Electronic voting" and "Other" are potentially sub-categories not fully detailed or separate columns in the original representation that weren't clear in the text provided for direct mapping.
All the items on the Agenda were approved by a majority; the percentage of affirmative votes was 94.55% on average. The following table summarizes the resolutions approved at the 2022 Ordinary General Shareholders’ Meeting and the results of the votes:
| Item of the Agenda | Summary of the resolution | Votes in favour | Votes Against | Abstentions | Result of the Voting |
|---|---|---|---|---|---|
| I.1 Approval of the 2021 Annual Accounts and of the Management Report. | 3,213,114,539 (99.3415%) | 3,129,690 (0.0968%) | 18,167,899 (0.5617%) | Passed | |
| I.2 Approval of the Non-Financial Information Statement. | 3,215,465,017 (99.4142%) | 2,308,311 (0.0714%) | 16,638,800 (0.5144%) | Passed | |
| I.3 Approval of the management of the Board of Directors. |
| Item | For | Against | Abstention | Result |
|---|---|---|---|---|
| I. Approval of the Annual Accounts and Management Report for the fiscal year ended December 31, 2021. | 3,183,708,495 (98.4324%) | 30,773,382 (0.9514%) | 19,930,251 (0.6162%) | Passed |
| II. Approval of the Proposed Allocation of the Profits/Losses. | 3,202,319,417 (99.0078%) | 15,540,639 (0.4805%) | 16,552,072 (0.5117%) | Passed |
| III. Re-election of the Statutory Auditor for fiscal year 2022. | 3,207,048,660 (99.1540%) | 3,549,251 (0.1097%) | 23,814,217 (0.7363%) | Passed |
| IV.1 Re-election of Mr. José María Abril Pérez as Proprietary Director. | 3,108,722,304 (96.1140%) | 80,259,670 (2.4814%) | 45,430,154 (1.4046%) | Passed |
| IV.2 Re-election of Mr. Ángel Vilá Boix as Executive Director. | 3,141,120,768 (97.1157%) | 47,831,574 (1.4788%) | 45,459,786 (1.4055%) | Passed |
| IV.3 Re-election of Ms. María Luisa García Blanco as Independent Director. | 2,872,990,677 (88.8257%) | 339,287,842 (10.4899%) | 22,133,609 (0.6843%) | Passed |
| IV.4 Re-election of Mr. Francisco Javier de Paz Mancho as Other External Director. | 2,699,492,991 (83.4616%) | 489,079,559 (15.1211%) | 45,839,578 (1.4172%) | Passed |
| IV.5 Ratification of the appointment of Ms. María Rotondo Urcola as Independent Director. | 3,164,379,796 (97.8348%) | 24,672,481 (0.7628%) | 45,359,851 (1.4024%) | Passed |
| V. Setting the number of members of the Board of Directors at fifteen. | 3,205,540,003 (99.1073%) | 10,119,834 (0.3129%) | 18,752,291 (0.5798%) | Passed |
| VI. Reduction of share capital through the cancellation of own shares. | 3,214,300,166 (99.3782%) | 3,872,764 (0.1197%) | 16,239,198 (0.5021%) | Passed |
| VII.1 Shareholder compensation by means of a scrip dividend. | 3,203,106,528 (99.0321%) | 20,503,619 (0.6339%) | 10,801,981 (0.3340%) | Passed |
| VII.2 Shareholder compensation by means of the distribution of dividends. | 3,220,618,644 (99.5735%) | 3,286,117 (0.1016%) | 10,507,367 (0.3249%) | Passed |
| VIII. Approval of a Global incentive share purchase Plan for shares. | 3,199,417,436 (98.9181%) | 16,529,836 (0.5111%) | 18,464,856 (0.5709%) | Passed |
| IX. Delegation of powers. | 3,214,302,257 (99.3783%) | 3,392,461 (0.1049%) | 16,717,410 (0.5169%) | Passed |
| X. Consultative vote on the 2021 Annual Report on Director Remuneration. | 1,723,151,319 (53.2756%) | 1,387,366,467 (42.8939%) | 123,894,342 (3.8305%) | Passed |
The full texts of the resolutions adopted by the General Shareholders’ Meeting held on April 8, 2022 may be viewed on the Company’s corporate website and on the CNMV website (Communication of Other Relevant Information sent on April 8, 2022).
During 2022 and especially on the occasion of the Ordinary General Shareholders’ Meeting, Telefónica continued to strengthen communications, service and relationships with its shareholders and investors:
As of December 31, 2022, and on the date of issuance of this Report, the Board of Directors was and is composed of 15 members, whose profiles and professional career appear in Section related to "Professional career of the members of the Board of Directors". Specifically, at the 2022 Annual General Meeting, the number of members of the Board of Directors was set at 15 in accordance with the provisions of article 29 of the Bylaws. The number of members of the Board of Directors is sufficient to achieve the Board’s effective and operational functionality, according to the organizational structure of the Group. Likewise, it is important to bear in mind that the Board of Directors of the Company has six Committees (the Executive Commission and five Advisory Committees), thereby ensuring the active participation of all of its Directors.
Mr. Peter Erskine and Mr. Francisco Javier de Paz Mancho are considered to be Other External Directors, for the following reasons: Mr. Peter Erskine was appointed a Director of Telefónica, S.A. in 2006, such that, more than 12 years after his appointment, and in accordance with the provisions of section 529 duodecies of the Companies Act, in 2018 he was reclassified from Independent Director to Other External Director. Similarly, Mr. Francisco Javier de Paz Mancho was appointed a Director of Telefónica, S.A. in 2007, such that, more than 12 years after his appointment, and in accordance with the provisions of section 529 duodecies of the Companies Act, in 2019 he was reclassified from Independent Director to Other External Director.
Telefónica S.A. has a Director Selection Policy as of November 25, 2015. This Policy was updated i) on December 13, 2017 to include the Diversity Policy applicable to the Board of Directors and, consequently, was renamed the Diversity Policy in relation to the Telefónica, S.A. Board of Directors and the Selection of Directors, and ii) on December 16, 2020, in order to adapt this Policy to the applicable regulations and, specifically, to the recommendations of the Good Governance Code of the National Securities Market Commission (CNMV), which was partially reformed in June 2020. This Policy ensures that the procedures for selecting Directors are based on a prior analysis of the of the skills required by the Board of Directors, and favors thereof diversity of knowledge, training and professional experience, age, disability and gender on the Board, free from any implicit bias that might imply any form of discrimination, particularly on account of gender, disability or any other personal condition, and that facilitate the selection of female Directors in a number that allows the achievement of an equal balance of women and men.
In accordance with the provisions of said Policy, the selection of candidates to serve as a Director at Telefónica adheres to the following principles:
3.The process for the selection of candidates to serve as Directors is also based on a prior analysis of the skills required by the Board of Directors. Such analysis is conducted by the Company’s Board of Directors, with the advice and with the required report or proposal, if applicable, of the Nominating, Compensation and Corporate Governance Committee. 4. In the case of re-election or ratification, the report or proposal of the Nominating, Compensation and Corporate Governance Committee contains an evaluation of the work and effective dedication to the position for the most recent period of time during which the proposed Director has been in that position, as well as the Director’s ability to continue to perform satisfactorily. 5. The required report or proposal of the Nominating, Compensation and Corporate Governance Committee is published upon the call to the General Shareholders’ Meeting at which the ratification, appointment or re- election of each Director is submitted. Furthermore, the Board of Directors and the Nominating, Compensation and Corporate Governance Committee ensure, within the scope of their respective powers, that the candidates chosen for the position of Director are persons of recognized probity, competence and experience, who are willing to devote the time and effort required for the performance of their duties, exercising rigorous care in the selection of the persons called upon to serve as Independent Directors. Accordingly, all the candidates for the position of Director shall be professionals of integrity, whose conduct and professional career is in line with Telefónica's Responsible Business Principles. Additionally, candidates for Director shall be considered in particular if they have professional experience, in telecommunications, technology, consumer awareness, ESG knowledge, marketing, accounting, auditing, risk management (both financial and non-financial) and international experience and team leadership in multinationals will be valued. On the other hand, with regard to gender diversity, the Company has purposely sought out women who fit the required professional profile. In this regard, the Company has made a qualitative leap in terms of the percentage represented by female Directors with respect to the total number of members of the Board of Directors, having gone from 11.11% in 2016 to 33.33% at this time. All of the measures and procedures that have been agreed upon and adopted by the Board of Directors and by the Nominating, Compensation and Corporate Governance Committee in order to include on the Board a number of females that enables a balanced presence of women and men, and to prevent the selection procedures from being affected by any implicit bias that would hinder the appointment of female Directors, have been initiated and implemented by the Company. Similarly, in the change in the composition of the Company’s Board of Directors that was implemented in 2017, at the proposal of the Nominating, Compensation and Corporate Governance Committee, the Board of Directors unanimously appointed Ms. Carmen García de Andrés as an Independent Director of Telefónica. This appointment was ratified by the shareholders at the Ordinary General Shareholders’ Meeting of Telefónica held on June 9, 2017. Likewise, in 2018 the Company’s Board of Directors, at the proposal of the Nominating, Compensation and Corporate Governance Committee, unanimously appointed Ms. María Luisa García Blanco as an Independent Director of Telefónica. This appointment was ratified by the shareholders at the Ordinary General Shareholders’ Meeting of Telefónica held on June 8, 2018. On the other hand, in 2019 the Company’s Board of Directors, at the proposal of the Nominating, Compensation and Corporate Governance Committee, unanimously appointed Ms. Claudia Sender Ramírez and Ms. Verónica Pascual Boé as Independent Directors of Telefónica. These appointments were ratified by the Ordinary General Shareholders' Meeting of Telefónica held on June 12, 2020, Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 418 at which both were appointed as Directors for the statutory term of 4 years. Finally, in 2021, the Board of Directors of the Company unanimously appointed, at the proposal of the Nominating, Compensation and Corporate Governance Committee, Ms. María Rotondo Urcola as an independent Director of Telefónica. This appointment was ratified by the Ordinary General Shareholders' Meeting of Telefónica held on April 8, 2022, at which she was appointed Director for the statutory term of 4 years. It should also be noted that the same criteria and principles that the Company applies to the process of selecting and appointing the members of the Board of Directors are applied to the appointment of the Directors who are part of the various Committees of the Company’s Board of Directors, as well as, with regard to gender diversity, the appointment of female senior executive, all without prejudice to the key principles of merit and ability that must govern all of the Company’s staff selection processes. In this regard, in 2021 the Nominating, Compensation and Corporate Governance Committee verified compliance with the Diversity Policy in relation to the Board of Directors of Telefónica, S.A. and the selection of Directors on the occasion of the appointment of Ms María Rotondo Urcola as Director and the appointment of the members of the Committees of the Board of Directors. Likewise, compliance with the aforementioned Policy was verified on the occasion of the proposal for re-election, ratification and appointment of Directors submitted and approved by the Ordinary General Shareholders' Meeting of April 8, 2022. On the occasion of the proposed re-election, ratification and appointment of the members of the Board of Directors, information was provided to shareholders on the diversity criteria and objectives in the reports prepared by the Board of Directors and the Nominating, Compensation and Corporate Governance Committee. In this regard, the Nominating, Compensation and Corporate Governance Committee verified that, in the process of preparing and approving the proposals for re- election, ratification and appointment of Directors that were submitted to the General Shareholders' Meeting in 2022, the provisions of the Diversity Policy in relation to the Board of Directors of Telefónica, S.A. were complied with, following an adequate and rigorous procedure to ensure that the proposals that were made, as appropriate, by the Board of Directors (in relation to proposals affected non- independent Directors, following a favorable report from the Nominating, Compensation and Corporate Governance Committee) or by the Nominating, Compensation and Corporate Governance Committee (in relation to proposals that affected independent Directors) were in the best interests of the Company. Lastly, with regard to performance evaluation, the Board of Directors conducts an annual evaluation of its operation and of that of its Committees, assessing in particular the application, in terms of the composition and competencies of the Board of Directors, of the various aspects of diversity included in the aforementioned Policy, as well as the performance of the Chairman of the Board of Directors, of the Company’s Chief Executive Officer and of the various Directors, paying special attention to the heads of the various Board Committees and adopting appropriate measures for their improvement. This assessment is carried out every 3 years with the assistance of an external consultant, whose independence is verified by the Nominating, Compensation and Corporate Governance Committee. In this regard, as indicated at the end of this section under the title "Evalutation of the Board and of its Committees", for the evaluation corresponding to the financial year 2020, the Company has been supported by Egon Zehnder as external advisor. The Diversity Policy in relation to the Telefónica, S.A. Board of Directors and the Selection of Directors is public and may be viewed on the corporate website (www.telefonica.com).
As mentioned earlier, Telefónica’s Bylaws provide that the Board of Directors shall consist of a minimum of five and a maximum of twenty members, who shall be appointed by the shareholders at the General Meeting. Specifically, at the Annual General Meeting of April 8, 2022, the number of members of the Board of Directors was set at fifteen in accordance with article 29 of the Bylaws. The Directors shall hold office for a maximum period of four years and may be re-elected one or more times for periods of the same maximum length. On a provisional basis, the Board of Directors, in accordance with the provisions of the Companies Act and of the Bylaws, may fill existing vacancies on an interim basis. In this regard, it should be noted that on certain occasions, when it is indispensable because vacancies have occurred after the General Shareholders’ Meeting was held, and in accordance with the provisions of the Companies Act, Directors are appointed on an interim basis, subject to ratification at the next General Shareholders’ Meeting. Otherwise, and in any event, the proposals for the appointment of Directors must comply with the provisions of the Bylaws and of the Regulations of the Board of Directors, must be preceded by the corresponding report of the Nominating, Compensation and Corporate Governance Committee and, in the case of Independent Directors, by the corresponding proposal.# Annual Corporate Governance Report
In any event, the proposals must be accompanied by a supporting report from the Board of Directors assessing the competence, experience and merits of the proposed candidate. In this regard, and in accordance with the responsibilities assigned to the Nominating, Compensation and Corporate Governance Committee, this Committee must evaluate the skills, knowledge and experience required on the Board of Directors, defining the functions and competencies required of the candidates who must fill each vacancy, and evaluating the specific amount of time and dedication that will allow them to perform their duties effectively. With regard to the latter, and in accordance with the provisions of Article 29.2 of the Regulations of the Board of Directors, those who are members of more than five Boards of Directors of other companies other than Telefónica, S.A. and its Group companies may not be appointed to the Company's Board. For these purposes, a) all Boards of Directors of companies that are part of the same Group shall be counted as a single board of directors; and b) those Boards of Directors of asset-holding companies or those that constitute vehicles or complements for the professional exercise of the Director himself/herself, his/her spouse or person with a similar relationship, or his/her closest relatives, shall not be counted. As an exception, and for duly justified reasons, the Board of Directors may exempt the Director from this prohibition.
Similarly, Nominating, Compensation and Corporate Governance Committee must submit to the Board of Directors the proposals for the appointment of Independent Directors, whether for their appointment on an interim basis or for their submission to a decision by the shareholders at the General Shareholders’ Meeting, along with the proposals for the re-election or separation of said Directors at the General Shareholders’ Meeting. Likewise, it must report on the proposals for the appointment of the remaining Directors of the Company, whether for their appointment on an interim basis or for their submission to a decision by the shareholders at the General Shareholders’ Meeting, along with the proposals for their re-election or separation at the General Shareholders’ Meeting.
Similarly, it shall explain the category of each Director by the Board of Directors at the General Shareholders’ Meeting at which the shareholders must make or ratify their appointment. Furthermore, such category shall be reviewed annually by the Board, after verification by the Nominating, Compensation and Corporate Governance Committee, and a summary of this review shall be included in the Annual Corporate Governance Report.
In any case, and in the event of the re-election or ratification of Directors at the General Meeting, the report of the Nominating, Compensation and Corporate Governance Committee or, in the case of Independent Directors, the proposal of said Committee, shall contain an assessment of the work and effective dedication to the position during the last period of time in which it was held by the proposed Director, as well as its ability to continue to do so.
The Board of Directors and the Nominating, Compensation and Corporate Governance Committee shall ensure, within the scope of their respective powers, that the candidates proposed for the position of Director are persons of recognized probity, competence and experience, who are willing to devote the time and effort required for the performance of their duties, exercising rigorous care in the selection of the persons called upon to serve as Independent Directors.
The Board of Directors must endeavor to ensure that the procedures for the selection of its members promote diversity with respect to issues such as age, gender, disability, knowledge, education and professional experience, and are free from any implicit bias that might imply any form of discrimination, and, in particular, facilitate the selection of female Directors in such numbers as to achieve a balanced presence of women and men.
In this regard, and as mentioned earlier, at its meeting of November 25, 2015 the Board of Directors approved a Policy for the Selection of Directors, which on December 13, 2017, was updated to include the Diversity Policy applicable to the Board of Directors, such that it was renamed the Diversity Policy in relation to the Telefónica, S.A. Board of Directors and the Selection of Board Members. Likewise, on December 16, 2020, the Board of Directors approved an update of this Policy to reflect the most recent regulatory standards and, in particular, to adjust it to the provisions of the Recommendations of the Good Governance Code of the National Market Securities Commission (CNMV) regarding diversity.
The Nominating, Compensation and Corporate Governance Committee shall verify, on an annual basis, compliance with the Policy for the diversity of the Board of Directors and selection of Directors, and shall include the corresponding summary in the Annual Corporate Governance Report and in such other documents as are deemed appropriate. In addition, the Board of Directors shall periodically evaluate the degree of compliance with and effectiveness of the Policy and, in particular, the percentage of female Directors at any given time, and a detailed description of the Policy, as well as the objectives set in this respect and the results obtained, shall be included in the Annual Corporate Governance Report. Likewise, the Nominating, Compensation and Corporate Governance Committee may also propose to the Board of Directors any updates and proposed improvements of the Policy it deems appropriate.
The Company’s Directors may be re-elected one or more times for periods of the same length as that of the initial period. In the same way as proposals for appointments, proposals for the re-election of Directors must be preceded by the corresponding report of the Nominating, Compensation and Corporate Governance Committee, and, in the case of Independent Directors, by the corresponding proposal.
Directors shall cease to hold office when the time period for which they were appointed expires, or when so decided by the shareholders at the General Meeting in the exercise of the powers legally granted to them.
When a Director ceases to hold office before the end of his or her term, whether by resignation or by resolution of the General Meeting, the Director must adequately explain in a letter which will be sent to all members of the Board of Directors the reasons for leaving office or, in the case of non-executive Directors, the Director’s views as to the grounds for removal by the shareholders acting at the General Meeting. In addition, to the extent material to investors, the Company shall as soon as possible make public the cessation in office, including sufficient information as to the reasons or circumstances stated by the Director.
The Board of Directors shall not propose the removal of any Independent Director prior to the end of the bylaw- mandated period for which the said Director was appointed, unless due grounds therefor are present, as acknowledged by the Board at the proposal of the Nominating, Compensation and Corporate Governance Committee. Specifically, due grounds shall be deemed to exist when the Director has failed to perform the duties inherent in his position. The removal of Independent Directors may also be proposed as a result of Public Tender Offers, mergers or other similar corporate transactions that entail a change in the structure of the company’s capital.
Likewise, in accordance with the provisions of article 12 of the Regulations of the Board of Directors, the Directors must tender their resignation to the Board of Directors and formalize, where appropriate, and depending on the circumstances, such resignation in the following cases:
a. When they cease to hold the executive positions with which their appointment as Directors was associated, or when the reasons for their appointment no longer exist.
b. When they are affected by any of the cases of incompatibility or prohibition provided by Law.
c. When they are severely reprimanded by the Nominating, Compensation and Corporate Governance Committee for having failed to fulfill any of their obligations as Directors.
Likewise, Directors must inform when they are subject to circumstances, whether or not related to their conduct within the Company itself, that may adversely affect the standing or reputation thereof, and particularly when they are under investigation in any criminal matter, in which case the Directors must notify the Company of the progress of any such legal proceedings.
Having been notified or otherwise become aware of any of the circumstances mentioned in this paragraph, the Board of Directors shall examine the case as soon as possible and, based on the specific circumstances, and after a report from the Nominating, Compensation and Corporate Governance Committee, shall determine the measures to be adopted, including the request for the resignation of said Director, which it must accept, or the proposal to resign at the next General Meeting. Any such matter shall be included in the Annual Corporate Governance Report unless special circumstances justify otherwise, which circumstances must recorded in formal minutes.# Consolidated management report 2022
Those obligations shall be without prejudice to any information that the Company must disseminate at the time that any such measures are adopted. In this regard, and in compliance with the provisions of the aforementioned Article 12.3 of the Board of Directors’ Regulations, the Director Mr Isidro Fainé Casas notified Telefónica of his procedural situation in relation to the Preliminary Proceedings of Summary Trial 96/2017, before the Central Court of Instruction number 6 of the National High Court, and which was reported in the 2021 Annual Corporate Governance Report. It is noted that, in January 2023, the National High Court confirmed the dismissal of the case. Neither the Bylaws nor the Regulations of the Board establish any limit as to the age of the Directors.
Executive Chairman
Executive Director
Joined the Board in 2006.
Nationality: Spanish.
Born in 1963 in Madrid, Spain.
Education:
Degree in Economics from the Complutense University of Madrid. He also studied Economics at the Free University of Brussels, in Belgium. He holds an International Management Programme from IPADE and an Advance Research Degree from the Complutense University of Madrid. He also holds an Advanced Studies Diploma from the University Complutense of Madrid.
Experience:
He began his professional career at Arthur Young Auditors in 1987, before joining Benito & Monjardín/ Kidder, Peabody & Co. in 1988. In 1995, he joined the Compañía Valenciana de Cementos Portland (CEMEX) as head of the Investor Relations and Analysis Department. In 1996, he was promoted to Chief Financial Officer in Spain, and in 1998 to Chief Administration and Finance Officer of the CEMEX Group Indonesia and to a member of the Board of CEMEX Asia Ltd. In February 1999, he joined the Telefónica Group as Chief Financial Officer of Telefónica Internacional S.A.U., and in September of the same year he became Chief Financial Officer of Telefónica S.A. In July 2002, he was appointed Executive Chairman of Telefónica Internacional S.A.; in July 2006, General Manager of Telefónica Latinoamérica; and in March 2009 Chairman of Telefónica Latinoamérica. In September 2011 he was named Executive Chairman of Telefónica Europe, and in September 2012 he was appointed Chief Operating Officer of Telefónica S.A. He is member of the Board of Telefónica S.A., since July 2006 and Chairman & CEO of Telefónica, S.A. since April 8, 2016.
Other relevant positions:
He is currently Chairman of the Telefónica Foundation, Trustee of the Profuturo Foundation, member of the Advisory Council of SEAT, S.A., Director of VMED O2 UK Ltd, Chairman of the Board of the GSMA and member of the Board of Trustees of ”la Caixa” Banking Foundation.
Board Committees of which he is a member:
The Executive Commission (Chairman).
Vice Chairman
Proprietary Director
Joined the Board in 1994.
Nationality: Spanish.
Born in 1942 in Manresa, Spain.
Education:
Doctorate in Economics from the Universidad de Barcelona; ISMP in Business Administration from Harvard University; and a Diploma in Senior Management from the IESE Business School. Academic Numerary of the Royal Academy of Economics and Finance and of the European Royal Academy of Doctors.
Experience:
He began his professional career in banking as Investment Manager at Banco Atlántico in 1964. Later, in 1969, he joined the Banco de Asunción in Paraguay as its General Manager. He then returned to Barcelona to hold various positions of responsibility in several financial organizations: Head of Personnel of Banca Riva y García (1973); Director and General Manager of Banca Jover (1974) and General Manager of Banco Unión (1978). In 1982 he joined la Caixa as its Deputy Executive General Manager, holding various positions of responsibility. In April 1991, he was appointed Executive Deputy General Director, and in 1999, General Manager of the bank, whose presidency he assumed in June 2007, remaining until June 2014. He was the Chairman of CaixaBank, S.A. since 2011 until his resignation as a member of the Board of Directors in 2016. Likewise, he was Chairman of Naturgy Energy Group, S.A. from September 2016 to February 2018, when he was named Honorary Chairman, and he was Director of Suez, S.A. since October 2014 until October 2020.
Other relevant positions:
He is currently Chairman and Member of the Executive Commission of the Board of Trustees of the Bancaria Caixa d'Estalvis i Pensions de Barcelona Foundation, la "Caixa", Chairman of the Board and of the Executive Commission of Criteria Caixa, S.A.U. and of Caixa Capital Risc SGEIC, S.A., Chairman of the Board of Directors of Inmo Criteria Caixa, S.A.U.; Special Advisory of The Bank of East Asia Limited; Chairman of the Spanish Confederation of Savings Banks (CECA), and of the World Savings Bank Institute (WSBI); Vice-President of the European Savings Banks Group (ESBG); President of the Spanish Confederation of Senior Officers and Executives (CEDE) and of the Spanish Chapter of the Club of Rome, Deputy-Chairman of the Royal Academy of Economic and Financial Sciences and Founder of the Financial Circle; and Member of the Boards of Trustees of the Prado National Museum and of the Carlos Slim Foundation.
Board Committees of which he is a member:
The Executive Commission (Vice Chairman).
Vice Chairman
Proprietary Director
Joined the Board in 2007.
Nationality: Spanish.
Born in 1952 in Burgos, Spain.
Education:
Degree in Economics from the Commercial University of Deusto, and a professor for nine years at said university.
Experience:
Between 1975 and 1982 he was the Chief Financial Officer of Sociedad Anónima de Alimentación (SAAL). Thereafter, and until joining the Banco Bilbao Vizcaya Argentaria Group, he held the position of Chief Financial Officer of Sancel-Scott Iberica. In 1985 he joined Banco Bilbao as Director of Corporate Banking Investment. Subsequently, from January to April 1993, he was the Executive Coordinator of Banco Español de Crédito, S.A. In 1998, he was appointed General Manager of Industrial Group, and in 1999, a member of the Management Committee of Grupo BBV. He has been a Director, among other companies, at Repsol, Iberia and Corporación IBV, Ibermática, S.A. and Vice-Chairman of Bolsas y Mercados Españoles (BME). In 2002 he was appointed General Director of Wholesale and Investment Banking and a Member of the Executive Committee of Banco Bilbao Vizcaya Argentaria, S.A.
Other relevant positions:
He is currently Director of Arteche Lantegi Elekartea, S.A.
Board Committees of which he is a member:
The Executive Commission (Vice Chairman) and the Strategy and Innovation Committee (Member).
Vice Chairman and Lead Independent Director
Independent Director
Joined the Board in 2016.
Nationality: Spanish.
Born in 1951 in Isaba (Navarre), Spain.
Education:
Degree in Economics and Actuarial Sciences from the University of the Basque Country, and Professor of Quantitative Social Security Techniques at the Bilbao School of Economic Sciences of said university for several years.
Experience:
He has been Director and General Manager of Allianz-Ercos, and General Manager of the BBVA Group (Head of Wholesale Business: Global Investment Banking, Global Corporate Banking, Business Banking, Administrative Banking, Local Credit Bank, Asset Management, Banking in Europe, Insurance and Estate Planning, E-Business, and the Industrial and Real Estate Group). He has also been a member of the Board of Directors of Banco Sabadell (Vice- Chairman); Repsol, S.A.; ACS Servicios, Comunicaciones y Energía, S.L.; Banco Guipuzcoano, S.A. (Chairman); Grupo Empresarial ENCE, S.A.; Sevillana de Electricidad, S.A.; Hidroeléctrica del Cantábrico; Metrovacesa; and Abertis Infraestructuras, S.A.
Other relevant positions:
He is currently member of the Board of Directors of ACS Actividades de Construcción y Servicios, S.A.; Dragados, S.L. and Calcinor, S.L. He is also Trustee of the Foundation Novia Salcedo, and Director of the Advisory Council of the Deusto Business School, and of the McKinsey Advisory Council.
Positions in other companies within the Telefónica Group (no executive duties):
He is Director of Telefónica Audiovisual Digital, S.L.U. In addition, he is member of the Advisory Board of Telefónica España.
Board Committees of which he is a member:
The Executive Commission (Vice Chairman), the Nominating, Compensation and Corporate Governance Committee (Chairman), and the Audit and Control Committee (Member).
Chief Operating Officer
Executive Director
Joined the Board in 2017.
Nationality: Spanish.
Born in 1964 in Barcelona, Spain.
Education:
Degree in Industrial Engineering from the Polytechnic University of Catalonia in Barcelona, and an MBA from Columbia Business School where he studied with a Fulbright La Caixa fellowship.# Consolidated Annual Report 2022 Telefónica, S. A. 424
Member
Independent Director
Joined the Board in 2016.
Nationality: Spanish.
Born in 1965 in Manresa, Spain.
Education: Degree and doctorate in Physics from Universidad Complutense de Madrid.
Areas of specialization: Quantum Optics, Quantum Computing and Communication.
Experience: In terms of his professional experience, he has been: Full Professor of the University, Department of Applied Physics, University of Castilla La Mancha (1991-1996) and Professor, Institut für Theoretische Physik, Leopold Franzens Universität Innsbruck (1996-2001). Likewise, among other activities, he has served on advisory boards and scientific committees of several international research centers in the United States (Harvard, Maryland, MIT), Asia (Tsinghua, Singapore, Kyoto) and Europe (Switzerland, Russia), as well as in the BBVA Foundation. He has also been a member of the Editorial Board of several national and international Physics journals.
Other relevant positions: He is currently Co-Director of the Center for Quantum Sciences and Technologies in Munich (since 2019); Director of the Max Planck International School of Quantum Sciences and Technologies (since 2016); "Honorarprofessor", Technical University of Munich (since 2002); Director of the Theory Division, Max Planck Institut für Quantenoptik; member of the Max Planck Society (since 2001); the Founder and Editor of the journal Quantum Information and Computation (since 2001); and member of the Scientific Committee of the La Caixa Foundation.
Positions in other companies within the Telefónica Group (no executive duties): He is member of the Advisory Board of Telefónica Tech, and member of the Security Advisory Council of Telefónica Ingeniería de Seguridad.
Board Committees of which he is a member: The Strategy and Innovation Committee (Member), the Sustainability and Quality Committee (Member), and the Regulation and Institutional Committee (Member).
Member
Other External Director
Joined the Board in 2006.
Nationality: English.
Born in 1951 in London, United Kingdom.
Education: Degree in Psychology from the University of Liverpool. Doctor honoris causa from the University of Reading.
Experience: He began his professional career in the marketing area at Polycell and at Colgate Palmolive. He worked for several years in the MARS Group before being appointed European Vice-Chairman of Mars Electronics. In 1990 he was appointed Vice-Chairman of Marketing and Sales at UNITEL. Between 1993 and 1998 he held several high-level positions in BT, including that of Director of BT Mobile and that of Chairman and Chief Executive Officer of Concert. In 1998 he was appointed General Manager of BT Cellnet. Subsequently, in 2001, he was appointed director and Chief Executive Officer of O2, Plc. (now known as Telefónica Europe Plc.). In 2006 he became Chairman of this company, serving until December 31, 2007, day he was appointed a non-Executive Director. In January 2009 he joined the Board of Ladbrokes Plc. as a non-Executive Director and was then appointed Chairman in May 2009. In December 2015 he left that position, having played a leading role in the merger of Ladbrokes Plc. with Gala Coral Group. He was a member of the Supervisory Board of Telefónica Deutschland Holding AG since May 2016 until December 2021.
Other relevant positions: He is currently Chairman of the BRAINSTORM charity, which focuses on funding brain tumor research. In addition, he is Director of VMED O2 UK Ltd.
Board Committees of which he is a member: The Executive Commission (Member), the Strategy and Innovation Committee (Chairman), and the Nominating, Compensation and Corporate Governance Committee (Member).
Member
Independent Director
Joined the Board in 2017.
Nationality: Spanish.
Born in 1962 in Madrid, Spain.
Education: Degree in Economics and Business Administration from Universidad Pontificia de Comillas, ICADE.
Experience: She joined PricewaterhouseCoopers in 1985 and was promoted to Director in 1995, becoming a partner of the firm in the year 2000. Since then, she has held several positions of responsibility at Landwell Lawyers and Tax Advisors, and in the Tax Law Area of PwC. Specializing in advising large companies, she has been a representative of the Spanish firm in the International Group of Indirect Taxation Specialists for more than 6 years. Since 1998, the scope of her work has consisted essentially of advising multinational companies established in Spain with strong international involvement. She has been a professor of International Taxation at ESADE and a member of the Spanish Association of Tax Consultants. From 2004 to 2007, she was a Managing Partner in the Gran Consumo, Distribución, Industria y Servicios de Madrid, with more than 30 specialists in a variety of legal and tax-related fields. Between 2005 and 2007 she headed the Women in PwC Diversity Program. From 2013 to April 2017, she has been Chairwoman of the Foundation Youth Business Spain. She was Chairwoman of the Foundation Tomillo Tiétar and a member of its Board of Trustees, as well as a member of the Board of Trustees of the Youth Business Spain Foundation. Besides, she was a member of the Board of Directors of the collective initiative Juntos por el empleo de los más desfavorecidos.
Other relevant positions: Since 2006, she is currently member of the Trust of the Foundation Tomillo, becoming the Managing Director of this institution in March 2008, and its Executive Chairwoman since 2014. Since June 2011, she is a member of the Board of Directors of the Spanish Association of Foundations, currently serving as its Treasurer and member of the Executive Committee. She is a member of the Board of Trustees of the Foundation Secretariado Gitano, of the Foundation Somos F5, and of the Foundation Xavier de Salas. She is a co-founder of the Foundation Aprendiendo a Ser and has been its trustee since December 2018. Likewise, she collaborates as a mentor in professional development programs for women.
Board Committees of which she is a member: The Audit and Control Committee (Member), the Sustainability and Quality Committee (Member), and the Regulation and Institutional Affairs Committee (Member).
Member
Independent Director
Joined the Board in 2018.
Nationality: Spanish.
Born in 1965 in Córdoba, Spain.
Education: Law degree from the University of Córdoba (Spain).
Experience: Government attorney (1992 promotion), on leave since October 2013. She was Assistant General Manager of Constitutional Law and Human Rights, and the government attorney heading the Department of Constitutional Law and Human Rights. Representative of the Kingdom of Spain to the European Court of Human Rights. Coordinator and leader of the Spanish Delegation to various United Nations Committees in Geneva (2002-2013). Other noteworthy activities include: Secretary of the Board of Directors of the State Society of Agricultural Infrastructures of the North (SEIASA DEL NORTE) and of its Audit and Control Committee (1999-2010); member of the Board of Directors of the State Society of Agricultural Infrastructures (SEIASA) (2010-2013); Director of the State Water Company of the North Basin (ACUANORTE) (2009-2012) and of the State Water Company of the Basins of Spain (AcuaEs) (2012-2013); and coordination and cooperation activities for the promotion and defense of Human Rights in Uruguay (2006), Colombia (2007 and 2008), Chile (2009), and Guatemala (2010).
Other relevant positions: Founding Partner of the firm of Salama García Blanco, whose major areas of activity include: administrative constitutional law, advising and providing technical protection for credit institutions, civil and commercial procedure, and arbitration (Arbitrator in the Spanish Court of Arbitration, in the Madrid Court of Arbitration and in the Civil and Commercial Court of Arbitration -CIMA-). Director of Ibercaja Banco, S.A. Member of the CIMA Governance and Control Committee. Chairwoman of the Experts Committee of 65YMAS.COM.
Positions in other companies within the Telefónica Group (no executive duties): She is member of the Advisory Board of Telefónica España.Board Committees of which she is a member: The Nominating, Compensation and Corporate Governance Committee (Member), the Sustainability and Quality Committee (Chairwoman), and the Regulation and Institutional Affairs Committee (Member).
MR. PETER LÖSCHER
Member Independent Director
Joined the Board in 2016. Nationality: Austrian. Born in 1957 in Villach, Austria.
Education: Degree in Economics from the Vienna University of Economics, and in Business Administration from the Chinese University of Hong Kong. MBA from the Vienna University of Economics, and completion of the Harvard Business School Advanced Administration Program. Honorary doctorate in Engineering from Michigan State University; honorary doctorate from the Slovak University of Engineering in Bratislava.
Experience: Former Chairman of the Supervisory Board of OMV AG (Austria). From March 2014 to March 2016, he was the CEO of Renova Management AG (Switzerland). Former Chairman and CEO of Siemens AG. He was previously the President of Global Human Health; a member of the Executive Board of Merck & Co., Inc.; Chief Operating Officer of GE Healthcare Bio-Sciences, a member of the Corporate Executive Council of GE; and Director of Operations and a member of the Board of Amersham Plc. He held executive leadership positions at Aventis and Hoechst. He also served as Chairman of the Board of Directors of the Siemens Foundation. Likewise, he was Chairman of the Board of Directors of Sulzer AG until April 2022.
Other relevant positions: He is currently a member of the Supervisory Board of Royal Philips, a Director of Thyssen-Bornemisza Group AG (Switzerland), and a non-executive member of the Board of Directors of Doha Venture Capital LLC, in Qatar. He is also an emeritus member of the Advisory Board of the Economic Development Board of Singapore and a member of the International Advisory Board of Bocconi University, as well as a honorary professor at Tongji University (Shanghai).
Positions in other companies within the Telefónica Group (no executive duties): He is Chairman of the Supervisory Board of Telefónica Deutschland Holding AG (since April 2020).
Board Committees of which he is a member: The Executive Commission (Member), the Audit and Control Committee (Chairman), and the Nominating, Compensation and Corporate Governance Committee (Member).
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 426
MS. VERÓNICA PASCUAL BOÉ
Member Independent Director
Joined the Board in 2019. Nationality: Spanish and French. Born in 1979 in Barcelona, Spain.
Education: Degree in Aeronautical Engineering from the Polytechnic University of Madrid. Master in Business Administration (MBA) from the Collège des Ingénieurs de Paris, and Executive Master in Positive Leadership and Strategy (EXMPLS) from the IE Business School. She also completed several postgraduate courses at INSEAD, Stanford, and the Harvard Business School.
Experience: She is an entrepreneur who has led for 18 years a Group of companies linked to the digital transformation led by ASTI Mobile Robotics Group, a company based in Spain, France, Germany and the United States. Since August 2021, after integrating ASTI Mobile Robotics into ABB Robotics, she has moved to the position of Global Manager of Robótica Móvil Autónoma until January 2023. She began her professional career at the international level in the Human Resources Strategic Management Department of the Bouygues multinational industrial group. In 2004, she joined the family company ASTI, holding various management positions at that company. By the end of 2006, she was its General Manager, and in 2008, she opted to acquire the said company. She had previously held a variety of positions, including, among others: Sponsor and Founder of the Digital Innovation Hub of Burgos, through ASTI of DIHBU (2018); Chairwoman of the Industry Working Group 4.0 of the Governing Authority of Castile and León (2016-2018); Chairwoman of the Industry Committee 4.0 and Vice-Chairwoman of Talent Development at AMETIC (2016-2018); Member of the Advisory Board of the Quality Agency of the University System (2015-2016); Member of the Advisory Board of the EAE Business School (2015-2016); Member of the Governing Board of APD Castilla y León (2014-2015); Member of the Board of Directors of Empresa Familiar Castilla y León (2001-2013).
Other relevant positions: She is Chairwoman of ASTI Tecnología y Talento Foundation and Director of General de Alquiler de Maquinaria, S.A. (GAM). She currently leads ALBP Corp.
Positions in other companies within the Telefónica Group (no executive duties): She is member of the Advisory Board of Telefónica Tech.
Board Committees of which she is a member: The Strategy and Innovation Committee (Member).
MR. FRANCISCO JAVIER DE PAZ MANCHO
Member Other External Director
Joined the Board in 2007. Nationality: Spanish. Born in 1958 in Valladolid, Spain.
Education: Degree in Information and Advertising. Studied law. Senior Business Management Program at the IESE (University of Navarre).
Experience: From July 2016 to December 2021, he has been Chairman of Telefónica Ingeniería de Seguridad, S.A. From April 2018 to April 2021 he has been a member of the Board of Directors of Telefónica Móviles de Argentina, S.A. From July 2020 to May 2021 he has been a member of the Board of Directors of Pegaso PCS, S.A. of C.V. (Mexico). From September 2016 to July 2020, he was Director of the Board of Directors of Telefónica Móviles México, S.A. From September 2014 to March 2016 he was the Chairman of Telefónica Gestión de Servicios Compartidos España, S.A.U. From July 2006 to November 19, 2014 he was a member of the Executive Committee of the Superior Council of Chambers. From 2008 to May 10, 2018 he was a Director of Telefónica Argentina, S.A. From December 2008 to December 2012 he was the Chairman of Atento Inversiones y Teleservicios, S.A.U. From June 2004 to December 2007 he was the Chairman of the MERCASA National Company. He was also Deputy Chairman and Director of Corporate Strategy of the Grupo Panrico Donuts; General Manager of Internal Trade at the Ministry of Commerce and Tourism; General Secretary of the Consumers’ Union of Spain (UCE); Chief Executive Officer of the magazine Ciudadano; General Secretary of Juventudes Socialistas; and a member of the Executive Board of the PSOE. He has also held the following positions and responsibilities: Director of Túnel del Cadí; President of the Pan y Bollería Marca Employers’ Group (COE); Director of Mutua de Accidentes de Zaragoza (MAZ); Director of the Grupo Panrico; Head of the Commercial Distribution Monitoring Office of the Ministry of Commerce and Tourism; member of the Economic and Social Council and of its Standing Committee; and Director of Tabacalera, S.A.
Positions in other companies within the Telefónica Group (no executive duties): He is Director of Telefónica Brasil, S.A. and of Telefónica Audiovisual Digital, S.L.U. He is also member of the Advisory Boards of Telefónica España and Telefónica Hispanoamérica.
Board Committees of which he is a member: The Executive Commission (Member), the Regulation and Institutional Committee (Chairman), the Nominating, Compensation and Corporate Governance Committee (Member), and the Sustainability and Quality Committee (Member).
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 427
MR. FRANCISCO JOSÉ RIBERAS MERA
Member Independent Director
Joined the Board in 2017. Nationality: Spanish. Born in 1964 in Madrid, Spain.
Education: Degrees in Law and in Economics and Business Administration from Universidad Pontificia de Comillas (ICADE E-3), Madrid.
Experience: He began his professional career holding a variety of positions in Gonvarri Group, as Director of Corporate Development and later as its Chief Executive Officer. In 1997 he created Gestamp Automoción, and since then he has served as its Executive Chairman, creating over time what is now the Grupo Gestamp, a global leader in metal components for the automotive industry. He has also been member of the Board of Directors of General de Alquiler de Maquinaria, S.A. (GAM) and Chairman of the Endeavor Foundation in Spain.
Other relevant positions: He is currently the Executive Chairman of Gestamp Automoción. He is also a member of the Board of Directors of CIE Automative and of Wallbox, N.V. Furthermore, he is a member of the management bodies of other companies within Grupo Gestamp, and of companies in the Acek family holding group, including companies in the Groups Gonvarri, Acek Energías Renovables e Inmobiliaria Acek. He is also Chairman of SERNAUTO (Asociación Española de Proveedores de Automoción) and of the Spain-China Council Foundation.
MS. MARÍA ROTONDO URCOLA
Member Independent Director
Joined the Board in 2021. Nationality: Spanish. Born in 1964 in Madrid, Spain.
Education: Degree in Economic Science and Business Studies from Universidad Complutense of Madrid. She has received complementary training at various institutions such as ESG Academy/Foretica, IESE, IC-A, EEC, IMD, NYU, Harvard, Boston College, among others.
Experience: In terms of her professional experience, it is highlighted by having spent the last 10 years at Banco Santander (2006-2016) as Global Head of Telecommunications, Media and Technology at Santander Global Banking and Markets.# MS. CLAUDIA SENDER RAMÍREZ
Independent Director
Joined the Board in 2019. Nationality: Brazilian. Born in 1974 in São Paulo, Brazil.
Education:
Degree in Chemical Engineering from the Polytechnic School of the University of São Paulo, and a Master’s degree in Business Administration (MBA) from the Harvard Business School in Boston.
Experience:
She has held various positions with the following entities, among others:
(i) Director of Yduqs University, formerly known as Estácio (from 2019 to 2021);
(ii) Latam Airlines Group: Vice-President for Customer Relations (2017-2019); CEO of LATAM Brazil (2013-2017); Vice-President of LATAM Brazil (2011-2013);
(iii) at Whirlpool, S.A.: Vice-President of Marketing (2009-2011); Division Director of Marketing (2007-2009); and Director of Strategic Planning (2005-2007); and
(iv) at Bain & Company Brazil: Consultant specializing in Strategy (1998-2005).
Other relevant positions:
She is currently Director of Holcim Ltd (since 2019); Director of Gerdau, S.A. (since 2019); Director of Amigos do Bem (since 2017), a Brazilian NGO dedicated to the eradication of poverty in Northwestern Brazil; Director of Embraer, Empresa Brasileira de Aeronáutica, S.A. (since 2021); and Director of Metalúrgica Gerdau, S.A. (since 2021).
Positions in other companies within the Telefónica Group (no executive duties):
She is member of the Advisory Boards of Telefónica Tech and Telefónica Hispanoamérica.
Board Committees of which she is a member:
The Sustainability and Quality Committee (Member) and the Strategy and Innovation Committee (Member).
The Board of Directors is the highest management and representative body of the Company. As such it is empowered, within the scope of the corporate purpose defined in the Bylaws, to perform any legal acts or transactions for purposes of management and disposition, under any title, except for those reserved by law or by the Bylaws exclusively to the shareholders at a General Shareholders’ Meeting. The foregoing provisions notwithstanding, the Board of Directors is configured basically as a supervisory and control body, entrusting the day-to-day management of the Company’s business to the executive bodies and to the management team. The Board of Directors cannot delegate those powers that the law or the Bylaws reserve to its own exclusive purview, or those other powers that are necessary for the responsible exercise of its basic function of supervision and control, or the powers delegated to it by the shareholders at a General Shareholders’ Meeting, unless such subdelegation is expressly authorized.
Specifically, the Board of Directors cannot, under any circumstances, delegate the following powers:
a) Supervision of the effective operation of the Committees that it has created and of the activities of the delegated bodies and of the Officers that it has designated.
b) Determination of the Company’s general policies and strategies.
c) Authorization or waiver of the obligations arising from the duty of loyalty, in accordance with the provisions of of the Law, in the Bylaws and in the Regulations of the Board of Directors.
d) Its own organization and operation.
e) Preparation of the Annual Accounts and their submission at the General Shareholders’ Meeting.
f) Preparation of any type of report that by law must be presented to the management body, provided that the transaction to which the report refers cannot be delegated.
g) Appointment and removal of the Company’s Chief Operating Officers, as well as the establishment of the terms of their contracts.
h) Appointment and removal of the Officers who are to report directly to the Board or to any of its members, as well as the establishment of the basic conditions of their contracts, including their compensation.
i) Decisions regarding the compensation of the Directors, within the framework of the Bylaws and of the compensation policy approved by the shareholders at the General Shareholders’ Meeting.
j) The call to the General Shareholders’ Meeting and the preparation of the agenda and the proposed resolutions.
k) The policy regarding the Company’s own shares.
l) The powers delegated by the shareholders at the General Shareholders’ Meeting to the Board of Directors, unless subdelegation of such powers was expressly authorized by the shareholders.
m) Approval of the strategic or business plan, the annual management and budgetary goals, the investment and finance policy, the corporate social responsibility and sustainability policy or dividend policy.
n) Determination of the risk control and risk management policy, including tax-related risks, and supervision of the internal information and control systems.
o) Determination of the corporate governance policy of the Company and of the Group; its organization and operation; and, in particular, the approval and modification of its internal Regulations.
p) Approval of the disclosure, contact and engagement policy for shareholders, institutional investors and proxy advisers, including the policy on communication of economic/financial, non-financial and corporate information.
q) Approval of the diversity policy in relation to the Board of Directors and the selection of directors.
r) Approval of the financial information that the Company must periodically disclose because of its status as a listed company.
s) Definition of the structure of its Group of companies.
t) Approval of investments or transactions of all kinds that, because of their high amount or special characteristics, are of a strategic nature or entail a special tax risk, unless their approval is within the purview of the shareholders at the General Shareholders’ Meeting.
u) Approval of the creation or acquisition of interests in special-purpose entities or entities that are domiciled in countries or territories that are considered to be tax havens, as well as any other transactions of a similar nature that, due to their complexity, might diminish the transparency of the Company and its Group.
v) The approval, subject to a report from the Audit and Compliance Committee, of related-party transactions under the terms established in Article 39 of the Board Regulations, unless their approval corresponds to the General Meeting.
The Company’s Board of Directors may delegate the approval of transactions between companies forming part of its group that are carried out within the scope of ordinary management and under market conditions, as well as transactions entered into under contracts whose standard conditions are applied en masse to a large number of customers, carried out at prices or rates established on a general basis, and whose amount does not exceed 0.5% of the net turnover of the company, determined in accordance with the rules of calculation laid down in the Law. In any event, when duly justified urgent circumstances arise, the decisions corresponding to the foregoing matters may be adopted by the delegated bodies or persons and must be ratified at the next meeting of the Board of Directors that is held after the adoption of the decision.
The Board of Directors of Telefónica, S.A. has implemented a corporate governance structure that ensures the effective fulfillment of its duties and responsibilities. This structure is configured basically in the following way:
In addition to such delegation of powers, the Company’s CEO is granted specific (non-general) powers to carry out specific transactions that have been approved by the Company.
Chief Operating Officer - Mr. Ángel Vilá Boix
The powers of the Board of Directors associated with the conduct of the business and with the fulfillment of the highest executive duties in all of the Company’s business areas are delegated to the Chief Operating Officer, except for the powers that cannot be delegated, whether by law, the Bylaws or the Regulations of the Board of Directors. In addition to such delegation of powers, the Company’s Chief Operating Officer is granted specific (non-general) powers to carry out specific transactions that have been approved by the Company.
Lead Independent Director - Mr. José Javier Echenique Landiríbar
The Lead Independent Director performs, among others, the following duties and tasks:
a) Coordinates the work of the External Directors, in order to protect the interests of all of the Company’s shareholders; reflects the concerns of the said Directors; and meets with them when he deems it appropriate.
b) When appropriate, he may ask the Chairman of the Board to call a meeting of the Board of Directors, in keeping with Good Governance standards.
c) He may request that certain matters be included on the Agenda of the meetings of the Board of Directors that have already been called.
d) Directs the evaluation carried out by the Board of Directors of its Chairman.
e) He may preside over meetings of the Board of Directors, in the absence of the Chairman and of the Vice Chairmen.
f) Maintains contacts with investors and shareholders in order to know their views, for the purpose of forming an opinion regarding their concerns, particularly with regard to the Company’s corporate governance.
g) Coordinates the Chairman’s succession plan.
General Secretary and Secretary of the Board of Directors - Mr. Pablo de Carvajal González
The Secretary of the Board of Directors assists the Chairman of the Board in the fulfillment of his duties, and ensures the proper functioning of the Board of Directors, with very particular attention to providing to the Directors the necessary advice and information; keeping the company records; properly reflecting in the minute books the proceedings of the meetings of the Board of Directors; and attesting to its resolutions. The Secretary of the Board also sees to the formal and substantive legality of the activities of the Board of Directors and to their compliance with the Bylaws and with the Regulations for the General Shareholders’ Meeting and of the Board of Directors, ensuring that the good governance recommendations adopted by the Company and in force at any time are duly taken into account. The Secretary of the Board is also the General Secretary of the Company. Mr. Pablo de Carvajal González is also Telefónica’s Global Director of Regulatory Affairs and Head of the Security Area. The Board of Directors also has a Deputy Secretary, Mr. Antonio García-Mon Marañés, who assists the Secretary and replaces him in the performance of his duties in the event of his absence or inability. Mr. García-Mon is also Deputy General Secretary and Director of Corporate Legal Services. Neither the Secretary nor the Deputy Secretary of the Board have the status of Directors.
Committees of the Board of Directors
As of December 31, 2022, and on the date of issuance of this Report, the Board of Directors had and has an Executive Commission and five advisory or control committees, whose composition, duties and powers are described in detail in advance.
Both the Bylaws and the Regulations of the Board specify that the Board of Directors shall meet routinely once a month, and, at the initiative of the Chairman, as often as he deems it appropriate for the proper functioning of the Company. During fiscal year 2022 the Telefónica Board of Directors held 14 meetings, each lasting between three and one-half and four and one-half hours, depending on the topics discussed. Likewise, it should be noted that one of these meetings corresponds to the strategic off site session that the Board of Directors holds annually to analyze the company´s strategy and its impact on the business developed by the Telefonica Group. The meetings of the Board of Directors have been held in mixed format. At all these meetings, the Secretary of the Board of Directors attested to the identity of all the attendees.
The power to call a meeting of the Board of Directors and, if appropriate, to draw up the Agenda of the Board’s meetings rests with the Chairman of the Board of Directors, who must however call a meeting when requested to do so by three Directors who indicate the issues to be discussed. A meeting of the Board of Directors may also be called by at least one-third of its members, with an indication of the Agenda, if, after the submission of a request to the Chairman of the Board of Directors, the Chairman, without just cause, has not called the meeting within a period of one month.
The Company adopts the measures that are necessary in order for the Directors to have, whenever possible and sufficiently in advance, the necessary information, which shall be drawn up and oriented specifically toward the preparation of the meetings of the Board and of its Committees. In no case shall its compliance be waived on the grounds of the importance or confidential nature of the information, except under absolutely exceptional circumstances. In this regard, and in accordance with the provisions of articles 18 and 20 of the Regulations of the Board of Directors, the Board of Directors and its Committees shall draw up a calendar of the meetings to be held during the year. Such calendar may be modified by resolution of the Board itself or of the corresponding Committee, or pursuant to a decision by its Chairman, in which case the modification must be disclosed to the Directors as soon as possible. The Board and its Committees also have an Action Plan that contains a detailed description and the frequency of the activities to be carried out in each fiscal year, according to the powers and duties assigned to them.
Similarly, all of the meetings of the Board and of the Committee have a pre-established Agenda, which is communicated at least three days before the date on which the meeting is scheduled to be held, along with the call to the meeting. The Agenda for each meeting clearly indicates the items regarding which the Board of Directors or the Executive Commission must make a decision or adopt a resolution. With the same goal, in general, the documentation associated with the Agenda for the meetings is made available to the Directors sufficiently in advance.
In this regard, and in compliance with the provisions of article 19 of the Regulations of the Board of Directors, the Chairman of the Board of Directors organizes the discussions, seeking and encouraging the active participation of all of the Directors in the deliberations, safeguarding the unconstrained statement of their viewpoints. Similarly, with the assistance of the Secretary, the Chairman ensures that the Directors receive beforehand sufficient information to deliberate on the items on the Agenda. He also ensures that sufficient time is devoted to the discussion of strategic issues and stimulates debate during the meetings, safeguarding the unconstrained statement of viewpoints by the Directors. To facilitate the provision of all of the information and clarifications that may be necessary regarding some of the issues to be addressed, the main officers of the Group attend essentially all of the meetings of the Board and of its Committees, along with the speakers who are deemed appropriate, for the presentation of matters lying within their purview.
Furthermore, and in general, the Regulations of the Board (article 27) expressly provide that the Directors are vested with the broadest powers for obtaining information about any aspect of the Company and to examine its books, records, documents and other background materials relating to corporate activities. The exercise of this right of information is channeled through the Chairman or the Secretary of the Board of Directors, who handle requests from the Directors, either providing the information directly to the Directors or placing them in touch with the proper contact persons at the appropriate organizational level.
The Board of Directors can validly hold a meeting when a majority of its serving members are present or represented at the meeting. The Directors must personally attend the meetings of the Board of Directors. If, under exceptional circumstances, they are unable to do so, they shall ensure that the proxy they give to another member of the Board of Directors includes, insofar as possible, the appropriate instructions. Non-executive Directors can delegate their proxy only to another non-executive Director. Such delegations may be made by letter, mail or in any other way that ensures the certainty and validity of the proxy, in the opinion of the Chairman of the Board of Directors (article 19 of the Regulations of the Board of Directors and article 34.4 of the Bylaws).# Board Committees
Both the Bylaws and the Regulations of the Board provide for an Executive Commission of the Board of Directors, with general decision-making authority and, consequently, with the express delegation of all of the powers of the Board of Directors, except for those powers that, by law or pursuant to the Bylaws, cannot be delegated. The Regulations also authorize the Board of Directors to create one or more advisory or control committees entrusted with the task of examining and continuously monitoring any area of special importance to the good governance of the Company, or performing the specific analysis of any factor or issue whose significance or magnitude requires it. Such Committees do not have the status of corporate bodies, but rather are tools in the service of the Board of Directors, to which they convey the conclusions that they reach with regard to the issues or subjects whose handling has been entrusted to them. As of December 31, 2022, and on the date of issuance of this Report, the Board of Directors had and has an Executive Commission and five advisory or control committees, whose composition, duties and powers are described below.
The Company’s Board of Directors, at its meeting held on December 16, 2020, and at the proposal of the Nominating, Compensation and Corporate Governance Committee, approved the partial amendment of the Regulations of the Board of Directors of Telefónica, S.A., which amendment consisted of the following: i) adapting it to the Recommendations of the Good Governance Code amended in June with which the Company currently fully complies; ii) adapt it to certain Recommendations of the Good Governance Code not amended in June 2020 and which the Company had already been complying with; and iii) incorporate some complementary aspects or technical clarifications. Among other issues, certain aspects relating to the composition of the Board Committees were modified, and new functions were adjusted and assigned to the Audit and Control Committee, the Nominating, Compensation and Corporate Governance Committee and the Sustainability and Quality Committee, and the express regulation of the Strategy and Innovation Committee was included in the Regulations.
In coordination with the amendment of the Regulations of the Board of Directors, the Board of Directors, at its meeting held on December 16, 2020, approved the partial amendment of the Regulations of the Audit and Control Committee and the Regulations of the Nominating, Compensation and Corporate Governance Committee, to include the changes introduced to the Regulations of the Board of Directors with respect to the composition and duties assigned, respectively, to each Committee.
Likewise, the Board of Directors, at its meeting held on June 29 and 30, 2021, and at the proposal of the Nominating, Compensation and Corporate Governance Committee, approved the partial amendment of the Board of Directors’ Regulations of Telefónica, S.A., basically consisting of adapting said regulations to the following features introduced by Law 5/2021: (i) the amendment of the regime of related-party transactions applicable to listed companies, establishing new rules for their approval and reinforce their transparency; (ii) the prohibition of appointing legal persons as directors who in listed companies; and (iii) the review of the requirements for the Audit Committee of a parent company to perform the functions of the Audit Committee in its subsidiaries that are public interest entities (PIEs). In this context, certain functions of the Audit and Control Committee were adjusted. In coordination with the amendment of the Board of Directors’ Regulations, the Board, at its meeting held on June 29 and 30, 2021, agreed to partially amend the Regulations of the Audit and Control Committee in order to incorporate the changes made to the of the Board of Directors’ Regulations with regard to the list of functions attributed to the Audit and Control Committee.
On the other hand, with regard to the meetings held by the Board of Directors' Committees, during financial year 2022, the meetings of the Board of Directors' Committees were held in mixed format, with the attendance of the Directors in person and online. At all these meetings, the Secretary of each Committee attested to the identity of all the attendees. Regarding the matters addressed by the Committees, and in accordance with the provisions of article 20 b) 3. of the Regulations of the Board, a full report is delivered to the Board of Directors so that it will be aware of the said matters for the exercise of its responsibilities. At the beginning of each of the monthly meetings of the Board of Directors, the Chairman of each of the Committees delivers a report on the major matters that were addressed and on the activities and tasks that were carried out by the respective Committee, making available to the Directors the corresponding documentation, so that the Directors will be aware of such activities for the purposes of the exercise of their responsibilities. Additionally, and in the same way as the Board of Directors itself, all of the Committees prepare, at the start of each fiscal year and in accordance with the provisions of article 20 b) 3. of the Regulations of the Board of Directors, an Action Plan that contains a detailed description of, and a schedule for, the actions to be taken in each fiscal year in each Committee’s individual area of activity. Similarly, all of the Committees prepare an Activity Memorandum (which, for the Audit and Control Committee and the Nominating, Compensation and Corporate Governance Committee, is known as the Performance Report), which summarizes the major activities and actions that were carried out during the preceding fiscal year, including the details of the matters that were examined and addressed at the meetings that were held, and emphasizing the aspects associated with their duties and responsibilities, composition and performance.
The Board of Directors has delegated its authority and powers (except for those that by law, under the bylaws and pursuant to the regulations cannot be delegated) to an Executive Commission. The Executive Commission provides the Board of Directors with greater operability and effectiveness in the exercise of its functions, inasmuch as it meets more often than the Board of Directors does. In accordance with the provisions of article 38 of the Bylaws of Telefónica, S.A., article 21 of the Regulations of the Company’s Board of Directors governs the Executive Commission in the following terms:
The Executive Commission shall consist of the Chairman of the Board of Directors, once he has been appointed as a member of the Committee, and no fewer than three and no more than ten other members, all of whom shall be Directors, appointed by the Board of Directors. The Board of Directors shall endeavor to ensure that the Executive Commission has at least two non-executive Director, of whom at least one shall be independent. In any event, in order to be valid, the appointment or renewal of the members of the Executive Commission shall require the favorable vote of at least two-thirds of the members of the Board of Directors.
As of December 31, 2022, and on the date of issuance of this Report, the Executive Commission was and is composed of the following persons:
| Name | Post | Category |
|---|---|---|
| Mr. José María Álvarez-Pallete López | Chairman | Executive |
| Mr. Isidro Fainé Casas | Vice Chairman | Proprietary |
| Mr. José María Abril Pérez | Vice Chairman | Proprietary |
| Mr. José Javier Echenique Landiríbar | Vice Chairman | Independent |
| Mr. Ángel Vilá Boix | Member | Executive |
| Mr. Peter Erskine | Member | Other External |
| Mr. Peter Löscher | Member | Independent |
| Mr. Francisco Javier de Paz Mancho | Member | Other External |
The Executive Commission shall meet whenever it is called by its Chairman, normally holding meetings every 15 (fifteen) days. During the year 2022 it held 15 meetings, lasting on average 2 hours and 30 minutes each. Also noteworthy is the high level of participation of all of its members. The Chairman and the Secretary of the Board of Directors shall serve as the Chairman and the Secretary of the Executive Commission. One or more Vice Chairmen and a Deputy Secretary may also be appointed. The Executive Commission can validly hold a meeting when a majority of its members are present at the meeting, either in person or by proxy. Resolutions shall be adopted by an absolute majority of the Directors present at the meeting either in person or by proxy. In the event of a tie in the voting, the Chairman shall cast the deciding vote.
The Executive Commission shall promptly inform the Board of Directors of the matters that are discussed and the decisions that are made at its meetings. Copies of the minutes of such meetings shall be made available to the members of the Board (article 21.C of the Regulations of the Board).# Most important activities during the fiscal year
During fiscal year 2022 the Executive Commission of the Board of Directors of Telefónica, S.A. analyzed and reviewed, deliberated on and adopted resolutions (which have been ratified by the Company’s Board of Directors) relating to certain issues associated with the following matters, among others:
The Audit and Control Committee of Telefónica, S.A. is governed by the provisions of article 39 of the Bylaws and by the provisions of article 22 of the Regulations of the Board of Directors. Accordingly, and in order to comply with the recommendations set forth in Technical Guide 3/2017 of the National Securities Market Commission regarding Audit Committees of Public Interest Entities, the Board of Directors, at its meeting held on December 13, 2017, approved the Regulations of the Audit and Control Committee of Telefónica, S.A., which was amended by resolution of the Board of Directors at its meeting of December 16, 2020, following a favourable report from the Audit and Control Committee, to adapt it to the recommendations of the Good Governance Code as amended in June 2020 (as well as article 22 of the Regulations of the Board of Directors). Likewise, the Regulations of Audit and Control Committee were amended by the motion passed by the Board of Directors at its meeting of June 29 and 30, 2021, following a favourable report from the Audit and Control Committee to adapt these to the new features introduced by Law 5/2021 (as well as Article 22 of the Board of Directors’ Regulations). Article 39 of the Company's By-Laws, article 22 of the Regulations of the Board of Directors and the Regulations of the Audit and Control Committee govern such Committee under the following sections. The current version of the Regulations of the Audit and Control Committee is available for consultation on the Company's corporate website, in the Corporate Governance section under Information for Shareholders and Investors: https://www.telefonica.com/en/shareholders-investors/
The Audit and Control Committee shall consist of the number of Directors that the Board of Directors determines at any given time. In no case shall the said number be fewer than three persons appointed by the Board of Directors. All of its members must be External or Non-Executive Directors, and at least a majority of them must be Independent Directors. In appointing the members of the committee, and, in particular, its Chairman, the Board of Directors shall take into account their knowledge and experience in matters of accounting, auditing and management of both financial and non-financial risks. Collectively, the members of the Committee shall possess the technical knowledge that is pertinent to the area of business to which the Company belongs. The Chairman of the Audit and Control Committee, whose position in any case shall be held by an Independent Director, shall be appointed from among the members of such Committee. The Chairman must be replaced every four years and may be re-elected after a period of one year has elapsed since his departure.
As of December 31, 2022, and as of the date of this Report, the Audit and Control Committee was and is composed of the following persons:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 434
| Name | Post | Category |
|---|---|---|
| Mr. Peter Löscher | Chairman | Independent |
| Mr. José Javier Echenique Landiríbar | Member | Independent |
| Ms. Carmen García de Andrés | Member | Independent |
| Ms. María Rotondo Urcola | Member | Independent |
Furthermore, all the members of the Audit and Control Committee, who are Independent Directors, have a financial background, and were appointed taking into account their knowledge and experience in accounting, auditing or management of both financial and non-financial risks.
Without prejudice to any other tasks that may be assigned to it by the Board of Directors, the primary function of the Audit and Control Committee shall be to support the Board of Directors in its supervisory functions. In particular, the Committee shall have at least the following responsibilities:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A.# 7) To supervise the risk control and management unit, which shall perform the following duties:
a) ensure the proper operation of the risk control and management systems, and particularly to ensure that all material risks affecting the Company are identified, managed and quantified;
b) actively participate in preparing the risk strategy and in important decisions regarding the management thereof; and
c) endeavor to ensure that the risk control and management systems properly mitigate risks within the framework of the policy determined by the Board of Directors.
(i) in the event of the resignation of the statutory auditor, examine the circumstances giving rise to such resignation;
(ii) endeavor to ensure that the compensation received by the statutory auditor for its work does not compromise the quality or independence thereof;
(iii) ensure that the Company communicates through the CNMV any change in auditor and attaches a statement regarding any disagreements with the outgoing auditor and, if any, the substance thereof;
(iv) ensure that the statutory auditor meets annually with the full Board of Directors to inform the Board of Directors of the work performed and on the accounting status and the risks of the Company; and
(v) ensure that the Company and the statutory auditor applicable legal provisions regarding the provision of non- audit services, limits on the concentration of the auditor’s business, and generally all other provisions regarding the independence of the auditors.
1. Financial information and the management report, which shall include the required non-financial information that the Company must periodically make public; and
2. The creation or acquisition of interests in special-purpose entities or entities domiciled in countries or territories considered to be tax havens.
With regard to the independence of the Company's external auditor, and in accordance with the provisions of Telefónica´s Regulations of the Board of Directors (Article 41), the Board of Directors has established, through the Audit and Control Committee, a stable and professional relationship with the Accounts Auditor, with strict respect for the independence thereof. Furthermore, the Audit and Control Committee, as part of its fundamental powers (Article 22 of the Regulations of the Board of Directors and Article 4 of the Regulations of the Audit and Control Committee), has established and maintains the appropriate relationships with the auditors to receive information on those matters that may threaten their independence, to be considered by the Committee, and any others related to the process of carrying out the audit, and, where appropriate, the authorisation of services other than those prohibited, in accordance with the terms set forth in the applicable law, as well as other communications set forth in audit legislation and audit regulations. In any case, the Audit and Control Committee annually receives the accounts auditor's declaration of independence with regard to the Company or entities directly or indirectly related to it, as well as detailed and personalised information on the additional services of any kind provided and the corresponding fees received from these entities by the reported auditor, or the persons or entities related to him/her in accordance with the provisions of current regulations. Furthermore, the Committee issues, prior to issuing the audit report of the accounts, an annual report that expresses an opinion on whether the independence of the accounts auditor has been compromised. This report states, in any case, the evaluation, with supporting evidence/ rationale, of the provision of each and every one of the additional services referred to in the previous section, taken into account individually and together, different to the statutory audit and in relation to the independence regime or the regulations governing account auditing. In any event, the Audit and Control Committee must preserve the independence of the statutory auditor in the performance of its duties, and in this regard:
(i) in the event of the resignation of the statutory auditor, examine the circumstances giving rise to such resignation;
(ii) endeavor to ensure that the compensation received by the statutory auditor for its work does not compromise the quality or independence thereof;
(iii) ensure that the Company communicates through the CNMV any change in auditor and attaches a statement regarding any disagreements with the outgoing auditor and, if any, the substance thereof;
(iv) ensure that the statutory auditor meets annually with the full Board of Directors to inform the Board of Directors of the work performed and on the accounting status and the risks of the Company; and
(v) ensure that the Company and the statutory auditor applicable legal provisions regarding the provision of non-audit services, limits on the concentration of the auditor’s business, and generally all other provisions regarding the independence of the auditors.
In addition, and in accordance with the Regulations of the Board of Directors (Article 22), the Company's Audit and Control Committee puts forward proposals to the Board of Directors for the selection, appointment, re-election and replacement of the external auditor, taking responsibility for the selection process in accordance with the law, as well as the terms and conditions of his/her contract, regularly obtaining information from the auditor on the audit plan and the execution thereof, as well as preserving his/her independence in the exercise of his/her duties.# Consolidated management report 2022
Consolidated Annual Report 2022 Telefónica, S. A. 437
Furthermore, the external auditor has direct access to the Audit and Control Committee, participating regularly in its meetings, without the presence of members of the Company's management team when this is deemed necessary. In this regard, and in accordance with the requirements of US regulations on this matter, the External Auditor reports to the Audit and Control Committee, at least on an annual basis, on the most significant accounting policies and practices followed in drawing up the Company's financial and accounting information, on any alternative accounting treatment within generally accepted accounting principles and practices that affects any relevant element within the financial statements that may have been discussed with the management team, and, finally, on any relevant communication between the auditor and the Company's management team. In addition, and in accordance with Article 41 of the Regulations of the Board of Directors, the auditor shall hold an annual meeting with the full Board of Directors to provide an update on the work carried out and the evolution of the Company´s accounting and risk situation. In accordance with the Company's internal regulations, and also in line with the legal requirements imposed by Spanish, European and US regulations, contracting any service with the Company's External Auditor must always be approved beforehand by the Audit and Control Committee. Furthermore, this contracting of services, other than those of the audit itself, is carried out in strict compliance with the Audit Act, European regulations and the Sarbanes-Oxley Act enacted in the United States and its implementing regulations. In this respect, and before hiring the auditor, the Audit and Control Committee analyses the content of the work to be carried out, assessing the situations that may entail a risk to the independence of the Company's External Auditor, and specifically supervises the percentage represented by the fees paid by the latter of the audit firm´s total revenue. In this regard, the Company states in its Annual Report, in accordance with the legal requirements in force, how much the Company's External Auditor is paid, including those fees related to services of a different nature from auditing. Consequently, the Company has implemented, in practice, the legal provisions on this matter as indicated in the preceding paragraphs.
The Audit and Control Committee must have access to information in a suitable, timely and sufficient manner, for which purpose:
The Audit and Control Committee shall meet at least once every quarter, and whenever a meeting is deemed appropriate, in response to a call from its Chairman. In any event, the Committee shall meet, at a minimum, on each date on which annual or interim financial information is published. In such cases, the Internal Auditor shall be present. If any type of review report is issued, the Auditor shall also be present. In this regard, and with reference to the meetings held with the Statutory Auditor and with the Internal Auditor, the provisions of article 7 of the Regulations of the Company’s Audit and Control Committee are complied with, which provisions establish that, for the proper exercise of its supervisory function, the Committee must be familiar with, and understand, the decisions made by Senior Management regarding the application of the most significant criteria and the results of the reviews conducted by the Internal Audit Office, while maintaining fluid communications with the Statutory Auditor. In point of fact, the External Auditor has participated in meetings of the Audit and Control Committee in order to explain the work that was done, and also to clarify, at the request of Committee, those issues that may have been raised in connection with the duties assigned to such External Auditor. The members of the Committee also held separate meetings with each of these contact persons when such meetings were deemed necessary, in order to conduct a rigorous follow-up of the preparation of the Company’s financial information. During 2022 it held 12 meetings, lasting on average two hours each. Also noteworthy is the high level of participation of all of its members. Likewise, in the fulfillment of its duties, the Committee may request the presence of the following persons at its meetings: the Statutory Auditor, the head of the Internal Audit Office, any Director, employee or Officer of the Company and the experts that it deems appropriate. Attendance at the formal meetings of the Committee shall be preceded by the allocation, on the part of its Members, of sufficient time to analyze and evaluate the information received by them. The Committee also has a Secretary, as well as the necessary support staff for planning meetings and agendas; for drafting documents and meeting minutes; and for compiling and distributing information, among other tasks. For the purposes of appropriate scheduling that makes it possible to ensure the efficient accomplishment of the objectives pursued, the Committee establishes an Annual Work Plan. The meetings are scheduled by the Chairman of the Committee, who communicates them to the Secretary of the Committee, so that its members will receive the documentation sufficiently in advance. All of these actions are performed bearing in mind that the duties of the Members of the Committee are fundamentally supervisory and advisory, with no involvement in execution or management, which are the responsibility of Senior Management.
The primary activities and actions performed by the Audit and Control Committee of the Board of Directors of Telefónica, S.A. during fiscal year 2022 have been associated with the powers and functions of such Committee. Accordingly, the Audit and Control Committee has performed, among others, the following tasks:
The Board of Directors of Telefónica, S.A. (the “Company”) is the highest corporate body responsible for managing the company and representing the shareholders. Its composition, functions and operating rules are set forth in the Company’s Bylaws, the Regulations of the Board of Directors and the relevant legislation.
The Board is responsible for overseeing the Company's strategy, approving its financial statements, appointing senior management, and ensuring compliance with legal and regulatory requirements. It meets regularly to discuss and decide on matters of importance to the Company.
The Board of Directors has established several committees to assist it in its oversight and decision-making functions. These committees are composed of Directors and specialize in specific areas of corporate governance and management. The principal committees are:
The specific composition, responsibilities, and operating procedures of these committees are detailed in their respective regulations, which are approved by the Board of Directors.
The Audit and Control Committee of Telefónica, S.A. is governed by the provisions of article 39 of the Bylaws and article 22 of the Regulations of the Board of Directors. The Board of Directors, at its meeting held on December 16, 2020, approved the Regulations of the Audit and Control Committee of Telefónica, S.A. which were amended at the Board of Directors’ meeting of November 16, 2021, to adapt it to the recommendations of the Good Governance Code as amended in June 2020. The current version of the Regulations of the Audit and Control Committee is available for consultation on the Company's corporate website, in the Corporate Governance section under Information for Shareholders and Investors: https://www.telefonica.com/en/shareholders-investors/.
a) Composition:
The Audit and Control Committee shall consist of the number of Directors that the Board of Directors determines at any given time. In no case shall the said number be fewer than three persons appointed by the Board of Directors. All of its members must be external or non-executive Directors, and at least one of them must have sufficient knowledge in accounting and auditing matters, and at least one must be an independent Director. The Lead Independent Director shall also be a member of the Committee. The members of the Audit and Control Committee shall be appointed such that as a group they have the knowledge, aptitudes and experience appropriate for the duties that they are called upon to perform. The Chairman of the Audit and Control Committee shall be appointed from among the members of such Committee.
As of December 31, 2022, and on the date of this Report, the Audit and Control Committee was and is composed of the following persons:
| Name | Post | Category |
|---|---|---|
| Mr. Lothar Meyer-Bohlmann | Chairman | Independent |
| Ms. Ana María García Machado | Member | Independent |
| Mr. Pablo F. Johnson Torres | Member | Other External |
| Mr. Alfredo de la Espriella Peña | Member | Independent |
| Mr. Luis Miguel Gil-Tolín de la | Member | Other External |
| Sala |
b) Responsibilities:
Notwithstanding any other tasks that may be assigned to it by the Board of Directors, the Audit and Control Committee shall have the following responsibilities:
1) To oversee the process of information preparation and presentation of regulated information and the preparation and presentation of the Company's financial statements and consolidated financial statements.
2) To supervise and evaluate the effectiveness of the internal control of the Company, the risk management system and, where appropriate, the internal audit of the Company.
3) To propose to the Board of Directors the selection, appointment and dismissal of the Company’s external auditor, based on the recommendations made by such auditor. It shall also evaluate the auditor’s independence and the audit plan.
4) To review and monitor the Company's accounting policies and procedures, internal control systems, risk management systems, and the internal audit function.
5) To oversee the Company's compliance with legal and regulatory requirements, including its codes of conduct and internal policies.
6) To manage the relationship with the external auditor, including the scope of the audit, the audit fees, and the non-audit services provided by the auditor.
7) To review the internal audit plan and the reports prepared by the internal audit department.
8) To oversee the Company's whistleblower channel and ensure that allegations of misconduct are investigated appropriately.
9) To review and assess the adequacy of the remuneration of the external auditor.
10) To oversee the preparation of the Audit Committee Report on the functioning of the Audit and Control Committee.
11) To supervise the implementation of the Company’s treasury stock policy and treasury-stock transactions.
12) To review and ensure that the financial information published on the Company’s website is continuously updated and matches the information prepared, in each instance, by the Board of Directors and published on the CNMV website.
13) To provide periodic training to ensure that the knowledge imparted to the members of the Committee is up to date.
14) To prepare the Audit and Control Committee's Report on the Functioning of the Audit and Control Committee.
The Nominating, Compensation and Corporate Governance Committee of Telefónica, S.A. is governed by the provisions of article 40 of the Bylaws and of article 23 of the Regulations of the Board of Directors. Accordingly, and in order to comply with the recommendations set forth in Technical Guide 1/2019 of the National Securities Market Commission regarding Nominating and Compensation Committees, the Board of Directors, at its meeting held on June 26, 2019, approved the Regulations of the Nominating, Compensation and Corporate Governance Committee of Telefónica, S.A., which was amended by resolution of the Board of Directors at its meeting of December 16, 2020, following a favourable report from the Nominating, Compensation and Corporate Governance Committee, to adapt it to the recommendations of the Good Governance Code as amended in June 2020 (as well as Article 23 of the Regulations of the Board of Directors). Article 40 of the Company's By-Laws, article 23 of the Regulations of the Board of Directors and the Regulations of the Nominating, Compensation and Corporate Governance Committee govern such Committee under the terms set out in the following sections. The current version of the Regulations of the Nominating, Compensation and Corporate Governance Committee is available for consultation on the Company's corporate website, in the Corporate Governance section under Information for Shareholders and Investors: https://www.telefonica.com/en/shareholders-investors/.
a) Composition.
The Nominating, Compensation and Corporate Governance Committee shall consist of the number of Directors that the Board of Directors determines at any given time. In no case shall the said number be fewer than three persons appointed by the Board of Directors. All of its members must be external or non-executive Directors, and the majority of them must be independent Directors. The Lead Independent Director must also be a member of the Committee. The members of the Nominating, Compensation and Corporate Governance Committee shall be appointed such that as a group they have the knowledge, aptitudes and experience appropriate for the duties that they are called upon to perform. The Chairman of the Nominating, Compensation and Corporate Governance Committee, whose position shall in any case be held by an independent Director, shall be appointed from among the members of such Committee.
As of December 31, 2022, and on the date of this Report, the Nominating, Compensation and Corporate Governance Committee was and is composed of the following persons:
| Name | Post | Category |
|---|---|---|
| Mr. José Javier Echenique Landiríbar | Chairman | Independent |
| Mr. Peter Erskine | Member | Other External |
| Ms. María Luisa García Blanco | Member | Independent |
| Mr. Peter Löscher | Member | Independent |
| Mr. Francisco Javier de Paz Mancho | Member | Other External |
b) Responsibilities.
Notwithstanding any other tasks that may be assigned to it by the Board of Directors, the Nominating, Compensation and Corporate Governance Committee shall have the following responsibilities:
1) To evaluate the skills, knowledge and experience necessary within the Board of Directors. For such purposes, it shall determine the functions and aptitudes needed in the candidates who must fill each vacancy and shall evaluate the time and dedication required for them to effectively carry out their tasks and shall ensure that the non- executive Directors have sufficient availability to properly perform their duties.
Consolidated management report 2022
l 1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 439
2) To establish a goal for representation by the less represented gender on the Board of Directors and prepare guidance on how to reach this objective.
3) To submit proposed appointments of independent Directors to the Board of Directors for appointment on an interim basis to fill a vacancy or for submission of such proposals to a decision by the shareholders at the General Shareholders’ Meeting, as well as proposals for the re- election or removal of such Directors by the shareholders at the General Shareholders’ Meeting.
4) To report on the proposed appointments of the other Directors of the Company for their appointment on an interim basis to fill a vacancy or for submission of such proposals to a decision by the shareholders at the General Shareholders’ Meeting, as well as proposals for the re- election or removal thereof by the shareholders at the General Shareholders’ Meeting.
5) To also report on proposals for the appointment and removal of the Secretary and any Deputy Secretary of the Board of Directors of the Company, as well as proposals for the appointment, re-election and removal of Directors from the subsidiaries thereof.
6) To report on proposals for the appointment and removal of the Senior Executive Officers of the Company and its subsidiaries.
7) To report on the proposals for appointment of the members of the Executive Commission and of the other Committees of the Board of Directors, as well as the respective Secretary and, if applicable, the respective Deputy Secretary.
8) To propose to the Board of Directors the appointment of the Lead Director from among the independent Directors.
9) Together with the Chairman of the Board of Directors, to organize and coordinate a periodic evaluation of the Board of Directors and its Committees, including the performance and contribution of each Director and the evaluation of the performance of the Chairman of the Board of Directors under the direction of the Lead Director pursuant to the Regulations of the Board of Directors.
10) To report on the periodic evaluation of the performance of the Chairman of the Board of Directors.
11) To examine or organize the succession of the Chairman of the Board of Directors and, if applicable, to make proposals to the Board of Directors so that such succession occurs in an orderly and planned manner.
12) To propose to the Board of Directors, within the framework established in the By-Laws, the compensation for the Directors and review it periodically to ensure that it is in keeping with the tasks performed by them, as provided in Article 35 of the Regulations of the Board of Directors.
13) To propose to the Board of Directors, within the framework established in the By-Laws, the extent and amount of the compensation, rights and remuneration of a financial nature, of the Chairman of the Board of Directors, the executive Directors and the Senior Executive Officers of the Company, as well as the basic terms of their contracts, for purposes of contractual implementation thereof.
14) To confirm compliance with and to periodically review the compensation policy applied to the Directors and Senior Executive Officers, including share-based compensation systems and the application thereof.
15) To prepare and propose to the Board of Directors an annual report regarding the Director compensation policy.
16) To verify the information regarding the compensation of the Directors and Senior Executive Officers set forth in the various corporate documents, including the annual report on the Director compensation policy.
17) To supervise compliance with the Company’s internal corporate governance policies and rules, as well as the Company's internal codes of conduct in force from time to time, while also endeavoring to ensure that the corporate culture is aligned with its purpose and values.
18) To periodically evaluate and review the Company's corporate governance system, such that it fulfils the mission of promoting the corporate interest and takes due account of the legitimate interests of the other stakeholders.
19) To supervise the implementation of the general policy regarding the communication of economic/financial, non- financial and corporate information and communication with shareholders and investors, proxy advisers and other stakeholders, and to monitor the manner in which the Company communicates and engages with small and medium-sized shareholders, all as regards aspects within the purview of this Committee.
20) To endeavor to ensure that any conflicts of interest do not adversely affect the independence of external advice provided to the Committee.
21) To exercise such other powers and perform such other duties as are assigned the Nominating, Compensation and Corporate Governance Committee in the Regulations of the Board of Directors.
c) Operation.
The Nominating, Compensation and Corporate Governance Committee must have access to information in a suitable, timely and sufficient manner, for which purpose:
The Chairman of the Committee, or, if applicable, the Secretary of the Committee, shall channel and provide the necessary information and documentation to the other members of the Committee, allowing sufficient time for them to analyze such information prior to their meetings. This information shall be available through the corresponding information technology application, enabled by the Company for the handling of the documentation associated with this Committee.# Consolidated management report 2022
Strategy and growth model
The Nominating, Compensation and Corporate Governance Committee shall meet at least once every quarter, and whenever a meeting is deemed appropriate, in response to a call from its Chairman. In addition to holding the meetings scheduled on the annual calendar, the Nominating, Compensation and Corporate Governance Committee shall meet whenever the Company’s Board of Directors or the Chairman of the Board of Directors requests the issuance of a report or the preparation of a proposal within the scope of its responsibilities, and whenever, in the opinion of the Chairman of the Board, a meeting is appropriate for the proper fulfillment of its duties. During 2022 it held 12 meetings, lasting on average two hours each. Also noteworthy is the high level of participation of all of its members. The Committee shall also meet sufficiently in advance of the meetings of the Board of Directors. Attendance at the formal meetings of the Committee shall be preceded by the allocation, on the part of its Members, of sufficient time to analyze and evaluate the information received by them. The Committee shall have a Secretary (who will normally be the Secretary or the Deputy Secretary of the Board of Directors), as well as the necessary support staff for planning meetings and agendas; for drafting documents and meeting minutes; and for compiling and distributing information, among other tasks. For the purposes of appropriate scheduling that makes it possible to ensure the efficient accomplishment of the objectives pursued, the Committee shall establish an Annual Work Plan. The meetings shall be scheduled by the Chairman of the Committee, who shall communicate them to the Secretary of the Committee, so that its members will receive the documentation sufficiently in advance. All of these actions shall be performed bearing in mind that the duties of the Members of the Committee are fundamentally supervisory and advisory, with no involvement in execution or management, which are the responsibility of Senior Management. The Nominating, Compensation and Corporate Governance Committee shall consult the Chairman of the Board of Directors, particularly with regard to matters involving the Executive Directors and Senior Officers.
The primary activities and actions performed by the Nominating, Compensation and Corporate Governance Committee of the Board of Directors of Telefónica, S.A. during fiscal year 2022 have been associated with the powers and functions of such Committee or with legal requirements or with Telefónica's internal regulations. Accordingly, the Nominating, Compensation and Corporate Governance Committee has analyzed and reported on the following issues, among others:
a) Proposed appointments associated with the Board of Directors of Telefónica, S.A. and its Committees. Likewise, and in relation to the proposals to be submitted to the company’s Ordinary General Meeting in 2022, the Committee, at its meeting of February 22, 2022, adopted the following resolutions:
▪ Favourably advise the re-election, for a further period of four years, of the Director Mr. Jose Maria Abril Perez, in the category of Proprietary Director, Mr Ángel Vilá Boix , in the category of Executive Director, and of the Director Mr Francisco Javier de Paz Mancho, in the category of Other External Director.
▪ Propose the re-election, for a further period of four years, of Board Member Ms Maria Luisa García Blanco in the category of Independent Director.
▪ Propose the ratification of appointment by co- optation and the appointment, for a further period of four years, to Ms Maria Rotondo Urcola, as Board Member, in the category of Independent Director.
b) Proposals for the appointment of Directors at the Subsidiaries or Affiliates of the Telefónica Group.
c) The compensation plan for the Directors and members of Senior Management of the Telefónica Group (in terms of fixed and variable compensation and share plans).
d) Telefonica S.A. Share Plan.
e) The Corporate Governance Report and Compensation Report 2021.
f) Preparation of the Report on the functioning of the Nominating, Compensation and Corporate Governance Committee 2021.
The Regulation and Institutional Affairs Committee was created by the Board of Directors pursuant to the provisions of article 20.b) of its Regulations and is regulated in article 24 of the Regulations of the Board of Directors. On the occasion of the amendment of the Regulations of the Board of Directors, made in December 2020, the name of the 'Regulation Committee' has been changed to the current 'Regulation and Institutional Affairs Committee'.
a) Composition. The Board of Directors determines the number of members of this Committee, which shall in no case be less than three. A majority of its members must be external or non- executive Directors.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 441
The Chairman of the Regulation and Institutional Affairs Committee is appointed from among its members. As of December 31, 2022, and on the date of this Report, the Regulation and Institutional Affairs Committee was and is composed of the following persons:
| Name | Post | Category |
|---|---|---|
| Mr. Francisco Javier de Paz Mancho | Chairman | Other External |
| Mr. Juan Ignacio Cirac Sasturain | Member | Independent |
| Ms. María Luisa García Blanco | Member | Independent |
| Ms. Carmen García de Andrés | Member | Independent |
b) Functions. Without prejudice to other functions that may be assigned to it by the Board of Directors, the Regulation and Institutional Affairs Committee shall have, at a minimum, the following functions:
1) To monitor on a permanent basis the principal regulatory matters and issues affecting the Group at any time, through the study, review and discussion thereof.
2) To act as a communication and information channel on regulatory matters between the management team and the Board of Directors and, where appropriate, to advise the Board of Directors of those matters deemed significant to the Company or to any of the companies of the Group in respect of which it is necessary or appropriate to make a decision or adopt a particular strategy.
3) To analyze, report and propose to the Board of Directors the principles that should govern the Sponsorship and Patronage Policy of the Group, to engage in the monitoring thereof, and to individually approve sponsorships in an amount or importance that exceeds the threshold set by the Board and which must be approved thereby.
During 2022, it held 11 sessions, each lasting an average of two hours. The main activities and actions carried out by the Regulation and Institutional Affairs Committee during the 2022 financial year were linked to the duties and functions corresponding to this Committee. Thus, the Regulation and Institutional Affairs Committee has analysed and discussed the following issues, among others:
The Strategy and Innovation Committee was created by the Board of Directors pursuant to the provisions of article 20.b) of its Regulations and, since the Board of Directors, at its meeting held on December 16, 2020, approved the amendment to the Regulations of the Board of Directors, it is regulated in article 26 of the Regulations of the Board of Directors.
a) Composition. The Board of Directors determines the number of members of this Committee which shall in no case be less than three. A majority of its members must be external or non- executive Directors. The Chairman of the Strategy and Innovation Committee is appointed from among its members. As of December 31, 2022, and on the date of this Report, the Strategy and Innovation Committee was and is composed of the following persons:
| Name | Post | Category |
|---|---|---|
| Mr. Peter Erskine | Chairman | Other External |
| Mr. José María Abril Pérez | Member | Proprietary |
| Mr. Juan Ignacio Cirac Sasturain | Member | Independent |
| Ms. Verónica Pascual Boé | Member | Independent |
| Ms. Claudia Sender Ramírez | Member | Independent |
b) Functions. Without prejudice to other functions that may be assigned to it by the Board of Directors, the Strategy and Innovation Committee shall have, at a minimum, the following functions:
1) To support the Board of Directors in the analysis and monitoring of the strategic policy of the Group at the global level.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6.# Other information
Consolidated Annual Report 2022 Telefónica, S. A. 442
2) To advise and provide support to the Board of Directors on all issues relating to innovation, and to analyze, study and periodically monitor the Company’s innovation projects, set standards and provide support to ensure the appropriate implementation and development thereof throughout the Group.
Over the course of the 9 meetings held during fiscal year 2022, the Strategy and Innovation Committee has analyzed various issuesters fundamentally associated with the telecommunications sector, in keeping with the strategic policy of the Telefónica Group and its business. The Committee has also conducted a periodic follow-up of the Company’s innovation projects, providing opinions and support in order to ensure their appropriate implementation and development throughout the Telefónica Group.
The Sustainability and Quality Committee was created by the Board of Directors pursuant to the provisions of article 20.b) of its Regulations and is governed by the provisions of article 25 of the Regulations of the Board of Directors.
The Board of Directors determines the number of members of this Committee, which shall in no case be less than three. All members thereof must be external or non-executive Directors and the majority thereof must be independent Directors. The Chairman of Sustainability and Quality will be appointed from among its members. As of December 31, 2022, and on the date of this Report, the Sustainability and Quality Committee was and is composed of the following persons:
| Name | Post | Category |
|---|---|---|
| Ms. María Luisa García Blanco | Chairman | Independent |
| Mr. Juan Ignacio Cirac Sasturain | Member | Independent |
| Ms. Carmen García Andrés | Member | Independent |
| Mr. Francisco Javier de Paz Mancho | Member | Other External |
| Ms. María Rotondo Urcola | Member | Independent |
| Ms. Claudia Sender Ramírez | Member | Independent |
Without prejudice to other functions that may be assigned to it by the Board of Directors, the Sustainability and Quality Committee shall have, at a minimum, the following functions:
1) To supervise and review the strategies and policies of the Company’s Responsible Business Policy, including environmental and social issues, ensuring that they are aimed at responding to the expectations of the company’s stakeholders and the creation of value, and to propose to the Board of Directors that they be updated and modified when necessary.
2) To promote a proactive relationship strategy with our stakeholders: customers, investors, suppliers, employees and society in general, with the purpose of defining the material issues affecting the Company from risk and opportunity perspectives.
3) To supervise the impact analyses linked to the Responsible Business strategy and our reputation, both from a business perspective and from the perspective of their impact on society, and in particular Human Rights and the Environment, as well as the legal modifications, recommendations and best business practices, which could have a significant influence for the Telefónica Group in matters of sustainability and reputation.
4) To analyze, promote and supervise Telefónica Group’s sustainability objectives, action plans and practices in the environmental and social areas, including aspects such as ethical behavior, human rights, the environment and climate change, responsible management of the supply chain, digital trust and the responsible use of technology, talent and diversity, sustainable customer responsibility, ethical and sustainable products and services and inclusive connectivity, as well as other issues identified as risks or opportunities for the Company in terms of sustainability.
5) To ensure that the sustainability practices in the environmental and social areas conform to the strategy that has been determined, and evaluate their degree of compliance through quality indices, ESG, the measurement of reputation and sustainability, among others, making recommendations where necessary to improve the Telefónica Group’s management in these fields.
6) To ensure that the corporate culture is aligned with its purpose and values with transparency towards its stakeholders.
7) Together with the Audit and Control Committee, to know the process of reporting non-financial information in matters of social responsibility and sustainability, which includes the aspects and matters detailed in sections 2), 3) and 4) above in accordance with international benchmarks, as well as the risks relating to those matters.
8) Any other matters related to the fields within its competence that are requested by the Board of Directors or its Chairman.
Consolidated management report 2022 l
Consolidated Annual Report 2022 Telefónica, S. A. 443
In relation to these functions, and regarding sustainability issues, Telefónica wants to be a relevant player in the communities in which it operates, internalizing in its strategy and way of operating the impacts of its activities on society and the environment. Its purpose, in this area, is to make the world more human, connecting lives, which implies that it is always aware of how it can contribute to generate a positive impact through its products and services, taking great care to minimize any negative impact that its activities may cause. It is about being an ethical and responsible company, and Telefónica's strategy and governance reflect this concern. The Group's Responsible Business Principles and Responsible Business Plan respectively form the ethical framework and roadmap for sustainability, and both are approved by the Board of Directors, as well as the Group's most relevant policies in this area (see sustainability policies in Governance and Culture of Sustainability chapter and in the governance subsection of each of the chapters on the main sustainability topics). Furthermore, the Sustainability and Quality Committee supervises the implementation of the Responsible Business Plan at its monthly meetings. The Group's Responsible Business Plan details objectives and projects related to the Company's sustainability management, including, among others, respect for Human Rights, customer responsibility, privacy commitments, freedom of expression and information, security, ethical management of artificial intelligence, responsible management of technology, sustainable management of the supply chain, climate change and environmental strategy, promotion of diversity, safety and well-being of our employees, as well as a business strategy focused on generating products and services that contribute to addressing society's major social and environmental challenges (sustainable innovation). Some of the most relevant objectives of the Responsible Business Plan are considered in determining the variable compensation of the Company's employees. Therefore, through the Company's governing bodies, specifically, the Responsible Business Plan is submitted for approval to the Board of Directors, supervision to the Sustainability and Quality Committee and monitoring to the Responsible Business Office. In addition, it is executed by the Corporate Business and Support Areas and the Executive Committees of the Operators, which assume the implementation of the objectives included in it. The full details of the sustainability governance structure can be found in chapter 2.16. Governance and culture of sustainability.
Over the course of the 10 meetings held during fiscal year 2022, the Sustainability and Quality Committee has analyzed the quality indices for the principal services provided by the companies within the Telefónica Group, evaluated the main Customer Experience indicators given to customers by those companies, and has analyzed the Corporate Social Reputation of the Telefónica Group, including the most relevant issues in terms of Sustainability (ethical behavior, sustainable innovation, digital trust, the supply chain, talent and diversity management, customers, the environment and climate change), including Responsible Business Plans in the Sustainability area (ESG) and the Integrated Annual Report.
Once a year, all of the Company’s Directors evaluate the performance of the Board of Directors of Telefónica, S.A., of its Committees and of the General Shareholders’ Meeting. Furthermore, every three years such evaluation is carried out with the assistance of an external consultant, whose independence is verified by the Nominating, Compensation and Corporate Governance Committee. Thus, the evaluation of the Board of Directors for the financial year 2017 was carried out with the assistance of the external consultant Villafañe & Asociados Consultores, the evaluations of the financial years 2018 and 2019 were carried out internally by the Company, without assistance of an external consultant, and for the evaluation corresponding to the financial year 2020, the Board of Directors, at the proposal of the Nominating, Compensation and Corporate Governance Committee, has had the support, as an external advisor, of the consulting firm Egon Zehnder; and the assessments for the 2021 and 2022 financial years has been carried out internally by the Company, without the support of an external advisor. Specifically, at the end of the 2022 financial year, all Directors were given a questionnaire to carry out the evaluation process for that year.The questionnaire contained a wide range of questions grouped under the following headings:
* The Board of Directors: Composition, Function and Powers, expressly including the adequacy of the performance and contribution of i) each Director on the Board of Directors, ii) the Chairman of the Board, iii) the Lead Independent Director, and iv) the Secretary of the Board.
* Committees of the Board of Directors: Composition, Function and Powers, expressly including the performance and input of i) the Committee Chairs, and ii) the Secretariat for these Committees.
* Rights and Duties of Directors.
* Stakeholders General Shareholders' Meeting.
* Suggestions and Comments.
The Nominating, Compensation and Corporate Governance Committee, at its meeting held on January 24, 2023, reviewed and analysed the results of this evaluation, concluding that, in general, the aspects related to the Board
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of Directors, Committees and General Meeting had been highly valued and were considered optimal and competent on the whole. However, as a result of this evaluation, and in order to continue improving the functioning of the company's corporate governance system, certain areas for optimisation were identified, in view of which, and after a detailed examination and analysis of the results achieved, the Board of Directors, at the proposal of the Appointments, Remunerations and Corporate Governance Committee, at its meeting of January 25, 2023, established an Action Plan for the implementation of the following suggestion and recommendation:
Therefore, work will also continue on optimising the process of making the documentation of Board and Committee meetings available to the Directors, so that it is made available, whenever possible, at an earlier date.
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As regards the Company's Executive Committee, its composition as of December 31, 2022 is shown below:
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As mentioned above, the Board of Directors, at its meeting held on June 29 and 30, 2021, and at the proposal of the Nominating, Compensation and Corporate Governance Committee, approved the partial amendment of the company's Board of Directors’ Regulations which basically consists of adapting them to the novelties of Law 5/2021 of April 12, which amends the revised text of the Capital Companies Act and other financial regulations with regard to the promotion of long- term shareholder involvement in listed companies (Law 5/2021).
Specifically, the Board of Directors' Regulations were adapted to the amendments introduced by Law 5/2021 to the regime of related-party transactions applicable to listed companies. Likewise, the Board of Directors, at its aforementioned meeting held on June 29 and 30, 2021, approved, in coordination with the aforementioned amendment of the Board of Directors’ Regulations, to partially amend the Regulations of the Audit and Control Committee, in order to incorporate the changes introduced in the Board of Directors’ Regulations.
Following the aforementioned amendment, Article 5.4 of the Board of Directors’ Regulations includes the following non-delegable powers of the Board, among others:
The approval, subject to a report from the Audit and Control Committee, of related-party transactions under the terms established in Article 39 of these Regulations, unless its approval corresponds to the General Meeting.
The Company’s Board of Directors may delegate the approval of transactions between companies forming part of its group that are carried out within the scope of ordinary management and under market conditions, as well as transactions entered into under contracts whose standard conditions are applied en masse to a large number of customers, carried out at prices or rates established on a general basis, and whose amount does not exceed 0.5% of the net turnover of the company, determined in accordance with the rules of calculation laid down in the Law.
In this regard, and in accordance with the provisions of article 31.f) of the Board of Directors' Regulations:
No Director may directly or indirectly carry out professional or commercial operations or transactions with the company or with any of the companies of its group, when such operations or transactions are outside the ordinary course of business or are not carried out under market conditions, except for those operations or transactions that are authorised by the company under the terms provided for in the regime on related-party transactions established by law, in the Articles of Association, and in these Regulations.
Article 39 of the Board of Directors' Regulations establishes the following with regard to the regime on related-party transactions:
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proposed motion for approval adopted by the Board of Directors shall be submitted to the General Meeting with an indication as to whether it has been approved by the Board of Directors with or without the majority of the independent Directors voting against. Likewise, Article 4, section xiv) of the current Regulations of the Audit and Control Committee establishes, among the competencies of this Committee, the following: Report on related party transactions to be approved by the General Meeting or the Board of Directors and supervise the internal procedure established by the Company for those transactions whose approval has been delegated by the Board of Directors, as the case may be.
In relation to the above, and within the framework of the aforementioned regulation, the Board of Directors of the Company, at its meeting held on June 29 and 30, 2021, following a favourable report from the Audit and Control Committee, moved to establish a generic delegation for the approval of all related-party transactions that are so allowed, that is:
a. Intra-group transactions (companies subject to a potential conflict of interest) that are carried out in the ordinary course of business and on an arm's length basis; and
b. Transactions which are concluded under contracts whose standardised conditions are applied en masse to a large number of customers, made at general prices or rates, and whose amount does not exceed 0.5% of the company's net turnover.
Such delegation was made to the bodies or persons who, in accordance with the general powers of attorney in force at any given moment and the internal contracting regulations of Telefónica, S.A. and the other applicable companies in its group, and in accordance with the functions they perform within the Telefónica Group (such as financing, telecommunications services and all those derived from the ordinary business of the group), have the powers to carry out such delegation.# 4. Annual Corporate Governance Report
The approval of the related-party transactions referred to in the aforementioned delegation motion of the Board of Directors, does not require a prior report from the Audit and Control Committee, although such transactions must be reported half-yearly to the Audit and Control Committee and the Board of Directors in order to verify the fairness and transparency of such transactions and, where appropriate, compliance with the applicable legal criteria. During fiscal year 2022 neither Telefónica, S.A. nor any company in its Group has carried out transactions with any member of the Board of Directors or with any member of senior management other than those derived from the Group's ordinary business or traffic, except as indicated in the following paragraph in respect of transactions with parties related to Directors. Notwithstanding the above, the significant and relevant transactions carried out by companies of the Telefónica Group with related parties are included in Note 11 (Related Parties) and in Note 10 (Associates and joint ventures) of the Consolidated Annual Accounts of Telefónica, S.A. of Telefónica, S.A. corresponding to fiscal year 2022, as in Section D of the Statistical Annex of the Annual Corporate Governance Report.
GRI 2-15 Company policy establishes the following principles governing possible conflicts of interest that may affect directors, senior executives or significant shareholders:
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Transactions arising from the duty of loyalty and its exemption regime shall also be subject to prevailing laws.
With regard to significant shareholders, Article 39 of the Board Regulations establishes that the Board of Directors, following a favourable report from the Audit and Control Committee, shall approve transactions that the company or its subsidiaries carry out with shareholders holding 10% or more of the voting rights or represented on the Company’s Board of Directors, provided that, under current legislation, they are considered to be related-party transactions, and unless their approval corresponds to the General Shareholders' Meeting. This power cannot be delegated, except in the cases and under the terms provided by law and in Article 5.4 of the Company's Board of Directors’ Regulations, as described in section 4.5.1 above.
With respect to Senior Executives, the Internal Code of Conduct for Securities Markets Issues, updated on May 6, 2020, sets out the general principles of conduct for the persons subject to the said regulations who are involved in a conflict of interest. The aforementioned Code includes all the Company's management personnel within the concept of affected persons. In accordance with that established in this Regulation, the People with Management Responsibilities, their Administrative Personnel and the managers or employees of Telefónica Group who have Privileged Information, or participate or have access to or knowledge of a Confidential Operation (as defined in the previous terms of the internal conduct regulations regarding Stock Markets) have the obligation to (a) remain loyal to the Group and its shareholders at all times, regardless of his/her own or other's interests; (b) refrain from intervening in or influencing decision making that could affect persons or companies with which there is conflict; and (c) refrain from accessing information classified as confidential that affects said conflict. Additionally, these people (except for the members of the Company Board of Directors who will be governed in terms of communicating conflicts under the standards established in the regulation of the Board of Directors) have the obligation to make the Company aware of these situations, by means of the computer system established by Telefónica for this purpose, as soon as possible, that would potentially entail the manifestation of conflicts of interest because of its activities outside the Telefónica Group, its family relationships, its personal assets or any other reason with: (a) financial intermediaries operating with the Group Telefónica; (b) professional or institutional investors who have a significant relationship with the Group Telefónica; (c) suppliers of significant equipment or material; or (d) professional service providers or External Advisors. Telefónica, S.A. is the only company of the Telefónica Group that is listed in Spain, so it is not necessary to have defined the specific mechanisms that would be applied to resolve possible conflicts of interest with subsidiaries listed in Spain. Based on the information provided above, it is also noted that Telefónica, S.A. is not controlled by another entity within the meaning of Article 42 of the Commercial Code.
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See chapter 3 ("Risks") of the 2022 Consolidated Management Report of Telefónica, S.A.
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Responsible bodies and/or functions of: (i) the existence and maintenance of a suitable and effective ICFR; (ii) its deployment; and (iii) its supervision. The Board of Directors is, in accordance with Laws and the Bylaws, the highest administrative and representative body of the Company, and basically consists of a supervisory and control body, while the executive bodies and management team are responsible for the day-to-day management of the Company’s businesses. Telefónica’s Board of Directors is ultimately responsible for the supervision of the Company’s internal information and control systems, including the Internal Control System for Financial Information (ICFR) or Financial Reporting, indiscriminately. The Bylaws and the Regulation of the Board of Directors of the Company state that the primary duty of the Audit and Control Committee of Telefónica, S.A. is supporting the Board of Directors in its supervisory functions. Its competencies include, among others, the following ones: i.Submitting to the Board of Directors proposals for the selection, appointment, re-election and replacement of the external auditor, being responsible for the selection process in accordance with the provisions of the Law, as well as the conditions of their engagement, and regularly collecting information from the auditor regarding the audit plan and its execution, in addition to preserving its independence in the exercise of its functions.## ii. To supervise the internal audit, ensuring the proper functioning of the information and internal control systems which will functionally report to the Chairman of the Audit and Control Committee, and in particular:
a. Ensure the independence and effectiveness of the internal audit function;
b. Propose the selection, appointment and removal of the head of the Internal Audit service;
c. Propose the budget for that service;
d. Approve the guidelines and the annual work plan, ensuring that its activity is mainly focused on relevant risks (including reputational risks);
e. Review the annual activity report;
f. Receive periodic information on its activities, the execution of the annual work plan, including possible incidents and limitations as and when they occur in its development as well as on the results and monitoring of its recommendations; and
g. Verify that senior management takes into account the conclusions and recommendations of its reports.
a. The correct design and operation of the controls on the breakdown and the procedures of the process for preparing the financial information, revealing any material information regarding that reporting process of the Group.
b. The environment of internal control over the Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 451 financial reporting, with the objective of providing, faced with third parties, reasonable assurance regarding the reliability in the process for reporting and preparing the financial information according to accounting standards.
c. Any significant change that affects the internal control system of the financial reporting process in a material way, and which has occurred during the annual assessment period.
d. Compliance with regulatory requirements, adequate delimitation of the consolidation perimeter, and the correct application of the accounting criteria, giving account to the Board of Directors.
a. The various types of financial (including contingent liabilities and any other off-balance sheet risks) and non-financial risks (including operational, technological, legal, social, environmental, political and reputational risks, including those related to corruption) faced by the Company.
b. A risk control and management model based on various levels, which will include a specialized risk committee where sectoral rules so provide for it or where the Company deems it appropriate.
c. Setting of the risk level which the Company considers acceptable.
d. The planned measures for mitigating the impact of the identified risks should they materialize; and
e. The internal control and reporting systems to be employed to control and manage those risks, including contingent liabilities and any other off-balance sheet risks.
a. Ensure the proper functioning of risk control and management systems and, in particular, that all significant risks affecting the Company are appropriately identified, managed and quantified.
b. Actively participate in the development of the risk strategy and in major risk-management decisions; and
c. To ensure that the risk control and management systems adequately mitigate the risks within the framework of the policy defined by the Board of Directors.
(a) in the event of the Accounts Auditor resigning, to examine the circumstances that may have led do it;
(b) to ensure that the remuneration of the Auditor for their work does not compromise their quality or independence;
(c) to supervise that the Company notifies the change of auditor through the National Securities Market Commission and accompanies it with a statement on any possible existence of disagreements with the outgoing auditor and, if so, to disclose the details;
(d) to ensure that the Auditor holds an annual meeting with the Board of Directors in order to report it on the work performed and on the evolution of the Company's accounting and risk situation; and
(e) ensure that the Company and the Auditor comply with current regulations on the provision of non-audit services, the limits on the concentration of the auditor's business and, in general, other regulations on auditor independence.
a. The financial information that the Company must periodically publish;
b. The creation or acquisition of participations in special purpose entities or domiciled in countries or territories that are considered tax havens.# Report the related operations to be approved by the General Shareholders’ Meeting or the Board of Directors and supervise the internal procedure established by the Company for those whose approval has been delegated by the Board of Directors.
As mentioned above, it is established that the Accounts Auditor will hold an annual meeting with the full Board of Directors to inform them about the work conducted and the evolution of the accounting and risk situation of the Company, generally coinciding with the date on which the Board of Directors prepares the Annual Financial Statements. The provisions above are understood without prejudice to the regulations governing the audit of accounts.
According to the Regulation of the Board of Directors, the periodicity of the sessions of the Audit and Control Committee must be, at least, quarterly. 12 sessions have been held this year.
In order to perform its supervisory duties, the Audit and Control Committee has the support of the entire Company Management, including Internal Audit, which sets up as an independent area in the management of the Company, reporting directly and supporting the Audit and Control Committee in its competencies on assurance, risk management, and the internal control system.
For this purpose, Internal Audit applies a systematic and disciplined approach by the following main lines of action:
Among these activities, the following, at least, are included:
a. Assessment on the internal control over financial reporting, required by the Sarbanes-Oxley Act of 2002, to companies listed in the United States of America which also serves to cover the assessment
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2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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on the System for the Internal Control over financial reporting (ICFR) for companies listed in Spain.
b. Audits on the efficiency and effectiveness of the design and execution of the controls in processes, including the preparation and reporting of non- financial information; and
c. Other audits and compliance reviews across the Telefónica Group;
All the different areas and functional units of the Telefónica Group are relevant for the internal control over financial reporting (ICFR), the Finance and Control area playing a key role, as they are responsible for preparing, maintaining and updating the different procedures that govern their operations, these procedures identify the tasks to be carried out, as well as the persons in charge for executing these tasks. Departments and/or mechanisms in charge of: (i) the design and review of the organizational structure; (ii) defining clearly the lines of responsibility and authority, with an appropriate distribution of tasks and functions; and (iii) sufficient procedures so this structure is communicated effectively throughout the Company. People area carries out the deployment of the organizational structure in the respective fields within the framework of the decisions taken by the Board of Directors of the Company.
The financial-accounting information system in the Telefónica Group is regulated through several manuals, instructions and internal rules and regulations, internally available on the Intranet, the most noteworthy of which are the following:
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2. Non-financial Information statement
3. Risks
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5. Annual Report on Remuneration of the Directors
6. Other information
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Code of conduct, approving body, dissemination and instruction degree, included principles and values (stating whether there are specific mentions to the recording of operations and the preparation of financial information), body in charge of analyzing non-compliance and proposing corrective or disciplinary actions. With regards to the Code of Conduct, the Board of Directors of Telefónica approved the Business Principles, that are applied in a homogeneous manner in all countries where the Telefónica Group operates and apply to all its employees (the Business Principles affect at all levels of the organization, directors and non-directors) and they include commitments in matters of privacy and security, compliance and fiscal transparency, responsible communication and protection of minor stockholders, among others. The Business Principles emanate from three basic values: integrity, commitment and transparency, which are essential values to foster the trust relationship that Telefónica wants to have with its groups of interest.
Regarding the financial information, the following principles are set:
We are aware of the importance for all our groups of interest to share true, complete, timely and clear information in the reports registered with the relevant Supervising Bodies of the Securities Markets, as well as in other public communications of the Company.
The Business Principles are available for all employees at the Intranet, there are procedures to update, monitor adherence to and disseminate these Business Principles in the Telefónica Group. Likewise, training programs are also periodically established to ensure employees are aware of these principles. In the case of new employees, in addition to providing them the Responsible Business Principle as part of the documentation provided in the onboarding process, they are offered specific training on the subject within a maximum of 3 months from their joining the company.
In this regard, Telefónica has a Corporate Policy on the Comprehensive Discipline Program that aims to define the basic principles of the Group's disciplinary system and that provides that all employees must receive a homogeneous, objective, proportional and non-arbitrary treatment, without prejudice to and with absolute respect for the legislation and other regulations that are applicable in each case to the Group companies in the different countries in which it operates.
Telefónica has the Business Principles Office, composed of department heads from the areas of Global Sustainability, General Secretariat, Legal Services, People area, Internal Audit, Purchasing, Compliance, Security, Global Consumer, Strategy, Finance, Communication, Data & Analytics, Telefónica Tech and Telefónica Infra. This Office monitors the responsible Business Plan approved by the Board of Directors and reports to the Sustainability and Quality Committee, through the head of Sustainability. Among the responsibilities of this Office, the following stand out:
On a different issue, in case of being aware of any conduct which contravenes what is established by the Law, by the Business Principles or by other valid internal regulations, after proper analysis, disciplinary measures will be applied in accordance with the regime established in the applicable labor legislation, distinguishing between minor, serious and very serious sanctions, depending on the circumstances.
Telefónica also has an “Internal Code of Conduct" for matters relating to Securities Markets, last modified on May 6, 2020, which sets out the general guidelines and principles of conduct to be followed by persons affected by securities and financial instrument operations issued by the Company or its subsidiary Companies.
Similarly (and as detailed below), Telefónica has a Whistle-blowing Channel which is available to all stakeholders so they may inquire about, inform or report—anonymously or
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personally—questions, requests or complaints on any aspect related to the Responsible Business Principles.
Whistle-blowing Channel, which enables to inform the Audit and Control Committee about any irregularities of a financial and accounting nature, as well as eventual breaches of the code of conduct and irregular activities in the organization, informing, where applicable, about a confidential nature and whether it allows for anonymous communications, respecting the rights of the whistle-blower and the reported party.
With regard to the Whistle-Blowing Channel, as specified in Article 22 of Telefónica, S.A.'s Regulations for the Board of Directors, and in Article 4 of Regulation for the Audit and Control Committee, the Audit and Control Committee´s competencies include, among others: "establishing and supervising a mechanism that allows employees and other people related to the Company, such as Board Members, shareholders, suppliers, contractors or subcontractors to communicate, in a confidential and anonymous manner, respecting the rights of the whistle-blower and the reported party, irregularities of potential significance, including financial and accounting ones, or of any other nature, related to the Company, detected within the Company or its Group.”
The Telefónica Group has a Policy of Management of the Whistleblowing Channel where the bases of the management of the Whistleblowing Channel of the Telefónica Group are set, through which employees, directors and Board members of the Telefónica Group, shareholders, suppliers and other parties can communicate confidentially and, where appropriate, anonymously, any information they become aware of, by any means -formal or not- about the existence of any possible irregularity, any act contrary to legality or internal regulations, also including eventual irregularities referring to accounting matters, issues related to auditing and/or aspects related to the internal control over financial reporting, in compliance with section 301 of the Sarbanes- Oxley Act, of 2002, of the United States of America and other regulatory requirements in this sense.
When managing the Whistleblowing Channel it is mandatory to apply the confidentiality principles to data provided and declarations made, and also the principles of respect and legal basis; so that any decision adopted after receiving a complaint will be reasoned, proportionate and will consider the circumstances of the facts denounced, always with full respect to the rights and the due guarantees for the whistle-blower and the persons affected, if any.
In listed Companies, Internal Auditing periodically informs the Audit and Control Committee of the Board of Directors about a) activity related to the Whistle-blowing Channel, b) complaints regarding matters related to accounting aspects, to audit issues, to internal controls over financial information and / or all those issues referred to in the Sarbanes-Oxley Act, including any fraud, material or not, that affects the Management, or any other employee of the listed Company, who has a relevant role in the internal control of the financial information reporting process, and c) of the result of the management derived from the audit of these cases.
Periodic training and updating courses for personnel involved in the preparation and review of financial information, as well as ICFR assessment, which cover, at least, accounting rules, auditing, internal control and risk management. The Consolidation and Accounting Polices Area develops specific training actions, as well as updating seminars addressed to all personnel in the financial areas and other affected areas of the Group (Tax, M&A, etc.), with the aim of making known those changes which, from an accounting and financial point of view, are relevant for the preparation of the consolidated financial information. This Area also publishes updated Information Bulletins on IFRS (International Financial Reporting Standards) where to present a summary of the main changes in accounting matters, as well as clarifications on various applicable aspects that may arise in this matter.
The Telefónica Group has also a training platform included in the corporate People area management tool, which includes both a Finance School, with specific knowledge and updating programs in financial information matters and an internal control training program that includes training related to auditing, internal control and risk management. In addition, it should be noted that, based on the relevance of any new accounting developments, the staff of the departments involved in financial reporting attend (when possible and/or necessary) technical sessions given by external companies, related to the main developments in accounting.
Finally, the Group offers the Corporate University “Universitas Telefónica” with the objective of contributing to the Group’s progress through the ongoing development of its professionals. All the programs in the training offer of the University of Telefónica are based on the development of the corporate culture, the business strategy and management and leadership competences.
Main characteristics of the risk identification process.# Consolidated management report 2022
The ICFR was developed by the Group in accordance with international internal control standards established by COSO (Committee of Sponsoring Organizations, from the Treadway Commission), which establishes five components in which the effectiveness and efficiency of internal control systems should be based:
Given the width of the universe of processes with impact on financial reporting at the Telefónica Group, a model has been developed to select the most relevant processes based on applying the so-called Scope Definition Model, which is a part of the Audit Methodology on the Group's Internal Control over Financial Information. This model, based both in the principle of relative importance and the assessment of risks related to financing reporting, is applied to the financial information reported by subsidiaries, multi-group, and associate companies. The model selects the significant accounts, i.e., those accounts with the largest contribution to the Group's consolidated financial information, to uphold the evaluation of internal control on financial reporting. Subsequently, identifies the relevant processes which generate the information of those accounts, as well as the significant risks regarding financial reporting on these processes. Once the relevant processes have been identified, an analysis is made on those processes that have a more relevant impact on significant accounts, reviewing the effectiveness of the design and operating of the key controls which address the main associated risks or “objectives of financial information” (also named financial premises).
Given that the internal control evaluation the Group’s financial reporting is performed as of the closing date of each year, during the year the corresponding activities are carried out to contrast the initial results obtained through the Scope Definition Model. The aforementioned procedure for identifying and reviewing the key controls covers the objectives of the financial information (also named financial premises) of accuracy, valuation, integrity, cut-off of operations, existence / occurrence, presentation and comparability, as well as breakdown, and rights and obligations. This identification of the key controls, aimed at addressing the aforementioned financial premises of the significant accounts and relevant processes in scope, is carried out annually, continuously verifying during the period that no event has taken place so as to determine a modification thereof.
With regard to the process for identifying the company perimeter, the Finance and Control Office carries out, in a periodic manner, an update on its consolidation perimeter, verifying additions and removals of companies with the legal and financial departments of the different companies which are part of the Group, including the corporate departments.
As previously mentioned, Telefónica constantly monitors the most significant risks that could affect the main companies that make up its Group. For that purpose, the Company has a Risk Management Model based on COSO (Committee of Sponsoring Organizations of the Treadway Commission). It is implemented in a homogeneous manner in the main operations of the Group, so that the persons responsible for the Company, in their field of action, carry out a timely identification, assessment, response and monitoring of the main risks. Telefónica’s risk management, including those related to financial information, is integrated into the planning process and is aligned with the Company’s strategy, in line with the requirements of COSO ERM 2017, “Enterprise Risk Management - Integrating with Strategy and Performance”. The Board of Directors of the Company, through the Audit and Control Committee, is the entity’s governing body that supervises the process, as defined in Article 22 of the Regulation of the Board of Directors of Telefónica.
Procedures for reviewing and authorizing the financial information and the description of the ICFR, to be disclosed in the securities market, indicating those responsible, as well as the documents describing the flow of activities and controls (including those related to fraud risk) of different types of transactions that may materially affect the financial statements, including the accounts closing procedure and specific review of relevant value judgements, estimates, valuations and projections.
The Board of Directors of Telefónica, S.A. approved, on December 16, 2020, an update of the "Regulations Governing Disclosure and Reporting to the Markets" (RCIM). This regulation regulates the basic principles of functioning of the financial disclosure control processes and systems for reporting economic-financial, non-financial and corporate information, through which to aim at guaranteeing that the Company’s relevant or privileged information is known by the markets, investors and other stakeholders, thus maximizing the disclosure and quality of this information, and ensuring that the mechanisms required to perform regular evaluations of the functioning of these processes and systems are established.
In addition, on a quarterly basis, the Consolidation and Accounting Polices Department (which forms part of the Finance and Control Department) of Telefónica submits to the Audit and Control Committee the periodic financial information, highlighting the main events occurred and the accounting criteria applied in its preparation, clarifying those aspects of major importance occurred during the period.
Likewise, the Telefónica Group has documented economic-financial processes in place which enable that the criteria for preparing financial information are common, both in the companies of the Group and in those activities that are outsourced, if any. Likewise, the Company follows documented procedures for preparing the consolidated financial information, so that the persons responsible for the different areas involved verify this information.
Additionally, in accordance with internal regulations, the Executive Chairmen or Chief Executive Officers and the Finance Directors of the companies of the Group must submit to the Consolidation and Accounting Policies Office an annual certificate stating to have reviewed the financial information presented, stating that the financial statements submitted represent faithfully, in all their relevant aspects, the financial situation, results and liquidity situation, and, additionally, that there are not known significant risks to the business or unhedged risks which might have a significant incidence on the equity and financial position.
In relation to the accounting closing procedure, the Consolidation and Accounting Polices Office issues the reporting and external audit instructions (in the case of external audits, only for the purposes of schedules and reports to be issued) for the closure of each period, which shall include the content, procedures and schedule to be followed by the departments and companies of the Telefónica Group as well as investee entities through joint control agreements (joint ventures and operations) or material entities over which it exercises significant influence and through its external auditors in the reporting of the financial-accounting information and the results of the external audit processes.
The specific review on relevant judgments, estimates, valuations and projections is carried out by the Consolidation and Accounting Polices Office, to identify critical accounting policies to the extent that they require the use of estimates and value judgements. In these cases, the Consolidation and Accounting Polices Office establishes, likewise, the necessary operational coordination actions with the rest of the units in the Telefónica Group in their specific fields of action and knowledge, prior to presenting them to the Audit and Control Committee. The most relevant ones are dealt with by the Audit and Control Committee and Senior Management defines the presentation format in the annual accounts, prior to approval by the Board of Directors.
Finally, Internal Audit, within its annual audit plan, among other actions, establishes annually work plans to assess the model for internal control over financial reporting of the Telefónica Group, in line with the above stated. That is, the Internal Audit plans include the review on the design and operability of the controls on the breakdown and reporting of financial information, as well as the assessment of the internal control system of the mentioned process for the preparation of financial information, and the review of any significant modification, during the annual assessment period, that could materially affect the Group's internal control system on the process for the preparation of the consolidated annual accounts.
The Global Security Policy considers an integral concept of the physical and operational security of human resources the information, technologies, cybersecurity, and material resources that support them as fundamental assets, with the purpose of guaranteeing corporate protection against potential damage or eventual losses. For this reason, guaranteeing the Group security is considered an essential aspect in the strategy of Telefónica and an essential enabler of the organization’s activity.
With the approval of this Policy, the Board of Directors expresses its determination and commitment to reaching a level of security that is adequate to the needs of the business and that guarantees the protection of the assets in a homogeneous way in all the companies of the Telefónica Group. In this context, the Global Digital Security and Intelligence Office is responsible for the definition and promotion of the implementation of Security Policies and Standards in the Telefónica Group, understanding Security as an integral concept. These Policies and Standards aim at preserving the assets and protecting the strategic interests and objectives of the Telefónica Group, both in its vertical organization (including its business units) and in its cross-cutting dimension (including all its technological assets and business processes). With them, the confidentiality and integrity of the assets, interests and objectives of the Telefónica Group that are strategic is guaranteed, protecting them, as well, from potential actions that might affect their availability, damage their value, alter their contents, reduce their efficiency or affect their operability.
The Global Digital Security and Intelligence Office is also in charge of measuring the level of implementation of the Security Regulations Framework on the assets and processes of the four technological platforms mentioned above and in charge of supervising the status of security on an ongoing manner. The Telefonica Group’s Global Directorate for Networks and Information System, is responsible for the technological strategy of both the Network and the Information Systems for the Group's 4 main markets, defining the strategy and technological planning, as well as its evolution and ensuring compliance with the quality of service, cost and security conditions required by the Group. Among its various functions are the definition of Systems and Networks that improve the efficiency, effectiveness and profitability of the Group's processes. For operators in Latin America, these same functions are assumed and carried out by the Network and Information Systems Department of this segment.
The security activities developed by organizational structures, responsible for assets and employees for the protection of the Group’s technological assets and processes will be governed by the following principles, for whose promotion, management, control and improvement the appropriate mechanisms must be established.
With the aim of reaching a homogeneous level of security, a Global Security Regulations Framework is defined, which will take into account the analyses of risks and threats as well as the setting of precise protective or corrective prevention measures. Likewise, strategic plans will be conceived and prepared so that they enable to identify and prioritize the projects and budgets necessary for reaching the adequate levels of Security and Auditability, minimizing the security risks identified in the corresponding analyses, and maximizing the effectiveness of the investment and the resources used. The Security Organization coordinates the Security responsibilities of the various Telefónica Group structures, promoting cooperation among them to guarantee the efficient and joint protection of the assets.
Finally, the Internal Audit unit, with the scope established in its Annual Audit Plan, sets out work plans to verify the effectiveness of design and operation, as well the efficiency of the defined internal control environment, to ensure compliance with all Group policies and regulations on Security and Data Processing and Protection, focusing on the governance model and the integrity accuracy of the information, reviewing in the audit work the adequacy and effectiveness of the defined controls, both in their design and operation.
In the case that a process or part of a process is outsourced to a third party unrelated to the company, this does not exempt from the need to have controls which ensure an adequate internal control level in the whole of the process. Given the importance of service outsourcing and the consequences that this can cause on the opinion about the effectiveness of the internal control over financial reporting, the necessary actions are taken in the Telefónica Group in order to achieve to evidence an adequate control level. The actions that are carried out to achieve the mentioned objective may vary among the three following ones, which, depending on the case, may be complementary:
When Telefónica or any of its subsidiaries uses the services of an independent expert whose result and conclusions may present potential impacts on the consolidated financial information, with regard to the process to select a supplier, the area that requests the service and, if applicable, together with the Purchase department, must make sure about the competence, training, credentials and independence of the third party regarding the methods and main hypotheses used. The Finance and Control Office has established control activities aimed at guaranteeing the validity of data, the methods used, and the reasonability of the hypotheses used by the third party through the recurrent monitoring on the own KPIs¹ of each duty which enable to ensure compliance of the outsourced process according to the policies and guidelines issued by the Group. Likewise, there is an internal procedure for engaging independent experts which requires certain levels of approval.
A specific function in charge of defining, keeping updated the accounting policies (area or department of accounting policies) and resolving issues or conflicts derived from its interpretation, maintaining fluid communication with those responsible for operations in the organization, as well as an updated accounting policy manual informed to the units through which the entity operates. The Consolidation and Accounting Polices Office of the Group is in charge of defining and updating the accounting policies for the purposes of consolidated financial information.Thus, this area periodically issues updated Information Bulletins on IFRS (International Financial Reporting Standards), where this area presents a summary of the main changes in accounting matters, as well as clarifications on various aspects that may arise regarding this matter. Additionally, the Telefónica Group has a Manual of Accounting Policies which is permanently updated. The objectives of this Manual are: to adapt the corporate accounting principles and policies to the IFRS regulatory framework; to maintain accounting principles and policies which enable that the information is comparable within the Group and which facilitate an optimum management from the origin of the information; to improve the quality of the accounting information of the various Group companies and of the Consolidated Group by disclosing, agreeing and implementing accounting principles which are unique to the Group; and to facilitate the accounting integration of acquired and newly-created companies into the Group’s accounting system by means of having a reference manual. All companies belonging to the Telefónica Group must comply in a mandatory manner with the mentioned Manual when carrying out their reporting for the preparation of the consolidated financial information. This documentation is available for the whole Group on the Telefónica Intranet in an integrated Accounting and Reporting portal. In this portal, in addition to the digitalized Manual, also includes the history of IFRS Bulletins, as well as the Reporting Manual with its forms and all the details of the corporate chart of accounts. All accounting and reporting update communications are made through this tool, which is part of the Group’s digital transformation project. Likewise, the Accounting Policies Area maintains a fluid communication with the accounting heads of the Group's main operations, both proactively and reactively. This communication is useful not only for resolving doubts or conflicts but also to ensure that accounting criteria in the Group are homogeneous as well as to share best practices among operators. Mechanisms for obtaining and preparing the financial information with standardized formats applied and used by all the units in the entity or the Group, which support the main financial statements and notes, as well as information detailing the ICFR. As stated above, there is a Manual for Filling in the Consolidation Reporting of the Telefónica Group which provides specific instructions for preparing the details which make up the reporting pack, provided by all components of the Telefónica Group for the preparation of the Telefónica Group’s consolidated financial statements and the consolidated explanatory notes. Likewise, the Telefónica Group has implemented a specific system, through a software, which supports the reporting of the individual financial statements of its various subsidiaries, as well as the necessary notes and disclosures for preparing the consolidated annual accounts. This tool is used, likewise, to carry out the consolidation process and its subsequent analysis. The system is managed centrally, and all components of the Telefónica Group use the same account plan.
The supervision activities and results of the ICFR evaluation performed during the year. Procedure for which the person responsible performs the evaluation establishes the scope and reports their results, with the entity defining an action plan that details the pertinent corrective measures and consideration of its impact on the financial information.
As indicated above, the Corporate Bylaws and the Regulation of the Board of Directors state that the primary duty of the Audit and Control Committee shall be to support the Board of Directors in its supervisory duties, Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 460 establishing among its competencies to supervise the effectiveness of the Company’s internal controls and the systems for risk management and control, as well as to discuss with the Account Auditors significant deficiencies or material weaknesses in the internal control system over financial reporting (ICFR) detected during the development of both the integrated audit performed by the Account Auditor and the evaluation of internal control on the Group’s financial reporting at the end of each year, carried out by Internal Audit. Along the same lines as the above, Telefónica has an Internal Control Policy that sets that the Board of Directors, through the Audit and Control Committee, supervises the internal control system, with the support of the Internal Audit unit of the Telefónica Group. In that Policy, “internal control” is defined as the process performed by the Board of Directors, Management and the rest of the staff of the Company, being designed with the purpose of providing a reasonable assurance degree for the attainment of the objectives related to operations, information and compliance. With the purpose of helping to the achievement of its objectives, the Company has an internal control model defined in accordance with the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Likewise, there is an Internal Audit Organization Policy, which includes aspects regarding the organization and functioning of this area. According to what is set in that Policy, Internal Audit is the area in Telefónica in charge of confirming, by means of appropriate evidence, the adequate functioning of the internal control and risk management structures and, if applicable, detecting possible inefficiencies or non-compliance with the control system that the Group establishes in its processes. In this respect, Internal Audit becomes an area independent from the Company management which directly reports and supports the Audit and Control Committee in its competencies on assurance, risk management and the internal control system. The Internal Audit function is developed in accordance with the International Standards for the Professional Practice of Internal Auditing and, in this regard, it has been awarded a Quality Certificate from the International Institute of Internal Auditors. With regard to the supervision of Internal Control over Financial Reporting (ICFR), Telefónica, S.A., as company listed on the New York Stock Exchange, is subject to the regulatory requirements established by the North American regulatory bodies that affect companies listed on that Stock Exchange. Among those requirements is the aforementioned Sarbanes-Oxley Act, of 2002, and, specifically, Section 404 of that Act, which stipulates the need for companies listed in the US market to assess on an annual basis the effectiveness of the procedures and structures of the internal control over financial reporting (ICFR). In order to comply with this requirement, and as stated above, the Telefónica Group has a model to assess the system for the internal control over financial reporting (ICFR), Internal Audit is the area in charge of performing, on an annual basis, the assessment on its effectiveness at the year’s end. Additionally, and also in accordance with what is established by this Act and the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), the External Auditor issues their own independent opinion on the effectiveness of the system for the internal control over financial reporting (ICFR).
Without prejudice to filling in the self-assessment questionnaire, in certain companies of the Group, according to criteria regarding the relevance of their contribution to the economic-financial magnitudes of the Group and other considered risk factors, a direct review is made on their processes and key controls, applying the Internal Control Auditing Methodology on the Group’s Financial Information, specifically the “Scope Definition Model” (which forms part of that assessment methodology), which enables to identify the significant financial accounting by company of the consolidation perimeter, for the purposes of evaluating the Internal Control System for Financial Information (ICFR) at the Telefónica Group level, based on the aforementioned evaluation methodology, which is also in accordance with the guidelines established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its “Internal Control - Integrated Framework 2013” report.
Once the significant accounts are identified
Having identified within the scope of the evaluation based on the calculated consolidated materiality, the Internal Control Auditing Methodology on the Group’s Financial Information is applied as follows:
Consolidated management report 2022 l 1.# Consolidated Annual Report 2022
• Where appropriate, control deficiencies identified are reported to the Audit and Control Committee, as well as the design and implementation of the corresponding actions plans which are regularly mentioned by the Audit and Control Committee.
• Additionally, in the event that control deficiencies and/or opportunities for improvement are identified during the Internal Control System for Financial Information (ICFR) assessment procedures, they are reported to Management through the corresponding conclusions issued by Internal Audit, prior analysis of their impact, both at individual and aggregate level, on the evaluation of the Internal Control System for Financial Information (ICFR) of the Telefónica Group. For the purposes of this assessment, the existing compensating controls are taken into consideration, which mitigate the risks that the deficiencies identified could not be remedied at year-end.
The Information Technology General Controls (ITGCs), which support the financial and economic processes in the assessment scope of the internal control over financial reporting (ICFR), are assessed at least annually, fundamentally according to aspects related to regulations and guidelines which apply at global level in the Group. The review on IT general controls over the aforementioned IT systems and tools and the technological infrastructures, has the objective to assess the effectiveness of the design and operability of key controls related to (i) managing changes to programs, which includes the authorization of the changes implemented at the production stage and that must be supported by their corresponding user tests (UATs), ensuring an adequate segregation of duties and environments, such as (ii) logical access, which includes the control on credentials and profiles, as well as the segregation of duties and the monitoring of activities that are critical in information systems and tools and in the technological infrastructures that supports them (databases and operating systems), and (iii) other IT general controls which support the correct operation of information systems and tools (managing changes to infrastructures, back-ups, managing patches and programmed tasks and their monitoring and managing gaps).
In addition, all the companies that depend from the Group receive annually internal control self-assessment questionnaires, whose answers must be subsequently certified by the persons responsible for the internal control over financial reporting (ICFR), in each Company (Executive Presidents and/or Finance Directors or their functional equivalents). These questionnaires address aspects of internal control over financial reporting (ICFR) that are considered minimum requirements in order to achieve a reasonable assurance of the reliability of the financial information reported. The answers are demonstrably audited by the corresponding Internal Audit Units.
In the event that control deficiencies and/or opportunities for improvement are detected as a result of the assessment of the Telefónica Group’s Internal Control System for Financial Information (SCIIF), depending on the scope established, the control owners communicate their action plans agreed for solving the identified control deficiencies and/or improvement opportunities, as well as the deadlines scheduled for their implementation which is regularly monitored by the Audit and Control Committee. These action plans have as fundamental objectives:
• To remedy the control deficiencies identified in the ICFR annual assessment, so that the control activities are designed and operate in an effective manner, or failing that, the risk generated is substantially mitigated.
• To prioritize the implementation of improvement opportunities in the efficiency of processes; improvement opportunities are defined as such, since they do not constitute internal control deficiencies.
As previously stated, the Internal Audit area is also in charge, among other functions, to provide support to the Audit and Control Committee in the supervision of the functioning of the system for the internal control over financial reporting (ICFR). The Internal Audit department participates in the Audit and Control Committee meetings and informs regularly about the conclusions of the carried out works, and also informs about the action plans designed and agreed for mitigation and about the degree of implementation thereof. This includes, where applicable, to communicate internal control significant deficiencies and material weaknesses which may have been identified in the process for ICFR assessment, as well as the follow-up on the implementation of action plans related to significant deficiencies and material weaknesses.
On the other hand, the Accounts Auditor also participates in the Audit and Control Committee, at the request of the Audit and Control Committee, in order to explain and clarify aspects of their audit reports and the rest of work carried out by the External Auditor, which including work carried out to audit the effectiveness of the internal control over financial reporting. The External Auditor is obliged to communicate the internal control significant deficiencies or material weaknesses identified in the development of their audit on the system for the internal control over financial reporting (ICFR). For this purpose, the Accounts Auditor has direct access at all times to Senior Management and the Chairman of the Audit and Control Committee, and, in parallel with the Internal Auditing, it also reports independently to that Committee the results of both the preliminary and final phase of their audit on the system for the internal control over financial reporting (ICFR).
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 462
Internal Audit has carried out its assessment of the effectiveness of the Internal Control System for Financial Information (SCIIF) as of December 31, 2022. To perform this assessment, the guidelines established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its “Internal Control - Integrated Framework 2013” report, were considered. Based on the assessment carried out, it was concluded that, as of December 31, 2022, the Telefónica Group’s Internal Control System for Financial Information (ICFR) was effective in accordance with these guidelines.
As indicated above, the Group was commissioned to the External Auditor, both to audit the effectiveness of the internal control system over financial reporting (ICFR) in accordance with the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and to review the description of the attached information on the ICFR the Telefónica Group, whose report is attached below to this document.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 463
Annual Corporate Governance Report Statistical Annex for listed companies (established by Circular 3/2021, of September 28, of the Spanish Securities and Exchange Commission, that modifies Circular 5/2013, of June 12, that established the templates for the Annual Corporate Governance Report for listed companies)
Unless otherwise indicated all data as of December 31, 2022.
Indicate whether company bylaws contain the prevision of double loyalty voting: No.
| Date of the last modification of the share capital | Share capital (€) | Number of shares | Number of voting rights |
|---|---|---|---|
| 24/06/2022 | 5,775,237,554.00 | 5,775,237,554 | 5,775,237,554 |
Indicate whether there are different classes of shares with different associated rights: No.
| Name or company name of shareholder | % voting rights attributed to shares | % of voting rights through financial instruments | % of total voting rights |
|---|---|---|---|
| Banco Bilbao Vizcaya Argentaria, S.A. | 4.85 | 0.02 | 4.87 |
| CaixaBank, S.A. | 3.50 | 0.00 | 3.50 |
| BlackRock, Inc. | 0.00 | 4.32 | 4.48 |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 464
| Name or company name of indirect owner | Name or company name of direct owner | % voting rights attributed to shares | % of voting rights through financial instruments | % of total voting rights |
|---|---|---|---|---|
| Banco Bilbao Vizcaya Argentaria, S.A. | BBVA Seguros, S.A. de Seguros y Reaseguros | 0.02 | 0.00 | 0.02 |
| CaixaBank, S.A. | Vida-Caixa, S.A. |
| Name or company name of director | % voting rights attributed to shares | % of voting rights through financial instruments | % of total voting rights | % voting rights which may be transferred through financial instruments |
|---|---|---|---|---|
| Direct | Indirect | Direct | Indirect | |
| Mr. José María Álvarez-Pallete López | 0.04% | 0.00% | 0.04% | 0.00% |
| Mr. Isidro Fainé Casas | 0.01% | 0.00% | 0.00% | 0.00% |
| Mr. José María Abril Pérez | 0.01% | 0.01% | 0.00% | 0.00% |
| Mr. José Javier Echenique Landiríbar | 0.00% | 0.00% | 0.00% | 0.00% |
| Mr. Ángel Vilá Boix | 0.01% | 0.00% | 0.03% | 0.00% |
| Mr. Peter Erskine | 0.00% | 0.00% | 0.00% | 0.00% |
| Ms. Carmen García de Andrés | 0.00% | 0.00% | 0.00% | 0.00% |
| Ms. María Luisa García Blanco | 0.00% | 0.00% | 0.00% | 0.00% |
| Mr. Peter Löscher | 0.00% | 0.00% | 0.00% | 0.00% |
| Mr. Francisco Javier de Paz Mancho | 0.00% | 0.00% | 0.00% | 0.00% |
| Mr. Francisco José Riberas Mera | 0.00% | 0.21% | 0.00% | 0.00% |
| Total percentage of voting rights held by the Board of Directors | 0.37% |
Breakdown of the indirect holding:
| Name or company name of director | Name or comany name of the direct owner | % voting rights attributed to shares | % of voting rights through financial instruments | % of total voting rights | % voting rights which may be transferred through financial instruments |
|---|---|---|---|---|---|
| Mr. José María Abril Pérez | Other company shareholders | 0.01% | 0.00% | 0.01% | 0.00% |
| Mr. José Javier Echenique Landiríbar | Other company shareholders | 0.00% | 0.00% | 0.00% | 0.00% |
| Ms. María Luisa García Blanco | Other company shareholders | 0.00% | 0.00% | 0.00% | 0.00% |
| Mr. Francisco José Riberas Mera | Other company shareholders | 0.21% | 0.00% | 0.21% | 0.00% |
List the total percentage of voting rights represented on the Board:
Total percentage of voting rights held by the Board of Directors 8.74%
Yes.
Parties to the shareholders' agreement: Telefónica, S.A. Prosegur Global Alarmas Row, S.L./ Prosegur Compañía de Seguridad, S.A.
% of share capital concerned: 0.86%
Brief description of the agreement: On February 28, 2020, as part of the transaction whereby Telefónica de Contenidos, S.A. acquired 50% of the share capital of Prosegur Alarmas España, S.L. from Prosegur Global Alarmas Row, S.L., 49,545,262 shares of Telefónica, S.A. (the "Shares") were delivered to Prosegur Global Alarmas Row, S.L. as payment of the transaction price. On the same day, Telefónica, S.A., Prosegur Global Alarmas Row, S.L., as shareholder, and Prosegur Compañía de Seguridad, S.A. as guarantor, signed a contract whereby Prosegur Global Alarmas Row, S.L. undertook, among other obligations, to assume certain restrictions on the transferability of the Shares delivered to it (the Shareholders' Agreement). In particular, the Shareholders' Agreement restricted the free transfer of the Shares for a period of nine months from the date of signature and provides for a number of covenants governing the transfer of the Shares after that initial period. This agreement was notified to the Spanish Securities and Exchange Commission as 'Other Relevant Information' on February 28, 2020, including a transcription of the relevant clauses included in the agreement relating to restrictions on the transferability and orderly sale of the Shares. On December 2, 2020, Prosegur Global Alarmas Row, S.L. transferred 39,545,262 Shares to Prosegur Alarmas España, S.L. (company of the Prosegur Group). As a consequence of the transfer and the provisions of Clause 2.3 of the Shareholders' Agreement, Prosegur Alarmas España, S.L. entered into an agreement to adhere to the Shareholders' Agreement, becoming bound in its capacity as guarantor and shareholder.
Expiry date of the agreement, if any: -
Indicate whether the company is aware of any concerted actions among its shareholders. If so, provide a brief description:
No.
No.
| At the closing date of the financial year: | |
|---|---|
| Number of direct shares | |
| 85,217,621 |
| % Estimated float | |
|---|---|
| 84.44% |
Yes.
| Date of general meeting | % physical presence | % present by proxy | % distance voting | Total | Other |
|---|---|---|---|---|---|
| 12/06/2020 | 0.07% | 52.52% | 0.14% | 1.81% | 54.54% |
| Of which, float | 0.01% | 33.37% | 0.14% | 0.56% | 34.08% |
| 23/04/2021 | 0.09% | 54.94% | 0.22% | 1.65% | 56.90% |
| Of which, float | 0.03% | 36.48% | 0.22% | 0.30% | 37.03% |
| 08/04/2022 | 0.08% | 56.26% | 0.75% | 1.49% | 58.58% |
| Of which, float | 0.01% | 37.35% | 0.75% | 0.16% | 38.27% |
No.
Yes.
| Number of shares required | |
|---|---|
| to attend General Meetings | 300 |
| for voting remotely | 300 |
| Number | |
|---|---|
| Maximum number of directors | 20 |
| Minimum number of directors | 5 |
| Number of directors set by the general meeting | 15 |
| Name or company name of director | Representative | Category of director | Position on the Board | Date first appointed | Date of last appoint_ ment | Election procedure |
|---|---|---|---|---|---|---|
| Mr. José María Álvarez- Pallete López | — | Executive Chairman | 26/07/2006 | 23/04/2021 | Resolution of General Shareholders' Meeting | |
| Mr. Isidro Fainé Casas | — | Proprietary | Vice Chairman | 26/01/1994 | 12/06/2020 | Resolution of General Shareholders' Meeting |
| Mr. José María Abril Pérez | — | Proprietary | Vice Chairman | 25/07/2007 | 08/04/2022 | Resolution of General Shareholders' Meeting |
| Mr. José Javier Echenique Landiríbar | — | Independent | Vice Chairman | 08/04/2016 | 12/06/2020 | Resolution of General Shareholders' Meeting |
| Mr. Ángel Vilá Boix | — | Executive | Chief Operating Officer | 26/07/2017 | 08/04/2022 | Resolution of General Shareholders' Meeting |
| Mr. Juan Ignacio Cirac Sasturain | — | Independent | Director | 08/04/2016 | 12/06/2020 | Resolution of General Shareholders' Meeting |
| Mr. Peter Erskine | — | Other External Director | 25/01/2006 | 12/06/2020 | Resolution of General Shareholders' Meeting | |
| Ms. Carmen García de Andrés | — | Independent | Director | 04/05/2017 | 23/04/2021 | Resolution of General Shareholders' Meeting |
| Ms. María Luisa García Blanco | — | Independent | Director | 25/04/2018 | 08/04/2022 | Resolution of General Shareholders' Meeting |
| Mr. Peter Löscher | — | Independent | Director | 08/04/2016 | 12/06/2020 | Resolution of General Shareholders' Meeting |
| Ms. Verónica Pascual Boé | — | Independent | Director | 18/12/2019 | 12/06/2020 | Resolution of General Shareholders' Meeting |
| Mr. Francisco Javier de Paz Mancho | — | Other External Director | 19/12/2007 | 08/04/2022 | Resolution of General Shareholders' Meeting | |
| Mr. Francisco José Riberas Mera | — | Independent | Director | 04/05/2017 | 23/04/2021 | Resolution of General Shareholders' Meeting |
| Ms. María Rotondo Urcola | — | Independent | Director | 29/09/2021 | 08/04/2022 | Resolution of General Shareholders' Meeting |
| Ms. Claudia Sender Ramírez | — | Independent | Director | 18/12/2019 | 12/06/2020 | Resolution of General Shareholders' Meeting |
| Total number of directors | 15 |
| Name or company name of director | Post in organisation chart of the company | Profile |
|---|---|---|
| Mr. José María Álvarez-Pallete López | Executive Chairman | Degree in Economics. International Management Program (IMP) from IPADE Business School (Instituto Panamericano de Alta Dirección de Empresa). An Advance Research Degree from the Complutense University of Madrid. |
| Mr. Ángel Vilá Boix | Chief Operating Officer (C.O.O.) | Degree in Industrial Engineering. MBA at Columbia Business School. |
Total number of executive directors: 2
Percentage of Board: 13.33%
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 470
| Name or company name of director | Name or company name of the significant shareholder represented by the director or that nominated the director | Profile |
|---|---|---|
| Mr. José María Abril Pérez | Banco Bilbao Vizcaya Argentaria, S.A. | Degree in Economics. Professor at the University of Deusto. He is currently Director of Arteche Lantegi Elekartea, S.A. |
| Mr. Isidro Fainé Casas | CaixaBank, S.A. | PhD in Economics. ISMP in Business Administration. Post graduate degree in senior management at IESE. An academic at the Royal Academy of Economic and Financial Sciences and at the Real Academia Europea de Doctores. Chairman and member of the Executive Commission of the Board of Trustees of Fundación Bancaria Caixa d’Estalvis i Pensions de Barcelona “la Caixa” and Criteria Caixa, S.A.U., Chairman of the Caixa Capital Risc SGEIC, S.A., Chairman of the Board of Directors of Inmo Criteria Caixa, S.A.U. and Special Advisory of the Board of the Bank of East Asia Limited. Chairman of the Spanish Confederation of Savings Banks (CECA), of the World Savings Bank Institute (WSBI) and Vice Chairman of European Savings Banks Group (ESBG). Chairman of the Spanish Confederation of Directors and Executives (CEDE) and the Spanish Chapter of the Club of Rome. Honorary Chairman of Naturgy Energy Group, S.A. Deputy-Chairman of the Royal Academy of Economic and Financial Sciences and Founder of the Círculo Financiero. Member of the Board of Trustees of the Museo Nacional del Prado and the Carlos Slim Foundation. |
Total number of proprietary directors: 2
Percentage of Board: 13.33%
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 471
| Name or company name of director | Profile |
|---|---|
| Mr. Juan Ignacio Cirac Sasturain | Graduated in Theoretical Physics. PhD in Physics. Fields of specialization in Quantum Optics, Quantum Computation and Communication. Co-Director of the Munich Quantum Science and Technology Center. Director of the Theory Division, Max- Planck Institut für Quantenoptik and Member of the Max-Planck society. Director of the Max Planck International School of Quantum Sciences and Technologies. "Honorarprofessor", Technical University of Munich. |
| Mr. José Javier Echenique Landiríbar | Economics and Actuarial Sciences Graduate. Professor of Social Security Quantitative Techniques. Director of ACS Actividades de Construcción y Servicios, S.A., Director of Dragados, S.L. and Director of Calcinor, S.L. Trustee of Novia Salcedo Foundation, Advisory Counselor of the Deusto Business School and Member of the McKinsey Advisory Council. |
| Ms. Carmen García de Andrés | Degree in Economic and Business Sciences. Chairwoman of Tomillo Foundation. Member of the Asociación Española de Fundaciones (AEF), being currently its Treasurer and member of the Executive Committee. Member of the Trust of the Secretariado Gitano Foundation, of the Somos F5 Foundation and of the Xavier de Salas Foundation. Co-Founder and member of the Trust of "Aprendiendo a Ser" Foundation. |
| Ms. María Luisa García Blanco | Degree in Law. State Attorney (on leave of absence). Founding Partner at law firm Salama García Blanco, S.L.P. Director of Ibercaja Banco, S.A. Member of the Governance and Control Committee of CIMA. Chairwoman of the Committee of Experts of 65YMAS.COM. |
| Mr. Peter Löscher | Degree in Economics and Business. MBA at Vienna University of Economics. Advanced Management Program at Harvard Business School. Honorary Professor at Tongji University (Shanghai). Honorary Doctorate of Engineering from Michigan State University. Doctor Honoris Causa of Slovak University of Engineering in Bratislava. Member of the Supervisory Board of Royal Philips, member of the Board of Thyssen- Bornemisza Group AG, and non-executive member of the Board of Directors of Doha Venture Capital LLC, Qatar. |
| Ms. Verónica Pascual Boé | Degree in Aeronautical Engineering. Master in Business Administration (MBA). Executive Master in Positive Leadership and Strategy (EXMPLS) from IE Business School. Several postgraduate qualifications from INSEAD, Stanford and Harvard Business School. Leaded a Group of companies involved in digital transformation headed by ASTI Mobile Robotics Group. Chairwoman of the ASTI Tecnología y Talento Foundation. Director of General de Alquiler de Maquinaria, S.A. (GAM). |
| Mr. Francisco José Riberas Mera | Degree in Law and in Economics and Business Administration. Chief Executive Officer of Gestamp Automoción, S.A. Member of the Board of Directors of CIE Automative, S.A. and of Walbox N.V. He is part of the management body of certain companies belonging to Gestamp's Group and family holding companies Acek, including companies belonging to the Groups Gonvarri, Acek Energías Renovables and Inmobiliaria Acek. Chairman of the Spain-China Board Foundation. Chairman of Sernauto (Asociación Española de Proveedores de Automoción). |
| Ms. María Rotondo Urcola | Degree in Economics and Business Administration. She has received complementary training at various institutions such as ESG Academy/Foretica, IESE, IC-A, EEC, IMD, NYU, Harvard, Boston College, among others. She teaches Special Operations Communication at the Master in Investor Relations at Bolsas y Mercados (BME). Co- Director and lecturer in the Corporate Governance and Sustainability Programme of the Instituto de Empresa (IE) SYCA. Independent Director of CACEIS Bank Spain and of Santander CACEIS Latam Holdo, and Independent Director of Libertas 7. |
| Ms. Claudia Sender Ramírez | Degree in Chemical Engineering. Master in Business Administration (MBA) at Harvard Business School. Director of Holcim Ltd, Director of Gerdau, S.A., Director of Embraer, Empresa Brasileira de Aeronáutica, S.A. and Director of Materlúgica Gerdau, S.A. Director of the NGO Amigos do Bem. |
Total number of independent directors: 9
Percentage of Board: 60.00%
Indicate whether any director classified as independent receives from the company or any company in its group any amount or benefit other than remuneration as a director, or has or has had a business relationship with the company or any company in its group during the past year, whether in his or her own name or as a significant shareholder, director or senior executive of a company that has or has had such a relationship.
-- If so, include a statement by the Board explaining why it believes that the director in question can perform his or her duties as an independent director. --
Identify the other external directors, indicate the reasons why they cannot be considered either proprietary or independent, and detail their ties with the company or its management or shareholders:
| Name or company name of director | Reasons | Company, manager or shareholder to which or to whom the director is related | Profile |
|---|---|---|---|
| Mr. Peter Erskine | Mr. Peter Erskine was appointed Director of Telefónica, S.A. in 2006, and therefore, in accordance with article 529 duodecies of the Spanish Companies Act ("Those who, among other situations, have been Directors for a continuous period of more than 12 years may not be considered Independent Directors under any circumstances"), and 12 years after his appointment, he was reclassified from Independent Director to 'Other External' Director. | Telefónica, S.A. | Degree in Psychology. Honorary Doctorate from the University of Reading. Until December 2007 he was Director and Chief Executive Officer of Telefónica Europe Plc, then becoming a non- executive Director. From 2009 to 2015 he was Chairman of Ladbrokes, Plc. Chairman of the Charity Brainstorm organization. |
| Mr. Francisco Javier de Paz Mancho | Mr. Francisco Javier de Paz Mancho was appointed Director of Telefónica, S.A. in 2007, and therefore, in accordance with article 529 duodecies of the Spanish Companies Act ("Those who, among other situations, have been Directors for a continuous period of more than 12 years may not be considered Independent Directors under any circumstances"), and 12 years after his appointment, he was reclassified from Independent Director to 'Other External' Director. | Telefónica, S.A. | Graduate in Information and Advertising. Law Studies. IESE business Management Program (University of Navarra). Formerly Chairman of the State owned company MERCASA. From July 2016 to December 2021, he was Chairman of Telefónica Ingeniería de Seguridad, S.A. |
Consolidated management report 2022
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 472# Consolidated Annual Report 2022
From 2014 to 2016, he was Chairman of Telefónica Gestión de Servicios Compartidos, S.A.U. He is currently a Director of Telefónica Brasil, S.A. and Telefónica Audiovisual Digital, S.L.U.
Complete the following table with information relating to the number of female directors at the close of the past four years, as well as the category of each:
| Number of female directors | % of total directors for each category | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Year 2022 | Year 2021 | Year 2020 | Year 2019 | Year 2022 | Year 2021 | Year 2020 | Year 2019 | ||
| Executive | 0 | 0 | 0 | 0 | 0.00% | 0.00% | 0.00% | 0.00% | |
| Proprietary | 0 | 0 | 0 | 0 | 0.00% | 0.00% | 0.00% | 0.00% | |
| Independent | 5 | 5 | 5 | 5 | 55.56% | 55.56% | 55.56% | 55.56% | |
| Other external | 0 | 0 | 0 | 0 | 0.00% | 0.00% | 0.00% | 0.00% | |
| Total | 5 | 5 | 5 | 5 | 33.33% | 33.33% | 29.41% | 29.41% |
List the positions of director, administrator or representative thereof, held by directors or representatives of directors who are members of the company's board of directors in other entities, whether or not they are listed companies:
| Identity of the director or representative | Company name of the listed or non-listed entity | Position |
|---|---|---|
| Mr. José María Alvarez-Pallete López | VMED O2 UK Ltd. | Director |
| Mr. Isidro Fainé Casas | Fundación Bancaria "la Caixa" | Chairman |
| Criteria Caixa, S.A.U. | Chairman | |
| Inmo Criteria Caixa, S.A.U. | Chairman | |
| Caixa Capital Risc, SGEIC, S.A. | Chairman | |
| Confederación Española de Cajas de Ahorros (CECA) | Chairman | |
| World Savings Banks Institute (WSBI) | Chairman | |
| European Savings Banks Group (ESBG) | Vice-Chairman | |
| Confederación Española de Directivos y Ejecutivos (CEDE) | Chairman | |
| Capítulo Español del Club de Roma | Chairman | |
| Real Academia de las Ciencias Económicas y Financieras (RACEF) | Vice-Chairman | |
| Mr. José María Abril Pérez | Arteche Lantegi Elkartea, S.A. | Director |
| Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information | Consolidated Annual Report 2022 Telefónica, S. A. 474 | |
| Mr. José Javier Echenique Landiríbar | ACS, Actividades de Construcción y Servicios, S.A. | Director |
| Telefónica Audiovisual Digital, S.L.U. (Telefónica Group) | Director | |
| Calcinor, S.L. | Director | |
| Dragados, S.L. | Director | |
| Mr. Ángel Vilá Boix | VMED O2 UK Ltd. | Director |
| Mr. Peter Erskine | VMED O2 UK Ltd. | Director |
| Ms. María Luisa García Blanco | Ibercaja Banco, S.A. | Director |
| Mr. Peter Löscher | Royal Philips N.V. | Director |
| Telefónica Deutschland Holding, AG (Telefónica Group) | Chairman | |
| Thyssen-Bornemisza Group AG | Director | |
| Doha Venture Capital LLC | Director | |
| Ms. Verónica Pascual Boé | General de Alquiler de Maquinaria, S.A. (GAM) | Director |
| Albp. Corp. S.L.U. | Sole Administrator | |
| ALBP SCR | Sole Administrator | |
| Asmv Technologies Distribution S.L.U. | Sole Administrator | |
| Manco Partners S.L. | Sole Administrator | |
| Fundación Asti Talent and Technology | Chairwoman | |
| Asti Mobile Robotics Inc | Sole Administrator | |
| Mr. Francisco Javier de Paz Mancho | Telefónica Brasil, S.A. (Telefónica Group) | Director |
| Telefónica Audiovisual Digital, S.L.U. (Telefónica Group) | Director | |
| Mr. Francisco José Riberas Mera | Acek Desarrollo y Gestión Industrial, S.L. | Representative of Director |
| Gestamp Automoción, S.A. | Chairman | |
| Sociedades del Grupo Gestamp Automoción | Director | |
| Holding Gonvarri, S. L. | Secretary | |
| Director | ||
| Acek Energías Renovables, S.L. | Joint Administrator | |
| Sociedades del Grupo Acek Energías Renovables | Director | |
| Inmobiliaria Acek, S.L. | Joint Administrator | |
| Sociedades del Grupo Inmobiliaria Acek | Director | |
| CIE Automotive, S.A. | Director | |
| Otras sociedades participadas por Acek, Desarrollo y Gestión Industrial, S.L. | Director | |
| Orilla Asset Management, S.L. | Sole Administrator | |
| Q-Energy Tenencia y Gestión III, SCR, S.A. | Director | |
| Wallbox, N.V. | Director | |
| Otras sociedades participadas por Orilla Asset Management, S.L. | Director | |
| Sociedades del Grupo Gonvarri | Director | |
| Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information | Consolidated Annual Report 2022 Telefónica, S. A. 475 | |
| Ms. María Rotondo Urcola | Caceis Bank Spain, S.A.U. | Director |
| Libertas 7 | Director | |
| Santander Caceis Latam Holding 1, S.L. | Director | |
| Ms. Claudia Sender Ramírez | Holcim Ltd. | Director |
| Gerdau, S.A. | Director | |
| Embraer, la Empresa Brasileira de Aeronáutica, S.A. | Director | |
| Metalúrgica Gerdau, S.A. | Director | |
| Amigos do Bem | Director |
Listed below are the positions indicated in the table above that are remunerated:
Indicate, where appropriate, the other remunerated activities of the directors or directors' representatives, whatever their nature, other than those indicated in the previous table.
Indicate whether the company has established rules on the maximum number of company boards on which its directors may sit, explaining if necessary and identifying where this is regulated, if applicable:
Yes.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 476
Indicate the remuneration received by the Board of Directors as a whole for the following items:
| Remuneration accruing in favour of the Board of Directors in the financial year (thousands of euros) | Funds accumulated by current directors for long-term savings systems with consolidated economic rights (thousands of euros) | Funds accumulated by current directors for long-term savings systems with unconsolidated economic rights (thousands of euros) | Pension rights accumulated by former directors (thousands of euros) | |
|---|---|---|---|---|
| 15,710 | 2,120 | 17,744 | 509 |
Identify members of senior management who are not also executive directors and indicate their total remuneration accrued during the financial year:
| Name or company name | Position(s) |
|---|---|
| Mr. Pablo de Carvajal González | General Secretary and Secretary of the Board of Directors, Director Global of Regulation and Head of Security area |
| Ms. Laura Abasolo García de Baquedano | Chief Financial and Control Officer & Head of Hispanoamérica |
| Mr. Eduardo Navarro de Carvalho | Chief Corporate Affairs & Sustainability Officer |
| Mr. Mark Evans | Chief Strategy & Development Officer |
| Mr. Juan Francisco Gallego Arrechea | General Manager of Internal Audit |
| Number of women in senior management | Percentage of total senior management | Total remuneration of senior management (thousand euros) |
|---|---|---|
| 1 | 20% | 11,375 |
Indicate whether the Board regulations were amended during the year:
No.# Annual Corporate Governance Report
Yes.
No.
Number of meetings held by each Board committee during the financial year:
| Committee Name | Number of Meetings |
|---|---|
| Executive Committee | 15 |
| Audit and Control Committee | 12 |
| Nominating, Compensation and Corporate Governance Committee | 12 |
| Sustainability and Quality Committee | 10 |
| Regulation and Institutional Affairs Committee | 11 |
| Strategy and Innovation Committee | 9 |
No.
No.
No.
Yes.
| Company | Group | Company Total | |
|---|---|---|---|
| Amount of non-audit work (thousands of euros) | 765 | 595 | 1,360 |
| Amount of non-audit work / Amount of audit work (%) | 19.29 | 3.7 | 6.78 |
| Observations | |||
| That amount is full related to Audit-related services: work related to the review of the information required by regulatory authorities, agreed financial reporting procedures not requested by legal or regulatory bodies, the issuance of comfort letters, the report on the information relating to the system of internal control over financial reporting (ICFR), and the verification of the non-financial information in the annual reports. The company and/or its Group has not engaged the audit firm for any services other than audit or audit-related services. |
No.
| Individual | Consolidated | |
|---|---|---|
| Number of consecutive years | 6 | 6 |
| Number of years audited by the current audit firm/ number of years in which the company has been audited (in %) | 15 | 18.75 |
Yes.
Detail the procedure:
The Company adopts the necessary measures, whenever possible, that the Directors receive the necessary information, specially drawn up and geared to preparing the meetings of the Board and its Committees, sufficiently in advance. Under no circumstances shall such a requirement not be fulfilled, on the grounds of the importance or the confidential nature of the information, apart from absolutely exceptional cases.
In this regard, and in accordance with Articles 18 and 20 of the Regulation of the Board of Directors, at the beginning of each year the Board of Directors and its Committees set the calendar of ordinary meetings to be held during the year. The calendar may be amended by resolution of the Board itself, or by decision of the Chairman, in which case the Directors shall be made aware of the amendment as soon as practicable. Likewise, the Regulations of the Audit and Control Committee and the Regulations of the Nominations, Compensation and Good Governance Committee detail the operating regime of these Committees. Also, the Board and its Committees shall prepare an Action Plan detailing the actions to be carried out and their timing for each year, as per their assigned powers and duties.
Likewise, all the meetings of the Board and the Board Committees have a pre-established agenda, which is communicated at least three days prior to the date scheduled for the meeting together with the call for the session. The Agenda for each meeting will clearly state points on which the Board of Directors, or the Executive Committee, have to adopt a decision or resolution. For the same purpose, in general, the Directors are sent the documentation related to the agenda of the meetings sufficiently in advance.
In accordance with Article 19 of the Regulations of the Board of Directors, the Chairman of the Board of Directors organizes the debates, promoting and encouraging all Directors to play an active role in the deliberations, safeguarding their right to freely adopt their own position on all matters. Moreover, with the assistance of the Secretary, he shall ensure that the Directors are sent sufficient information to discuss the points set out in the agenda sufficiently in advance of the meeting. He also ensures that sufficient time is given over to discussing strategic matters, and shall encourage debate during meetings, safeguarding the Directors' right to adopt their positions freely on all points discussed.
To provide all the information and clarifications necessary in relation to certain points deliberated, the Group’s senior executive officers attend nearly all the Board and Committee meetings to explain the matters within their powers. Furthermore, and as a general rule, the Regulations of the Board of Directors (Article 27) expressly establish that Directors are granted the broadest powers to obtain information about all aspects of the Company, to examine its books, records, documents and other data regarding corporate transactions. Exercising of this right to receive information shall be channeled through the Chairman or Secretary to the Board of Directors, who shall respond to the requests made by the Directors, providing them with the requested information directly or offering them the proper contacts at the appropriate level of the organization.
| Name | Position | Current |
|---|---|---|
| Mr. José María Álvarez- Pallete López | Chairman | Executive |
| Mr. Isidro Fainé Casas | Vice Chairman | Proprietary |
| Mr. José María Abril Pérez | Vice Chairman | Proprietary |
| Mr. José Javier Echenique Landiríbar | Vice Chairman | Independent |
| Mr. Ángel Vilá Boix | Member | Executive |
| Mr. Peter Erskine | Member | Other External |
| Mr. Peter Löscher | Member | Independent |
| Mr. Francisco Javier de Paz Mancho | Member | Other External |
| Name | Position | Current |
|---|---|---|
| Mr. Peter Löscher | Chairman | Independent |
| Mr. José Javier Echenique Landiríbar | Member | Independent |
| Ms. Carmen García de Andrés | Member | Independent |
| Ms. María Rotondo Urcola | Member | Independent |
| Name | Position | Current |
|---|---|---|
| Mr. José Javier Echenique Landiríbar | Chairman | Independent |
| Mr. Peter Erskine | Member | Other External |
| Mr. Peter Löscher | Member | Independent |
| Ms. María Luisa García Blanco | Member | Independent |
| Mr. Francisco Javier de Paz Mancho | Member | Other External |
| Name | Position | Current |
|---|---|---|
| Mr. Francisco Javier De Paz Mancho | Chairman | Other External |
| Mr. Juan Ignacio Cirac Sasturain | Member | Independent |
| Ms. María Luisa García Blanco | Member | Independent |
| Ms. Carmen García de Andrés | Member | Independent |
| Name | Position | Current |
|---|---|---|
| Ms. María Luisa García Blanco | Chairman | Independent |
| Mr. Juan Ignacio Cirac Sasturain | Member | Independent |
| Ms. Carmen García Andrés | Member | Independent |
| Mr. Francisco Javier de Paz Mancho | Member | Other External |
| Ms. María Rotondo Urcola | Member | Independent |
| Ms. Claudia Sender Ramírez | Member | Independent |
| Name | Position | Current |
|---|---|---|
| Mr. Peter Erskine | Chairman | Other External |
| Mr. José María Abril Pérez | Member | Proprietary |
| Mr. Juan Ignacio Cirac Sasturain | Member | Independent |
| Ms. Verónica Pascual Boé | Member | Independent |
| Ms. Claudia Sender Ramírez | Member | Independent |
| Committee | 2022 Year Number | 2022 Year % | 2021 Year Number | 2021 Year % | 2020 Year Number | 2020 Year % | 2019 Year Number | 2019 Year % |
|---|---|---|---|---|---|---|---|---|
| Executive Commission | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Audit and Control Committee | 2 | 50.00% | 2 | 50.00% | 1 | 25.00% | 1 | 25.00% |
| Nominating, Compensation and Corporate Governance Committee | 1 | 20.00% | 1 | 20.00% | 1 | 20.00% | 2 | 40.00% |
| Regulation and Institutional Affairs Committee | 2 | 50.00% | 2 | 50.00% | 1 | 25.00% | 1 | 25.00% |
| Sustainability and Quality Committee | 4 | 66.67% | 4 | 66.67% | 2 | 40.00% | 2 | 50.00% |
| Strategy and Innovation Committee | 2 | 40.00% | 2 | 40.00% | 1 | 16.67% | 1 | 16.67% |
| Name or company name of the shareholder or any of its subsidiaries | % Shareholding | Name or company name of the company or entity within its group | Amount (thousands of euros) | Approving body | Identity of the significant shareholder or director who has abstained | The proposal to the board, if applicable, has been approved by the board without a vote against the majority of independents (1) |
|---|---|---|---|---|---|---|
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 3,624 | Board of Directors | Proprietary Director BBVA | N/A (2) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 1,467 | Board of Directors | Proprietary Director BBVA | N/A (3) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 273 | Board of Directors | Proprietary Director BBVA | N/A (4) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 1,680 | Board of Directors | Proprietary Director BBVA | N/A (5) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 15,456 | Board of Directors | Proprietary Director BBVA | N/A (6) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 52,981 | Board of Directors | Proprietary Director BBVA | N/A (7) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 235,800 | Board of Directors | Proprietary Director BBVA | N/A (8) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 785 | Board of Directors | Proprietary Director BBVA | N/A (9) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 77,385 | Board of Directors | Proprietary Director BBVA | N/A (10) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 5,286,117 | Board of Directors | Proprietary Director BBVA | N/A (11) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 226,513 | Board of Directors | Proprietary Director BBVA | N/A (12) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 785 | Board of Directors | Proprietary Director BBVA | N/A (13) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | 52,981 | Board of Directors | Proprietary Director BBVA | N/A (14) |
| BBVA and/or Group BBVA | 4.87 | Telefónica, S.A. | Board of Directors |
| Board of Directors Proprietary Director | BBVA N/A (15) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 7.263 |
|---|---|---|---|
| Board of Directors Proprietary Director | BBVA N/A (16) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 5.363 |
| Board of Directors Proprietary Director | BBVA N/A (17) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 2.166 |
| Board of Directors Proprietary Director | BBVA N/A (18) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 901 |
| Board of Directors Proprietary Director | BBVA N/A (19) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 12,641 |
| Board of Directors Proprietary Director | BBVA N/A (20) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 264 |
| Board of Directors Proprietary Director | BBVA N/A (21) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 39,635 |
| Board of Directors Proprietary Director | BBVA N/A (22) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 7,157 |
| Board of Directors Proprietary Director | BBVA N/A (23) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 771 |
| Board of Directors Proprietary Director | BBVA N/A (24) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 5,813 |
| Board of Directors Proprietary Director | BBVA N/A (25) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 86,906 |
| Board of Directors Proprietary Director | BBVA N/A (26) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 165,008 |
| Board of Directors Proprietary Director | BBVA N/A (27) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 221 |
| Board of Directors Proprietary Director | BBVA N/A (28) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 12,190 |
| Board of Directors Proprietary Director | BBVA N/A (29) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 491,956 |
| Board of Directors Proprietary Director | BBVA N/A (30) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 41,518 |
| Board of Directors Proprietary Director | BBVA N/A (31) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 14,261 |
| Board of Directors Proprietary Director | BBVA N/A (32) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 12,195 |
| Board of Directors Proprietary Director | BBVA N/A (33) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 18 |
| Board of Directors Proprietary Director | BBVA N/A (34) | BBVA and/or Group BBVA 4.87 | Rest of Telefónica Group 86,906 |
| Board of Directors Proprietary Director | BBVA N/A (35) | CaixaBank and/ or Group CaixaBank 3.5 | Telefónica, S.A. 554 |
| Board of Directors Proprietary Director | CaixaBank N/A (36) | CaixaBank and/ or Group CaixaBank 3.5 | Telefónica, S.A. 1,799 |
| Board of Directors Proprietary Director | CaixaBank N/A (37) | CaixaBank and/ or Group CaixaBank 3.5 | Telefónica, S.A. 3 |
| Board of Directors Proprietary Director | CaixaBank N/A (38) | CaixaBank and/ or Group CaixaBank 3.5 | Telefónica, S.A. 43,250 |
| Board of Directors Proprietary Director | CaixaBank N/A (39) | CaixaBank and/ or Group CaixaBank 3.5 | Telefónica, S.A. 200 |
| Board of Directors Proprietary Director | CaixaBank N/A (40) | CaixaBank and/ or Group CaixaBank 3.5 | Telefónica, S.A. 56 |
| Board of Directors Proprietary Director | CaixaBank N/A (41) | CaixaBank and/ or Group CaixaBank 3.5 | Telefónica, S.A. 68,701 |
| Board of Directors Proprietary Director | CaixaBank N/A (42) | CaixaBank and/ or Group CaixaBank 3.5 | Telefónica, S.A. 263,666 |
| Board of Directors Proprietary Director | CaixaBank N/A (43) | CaixaBank and/ or Group CaixaBank 3.5 | Telefónica, S.A. 40,997 |
| Board of Directors Proprietary Director | CaixaBank N/A (44) | CaixaBank and/ or Group CaixaBank 3.5 | Telefónica, S.A. 56 |
| Board of Directors Proprietary Director | CaixaBank N/A (45) | CaixaBank and/ or Group CaixaBank 3.5 | Telefónica, S.A. 43,250 |
| Board of Directors Proprietary Director | CaixaBank N/A (46) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 27,802 |
| Board of Directors Proprietary Director | CaixaBank N/A (47) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 3,407 |
| Board of Directors Proprietary Director | CaixaBank N/A (48) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 457,637 |
| Board of Directors Proprietary Director | CaixaBank N/A (49) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 2 |
| Board of Directors Proprietary Director | CaixaBank N/A (50) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 84 |
| Board of Directors Proprietary Director | CaixaBank N/A (51) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 69,440 |
| Board of Directors Proprietary Director | CaixaBank N/A (52) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 51,392 |
| Board of Directors Proprietary Director | CaixaBank N/A (53) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 794 |
| Board of Directors Proprietary Director | CaixaBank N/A (54) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 82,294 |
| Board of Directors Proprietary Director | CaixaBank N/A (55) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 260 |
| Board of Directors Proprietary Director | CaixaBank N/A (56) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 148,229 |
| Board of Directors Proprietary Director | CaixaBank N/A (57) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 159,573 |
| Board of Directors Proprietary Director | CaixaBank N/A (58) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 657,014 |
| Board of Directors Proprietary Director | CaixaBank N/A (59) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 30,236 |
| Board of Directors Proprietary Director | CaixaBank N/A (60) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 104,822 |
| Board of Directors Proprietary Director | CaixaBank N/A (61) | CaixaBank and/ or Group CaixaBank 3.5 | Rest of Telefónica Group 148,229 |
| Name or company name of the shareholder or any of its subsidiaries | Nature of the relationship | Type of operation and other information required for its evaluation |
|---|---|---|
| (1) BBVA and/or Group BBVA | Contractual | Financial expenses |
| (2) BBVA and/or Group BBVA | Contractual | Receipt of services |
| (3) BBVA and/or Group BBVA | Contractual | Other expenses |
| (4) BBVA and/or Group BBVA | Contractual | Financial revenues |
| (5) BBVA and/or Group BBVA | Contractual | Dividends received |
| (6) BBVA and/or Group BBVA | Contractual | Finance Agreements: Loans (Borrower) |
| (7) BBVA and/or Group BBVA | Contractual | Finance Agreements: Others (Borrower) |
| (8) BBVA and/or Group BBVA | Contractual | Finance Agreements: Loans (Lender) |
| (9) BBVA and/or Group BBVA | Contractual | Dividends and other distributed earnings |
| (10) BBVA and/or Group BBVA | Contractual | Derivatives (same operation as line 11, for the amount of notional value) |
| (11) BBVA and/or Group BBVA | Contractual | Derivatives (same operation as line 10, for the amount of fair value) |
| (12) BBVA and/or Group BBVA | Contractual | Other receivables |
| (13) BBVA and/or Group BBVA | Contractual | Loans and receivables received |
| (14) BBVA and/or Group BBVA | Contractual | Other payment obligations |
| (15) BBVA and/or Group BBVA | Contractual | Financial expenses |
| (16) BBVA and/or Group BBVA | Contractual | Receipt of services |
| (17) BBVA and/or Group BBVA | Contractual | Remunerations |
| (18) BBVA and/or Group BBVA | Contractual | Other expenses |
| (19) BBVA and/or Group BBVA | Contractual | Financial revenues |
| (20) BBVA and/or Group BBVA | Contractual | Collaboration agreements |
| (21) BBVA and/or Group BBVA | Contractual | Service delivery |
| (22) BBVA and/or Group BBVA | Contractual | Sale of goods (finished or in progress) |
| (23) BBVA and/or Group BBVA | Contractual | Gains on derecognition or disposal of assets |
| (24) BBVA and/or Group BBVA | Contractual | Other revenues |
| (25) BBVA and/or Group BBVA | Contractual | Finance Agreements: Loans (Borrower) |
| (26) BBVA and/or Group BBVA | Contractual | Guarantees and collaterals received |
| (27) BBVA and/or Group BBVA | Contractual | Commitments made |
| (28) BBVA and/or Group BBVA | Contractual | Finance Agreements: Loans (Lender) |
| (29) BBVA and/or Group BBVA | Contractual | Derivatives (same operation as line 30, for the amount of notional value) |
| (30) BBVA and/or Group BBVA | Contractual | Derivatives (negative value) (same operation as line 29, for the amount of fair value) |
| (31) BBVA and/or Group BBVA | Contractual | Trade receivables and trade debtors |
| (32) BBVA and/or Group BBVA | Contractual | Other receivables |
| (33) BBVA and/or Group BBVA | Contractual | Suppliers and trade creditors |
| (34) BBVA and/or Group BBVA | Contractual | Loans and receivables received |
| (35) CaixaBank, and/or Group CaixaBank | Contractual | Financial expenses |
| (36) CaixaBank, and/or Group CaixaBank | Contractual | Receipt of services |
| (37) CaixaBank, and/or Group CaixaBank | Contractual | Other expenses |
| (38) CaixaBank, and/or Group CaixaBank | Contractual | Finance Agreements: Others (Borrower) |
| (39) CaixaBank, and/or Group CaixaBank | Contractual | Guarantees and collaterals received |
| (40) CaixaBank, and/or Group CaixaBank | Contractual | Finance Agreements: Loans (Lender) |
| (41) CaixaBank, and/or Group CaixaBank | Contractual | Dividends and other distributed earnings |
| (42) CaixaBank, and/or Group | Contractual |
CaixaBank, and/or Group CaixaBank Contractual Derivatives (same operation as line 42, for the amount of fair value) (44)
CaixaBank, and/or Group CaixaBank Contractual Other receivables (45)
CaixaBank, and/or Group CaixaBank Contractual Other payment obligations (46)
CaixaBank, and/or Group CaixaBank Contractual Financial expenses (47)
CaixaBank, and/or Group CaixaBank Contractual Receipt of services (48)
CaixaBank, and/or Group CaixaBank Contractual Purchase of goods (finished or in progress) (49)
CaixaBank, and/or Group CaixaBank Contractual Other expenses (50)
CaixaBank, and/or Group CaixaBank Contractual Financial revenues (51)
CaixaBank, and/or Group CaixaBank Contractual Service delivery (52)
CaixaBank, and/or Group CaixaBank Contractual Sale of goods (finished or in progress) (53)
CaixaBank, and/or Group CaixaBank Contractual Other revenues (54)
CaixaBank, and/or Group CaixaBank Contractual Purchases of intangible assets (55)
CaixaBank, and/or Group CaixaBank Contractual Purchases of tangible fixed assets (56)
CaixaBank, and/or Group CaixaBank Contractual Finance Agreements: Loans (Borrower)
Telefónica, S. A. 487
(57) CaixaBank, and/or Group CaixaBank Contractual Guarantees and collaterals received (58)
CaixaBank, and/or Group CaixaBank Contractual Commitments made (59)
CaixaBank, and/or Group CaixaBank Contractual Trade receivables and trade payables (60)
CaixaBank, and/or Group CaixaBank Contractual Suppliers and trade creditors (61)
CaixaBank, and/or Group CaixaBank Contractual Loans and receivables
Telefónica, S. A. 488
Specify the Company’s degree of compliance with recommendations of the Good Governance Code for listed companies. In the event that a recommendation is not followed or only partially followed, a detailed explanation of the reasons must be included so that shareholders, investors and the market in general have enough information to assess the company´s conduct. General explanations are not acceptable.
Explain
In accordance with Article 26 of the Corporate Bylaws, no shareholder may cast a number of votes in excess of 10 percent of the total voting capital existing at any time, regardless of the number of shares held by such shareholder and in full compliance with mandatory requirements of law. In determining the maximum number of votes that each shareholder may cast, only the shares held by each such shareholder shall be computed. It does not include additional votes cast on behalf of other shareholders who may have appointed them as proxy, who are themselves likewise restricted by the 10 percent voting ceiling. The limitation established in the preceding paragraphs shall also apply to the maximum number of votes that may be collectively or individually cast by two or more shareholder companies belonging to the same group of entities, as well as to the maximum number of votes that may be cast by an individual or corporate shareholder and the entity or entities that are shareholders themselves and which are directly or indirectly controlled by such individual or corporate shareholder.
In addition, Article 30 of the Corporate Bylaws stipulates that no person may be appointed as Director unless they have held, for more than three years prior to their appointment, a number of shares of the Company representing a nominal value of at least 3,000 euros, which the Director may not transfer while in office. These requirements shall not apply to those persons who, at the time of their appointment, are related to the Company under an employment or professional relationship, or when the Board of Directors resolves to waive such requirements with the favorable vote of at least 85 percent of its members.
Article 31 of the Corporate Bylaws establishes that, in order for a Director to be appointed Chairman, Vice-Chairman, Chief Executive Officer or member of the Executive Commission, it shall be necessary for such Director to have served on the Board for at least the three years immediately prior to any such appointment. However, such length of service shall not be required if the appointment is made with the favorable vote of at least 85 percent of the members of the Board of Directors.
The Corporate Bylaws (Article 26) restrict the number of shares that may be cast by a single shareholder or by shareholders belonging to the same group in order to achieve a suitable balance and protect the position of minority shareholders, thus avoiding a potential concentration of votes among a reduced number of shareholders, which could impact on the guiding principle that the General Shareholders’ Meeting must act in the social interest and interest of all the shareholders. Telefónica believes that this measure does not constitute a blocking mechanism of takeover bids but rather a guarantee that the acquisition of control required the sufficient support of all shareholders, because, naturally, and as taught by experience, potential offerors may make their offer conditional upon the removal of this requirement.
In relation to the above and in accordance with the provisions of Article 527 of the Spanish Corporations Act, any clauses in the Bylaws of listed corporations that directly or indirectly restrict the number of shares that may be cast by a single shareholder by shareholders belonging to the same group or by any parties acting together with the aforementioned, will rendered null and void when, subsequent to a takeover bid, the offeror has a stake equal to or over 70% of the share capital which confers voting rights, unless the offeror was not subject to neutralization measures to prevent a takeover bid or had not adapted these measures accordingly.
In addition, the special requirements for appointment as Director (Article 30 of the Corporate Bylaws) or as Chairman, Vice-Chairman, Chief Operating Officer or member of the Executive Commission (Article 31 of the Corporate Bylaws) are justified by the desire that access to the management decision-making body and to the most significant positions thereon is reserved to persons who have demonstrated their commitment to the Company and who, in addition, have adequate experience as members of the Board, such that continuity of the management model adopted by the Telefónica Group may be assured in the interest of all of its shareholders and stakeholders. In any event, these special requirements may be waived by broad consensus among the members of the Board of Directors, namely, with the favorable vote of at least 85 percent of its members, as provided by the aforementioned Articles of the Corporate Bylaws.
a) The respective areas of activity and possible business relationships between the listed company or its subsidiaries and the parent company or its subsidiaries.
Telefónica, S. A. 489## b) The mechanisms in place to resolve any conflicts of interest that may arise.
Not applicable
a) Changes that have occurred since the last General Shareholders’ Meeting.
b) Specific reasons why the company has not followed one or more of the recommendations of the Code of Corporate Governance and the alternative rules applied, if any.
Complies
Complies
Complies
a) Report on the auditor’s independence.
b) Reports on the workings of the audit and nomination and remuneration committees.
c) Report by the audit committee on related- party transactions.
Complies
Complies
Complies
Complies
a) Should immediately distribute such complementary points and new proposals for resolutions.
b) Should publish the attendance, proxy and remote voting card specimen with the necessary changes such that the new agenda items and alternative proposals can be voted on in the same terms as those proposed by the Board of Directors.
c) Should submit all these points or alternative proposals to a vote and apply the same voting rules to them as to those formulated by the Board of Directors including, in particular, assumptions or default positions regarding votes for or against.
d) That after the General Shareholders’ Meeting, a breakdown of the voting on said additions or alternative proposals is communicated.
Not applicable
Not applicable
Complies
Complies
a) Is concrete and verifiable;
b) Ensures that proposals for appointment or re-election are based upon a prior analysis of the skills required by the Board of Directors; and
c) Favours diversity of knowledge, experience, age and gender. For these purposes, it is considered that the measures that encourage the company to have a significant number of female senior executives favour gender diversity. That the result of the prior analysis of the skills required by the Board of Directors be contained in the supporting report from the nomination committee published upon calling the General Shareholders’ Meeting to which the ratification, appointment or re-election of each director is submitted. The nomination committee will annually verify compliance with this policy and explain its findings in the annual corporate governance report.
Complies
Partially complies
The Company complies with the first part of the recommendation. On the other hand, and in relation to the number of female Directors, the Company maintains its commitment to diversity and equal opportunities, and has deliberately sought women who meet the required professional profile. This commitment has materialised in the increase in the number of female Directors, who went from representing 11.11% of the members of the Board of Directors in 2016 to currently representing 33.33%. All measures and processes adopted and agreed upon by the Board of Directors and the Nominating, Compensation and Corporate Governance Committee with the objective of facilitate the inclusion on the Board of Directors of a number of women that will allow a balanced presence of women and men to be achieved, and to prevent the selection procedures from suffering from implicit biases that hinder the appointment of female Directors, have been undertaken and carried out by the Company. In order to continue making progress in this area, the Nominating, Compensation and Corporate Governance Committee evaluates profiles to fill new vacancies on the Board of Directors in accordance with the provisions of Telefónica's Director Selection Policy and Diversity Policy, favouring diversity of gender, experience and knowledge, without implicit biases that could imply any discrimination. In conclusion, the process of renewing the Company's Board of Directors has been designed and is being implemented progressively to ensure continuity in the Telefónica Group's management model.In this sense, in the selection of new candidates to fill the coming vacancies, the Company will continue looking for women who meet the required professional profile in order to increase gender diversity at the Board of Directors.
That the number of proprietary directors as a percentage of the total number of non-executive director not be greater than the proportion of the company's share capital represented by those directors and the rest of the capital. This criterion may be relaxed:
a) In large-cap companies where very few shareholdings are legally considered significant.
b) In the case of companies where a plurality of shareholders is represented on the Board of Directors without ties among them.
Complies
That the number of independent directors should represent at least half of the total number of directors. That, however, when the company does not have a high level of market capitalisation or in the event that it is a large-cap company with one shareholder or a group of shareholders acting in a concert who together control more than 30% of the company’s share capital, the number of independent directors should represent at least one third of the total number of directors.
Complies
That companies should publish the following information on its directors on their website, and keep it up to date:
a) Professional profile and biography.
b) Any other Boards to which the directors belong, regardless of whether or not the companies are listed, as well as any other remunerated activities engaged in, regardless of type.
c) Category of directorship, indicating, in the case of individuals who represent significant shareholders, the shareholder that they represent or to which they are connected.
d) Date of their first appointment as a director of the company’s Board of Directors, and any subsequent re-elections.
e) Company shares and share options that they own.
Complies
That the annual corporate governance report, after verification by the nomination committee, should explain the reasons for the appointment of any proprietary directors at the proposal of the shareholders whose holding is less than 3%. It should also explain, if applicable, why formal requests from shareholders for presence on the Board were not honoured, when their shareholding was equal to or exceeded that of other shareholders whose proposal for proprietary directors was honoured.
Not applicable
That proprietary directors representing significant shareholders should resign from the Board when the shareholder they represent disposes of its entire shareholding. They should also resign, in a proportional fashion, in the event that said shareholder reduces its percentage interest to a level that requires a decrease in the number of proprietary directors.
Not applicable
That the Board of Directors should not propose the dismissal of any independent director before the completion of the director’s term provided for in the articles of incorporation unless the Board of Directors finds just cause and a prior report has been prepared by the nomination committee. Specifically, just cause is considered to exist if the director takes on new duties or commits to new obligations that would interfere with his or her ability to dedicate the time necessary for attention to the duties inherent to his or her post as a director, fails to complete the tasks inherent to his or her post, or is affected by any of the circumstances which would cause the loss of independent status in accordance with applicable law. The dismissal of independent directors may also be proposed as a result of a public takeover bid, merger or other similar corporate transaction entailing a change in the shareholder structure of the company, provided that such changes in the structure of the board are the result of the proportionate representation criterion provided in Recommendation 16.
Complies
That companies should establish rules requiring that directors inform the Board of Directors and, when circumstances arise which affect them, whether or not related to their actions in the company itself, and which may harm the company's standing and reputation, and in particular requiring them to inform the Board of any criminal proceedings in which they appear as suspects or defendants, as well as of how the legal proceedings subsequently unfold. And that, if the Board is informed or becomes aware in any other manner of any of the circumstances mentioned above, it must investigate the case as quickly as possible and, depending on the specific circumstances, decide, based on a report from the nomination and remuneration committee, whether or not any measure may be adopted, such as the opening of an internal investigation, asking the director to resign or proposing that he or she be dismissed. And that these events must be reported in the annual corporate governance report, unless there are any special reasons not to do so, which must also be noted in the minutes. This without prejudice to the information that the company must disseminate, if appropriate, at the time when the corresponding measures are implemented.
Complies
That all directors clearly express their opposition when they consider any proposal submitted to the Board of Directors to be against the company’s interests. This particularly applies to independent directors and directors who are unaffected by a potential conflict of interest if the decision could be detrimental to any shareholders not represented on the Board of Directors. Furthermore, when the Board of Directors makes significant or repeated decisions about which the director has serious reservations, the director should draw the appropriate conclusions and, in the event the director decides to resign, explain the reasons for this decision in the letter referred to in the next recommendation. This recommendation also applies to the secretary of the Board of Directors, even if he or she is not a director.
Not applicable
That whenever, due to resignation or resolution of the General Shareholders' Meeting, a director leaves before the completion of his or her term in office, the director should explain the reasons for this decision, or in the case of non-executive directors, their opinion of the reasons for cessation, in a letter addressed to all members of the Board of Directors. And that, without prejudice to all this being reported in the annual corporate governance report, insofar as it is relevant for investors, the company must publish the cessation as quickly as possible, adequately referring to the reasons or circumstances adduced by the director.
Not applicable
That the nomination committee should make sure that non-executive directors have sufficient time available in order to properly perform their duties. And that the Board regulations establish the maximum number of company Boards on which directors may sit.
Complies
That the Board of Directors meet frequently enough so be able to effectively perform its duties, and at least eight times per year, following a schedule of dates and agenda established at the beginning of the year and allowing each director individually to propose items that do not originally appear on the agenda.
Complies
That director absences occur only when absolutely necessary and be quantified in the annual corporate governance report. And when absences do occur, that the director appoint a proxy with instructions.
Complies
That when directors or the secretary express concern regarding a proposal or, in the case of directors, regarding the direction in which the company is headed and said concerns are not resolved by the Board of Directors, such concerns should be included in the minutes at the request of the director expressing them.
Not applicable
That the company should establish adequate means for directors to obtain appropriate advice in order to properly fulfill their duties including, should circumstances warrant, external advice at the company’s expense.
Complies
That, without regard to the knowledge necessary for directors to complete their duties, companies make refresher courses available to them when circumstances make this advisable.
Complies
That the agenda for meetings should clearly indicate those matters on which the Board of Directors is to make a decision or adopt a resolution so that the directors may study or gather all relevant information ahead of time. When, in exceptional circumstances, the chairman wishes to bring urgent matters for decision or resolution before the Board of Directors which do not appear on the agenda, prior express agreement of a majority of the directors shall be necessary, and said consent shall be duly recorded in the minutes.
Complies
That directors be periodically informed of changes in shareholding and of the opinions of significant shareholders, investors and rating agencies of the company and its group.# Annual Corporate Governance Report
Complies 33.That the chairman, as the person responsible for the efficient workings of the Board of Directors, in addition to carrying out the duties assigned by law and the articles of incorporation, should prepare and submit to the Board of Directors a schedule of dates and matters to be considered; organise and coordinate the periodic evaluation of the Board as well as, if applicable, the chief executive of the company, should be responsible for leading the Board and the effectiveness of its work; ensuring that sufficient time is devoted to considering strategic issues, and approve and supervise refresher courses for each director when circumstances make this advisable.
Complies 34.That when there is a coordinating director, the articles of incorporation or Board regulations should confer upon him the following powers in addition to those conferred by law: to chair the Board of Directors in the absence of the chairman and deputy chairmen, should there be any; to reflect the concerns of non-executive directors; to liaise with investors and shareholders in order to understand their points of view and respond to their concerns, in particular as those concerns relate to corporate governance of the company; and to coordinate a succession plan for the chairman.
Complies 35.That the secretary of the Board of Directors should pay special attention to ensure that the activities and decisions of the Board of Directors take into account such recommendations regarding good governance contained in this Good Governance Code as may be applicable to the company.
Complies 36.That the Board of Directors meet in plenary session once a year and adopt, where appropriate, an action plan to correct any deficiencies detected in the following:
a) The quality and efficiency of the Board of Directors’ work.
b) The workings and composition of its committees.
c) Diversity in the composition and skills of the Board of Directors.
d) Performance of the chairman of the Board of Directors and the chief executive officer of the company.
e) Performance and input of each director, paying special attention to those in charge of the various Board committees.
In order to perform its evaluation of the various committees, the Board of Directors will take a report from the committees themselves as a starting point and for the evaluation of the Board, a report from the nomination committee. Every three years, the Board of Directors will rely for its evaluation upon the assistance of an external advisor, whose independence shall be verified by the nomination committee. Business relationships between the external adviser or any member of the adviser’s group and the company or any company within its group must be specified in the annual corporate governance report. The process and the areas evaluated must be described in the annual corporate governance report.
Complies 37.That if there is an executive committee, there should be at least two non-executive directors, at least one of whom should be independent, and its secretary should be the secretary of the Board.
Complies 38.That the Board of Directors must always be aware of the matters discussed and decisions taken by the executive committee and that all members of the Board of Directors receive a copy of the minutes of meetings of the executive committee.
Complies 39.That all members of the audit committee, in particular its chairman, be appointed in consideration of their knowledge and experience in accounting, audit and risk management issues, both financial and non- financial.
Complies 40.That under the supervision of the audit committee, there should be a unit in charge of the internal audit function, which ensures that information and internal control systems operate correctly, and which reports to the non-executive chairman of the Board or of the audit committee.
Complies 41.That the person in charge of the unit performing the internal audit function should present an annual work plan to the audit committee, for approval by that committee or by the Board, reporting directly on its execution, including any incidents or limitations of scope, the results and monitoring of its recommendations, and present an activity report at the end of each year.
Complies 42.That in addition to the provisions of applicable law, the audit committee should be responsible for the following:
With regard to information systems and internal control:
a) Supervising and evaluating the process of preparation and the completeness of the financial and non-financial information, as well as the control and management systems for financial and non-financial risks related to the company and, if applicable, to the group – including operating, technological, legal, social, environmental, political and reputational risk, or risk related to corruption – reviewing compliance with regulatory requirements, the appropriate delimitation of the scope of consolidation and the correct application of accounting criteria.
b) Ensuring the independence of the unit charged with the internal audit function; proposing the selection, appointment and dismissal of the head of internal audit; proposing the budget for this service; approving or proposing its orientation or annual work plans for approval by the Board, making sure that its activity is focused primarily on material risks (including reputational risk); receiving periodic information on its activities; and verifying that senior management takes into account the conclusions and recommendations of its reports.
c) Establishing and supervising a mechanism that allows employees and other persons related to the company, such as directors, shareholders, suppliers, contractors or subcontractors, to report any potentially serious irregularities, especially those of a financial or accounting nature, that they observe in the company or its group. This mechanism must guarantee confidentiality and in any case provide for cases in which the communications can be made anonymously, respecting the rights of both the whistleblower and the person reported.
d) Generally ensuring that internal control policies and systems are effectively applied in practice.
With regard to the external auditor:
a) In the event that the external auditor resigns, examining the circumstances leading to such resignation.
b) Ensuring that the remuneration paid to the external auditor for it work does not compromise the quality of the work or the auditor's independence.
c) Making sure that the company informs the CNMV of the change of auditor, along with a statement on any differences that arose with the outgoing auditor and, if applicable, the contents thereof.
d) Ensuring that the external auditor holds an annual meeting with the Board of Directors in plenary session in order to make a report regarding the tasks performed and the development of the company’s accounting situation and risks.
e) Ensuring that the company and the external auditor comply with applicable rules regarding the provision of services other than auditing, limits on the concentration of the auditor’s business and, in general, all other rules regarding auditors' independence.
Complies 43.That the audit committee be able to require the presence of any employee or manager of the company, even stipulating that he or she appear without the presence of any other member of management.
Complies 44.That the audit committee be kept abreast of any corporate and structural changes planned by the company in order to perform an analysis and draw up a prior report to the Board of Directors on the economic conditions and accounting implications and, in particular, any exchange ratio involved.
Complies 45.That the risk management and control policy should identify or determine, as a minimum:
a) The various types of financial and non- financial risk (including operational, technological, financial, legal, social, environmental, political and reputational risks and risks relating to corruption) which the company faces, including among the financial or economic risks contingent liabilities and other off-balance sheet risks.
b) A risk control and management model based on different levels, which will include a specialised risk committee when sector regulations so require or the company considers it to be appropriate.
c) The level of risk that the company considers to be acceptable.
d) Measures in place to mitigate the impact of the risks identified in the event that they should materialise.
e) Internal control and information systems to be used in order to control and manage the aforementioned risks, including contingent liabilities or off-balance sheet risks.
Consolidated management report 2022 l
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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That under the direct supervision of the audit committee or, if applicable, of a specialised committee of the Board of Directors, an internal risk control and management function should exist, performed by an internal unit or department of the company which is expressly charged with the following responsibilities:
a) Ensuring the proper functioning of risk management and control systems and, in particular, that they adequately identify, manage and quantify all material risks affecting the company.
b) Actively participating in drawing up the risk strategy and in important decisions regarding risk management.
c) Ensuring that the risk management and control systems adequately mitigate risks as defined by the policy laid down by the Board of Directors.
Complies
That in designating the members of the nomination and remuneration committee - or of the nomination committee and the remuneration committee if they are separate - care be taken to ensure that they have the knowledge, aptitudes and experience appropriate to the functions that they are called upon to perform and that the majority of said members are independent directors.
Complies
That large-cap companies have separate nomination and remuneration committees.
Explain
Article 40 of the Bylaws and Article 23 of the Regulation of the Board of Directors expressly state on regulating the Nominating, Compensation and Corporate Governance Committees, that the Board of Directors shall be entitled to set up two Committees, separately giving each of them powers for appointments, and the other the powers for remuneration, while the corporate governance powers may be included in either one of them.
The Board of Directors of Telefónica, S.A. has not considered appropriate, so far, separating the functions of the Nominating, Compensation and Corporate Governance Committee because it believes that by putting the powers to assess Directors and determine their remuneration in the same Committee, is helpful to coordinate and to produce a results-driven remuneration system (pay for performance).
The Board also considers that the workload of the Nominating, Compensation and Corporate Governance Committee and, therefore, its members, is reasonable and does not make it advisable, for the time being, to divide it into two separate committees.
Furthermore, it is noted that the Board of Directors currently has five Consultative Committees (Audit and Control Committee, the Nominating, Compensation and Corporate Governance Committee, Regulation and Institutional Affairs Committee, Sustainability and Quality Committee and the Strategy and Innovation Committee), in addition to the Executive Commission. In this context, the separation of the Nominating, Compensation and Corporate Governance Committee would not have been appropriate with the facilitating objective of the reorganization of the Consultative or Committees of the Company, approved by the Board of Directors on April 27, 2016, generating unnecessary inefficiencies and needs for additional allocations.
That the nomination committee consult with the chairman of the Board of Directors and the chief executive of the company, especially in relation to matters concerning executive directors. And that any director be able to ask the nomination committee to consider potential candidates that he or she considers suitable to fill a vacancy on the Board of Directors.
Complies
That the remuneration committee exercise its functions independently and that, in addition to the functions assigned to it by law, it should be responsible for the following:
a) Proposing the basic conditions of employment for senior management to the Board of Directors.
b) Verifying compliance with company's remuneration policy.
c) Periodically reviewing the remuneration policy applied to directors and senior managers, including share-based remuneration systems and their application, as well as ensuring that their individual remuneration is proportional to that received by the company's other directors and senior managers.
d) Making sure that potential conflicts of interest do not undermine the independence of external advice given to the board.
e) Verifying the information on remuneration of directors and senior managers contained in
Consolidated management report 2022
l 1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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the various corporate documents, including the annual report on director remuneration.
Complies
That the remuneration committee should consult with the chairman and the chief executive of the company, especially in matters relating to executive directors and senior management.
Complies
That the rules regarding the composition and workings of the supervision and control committees should appear in the regulations of the Board of Directors and that they should be consistent with those applying to legally mandatory committees in accordance with the foregoing recommendations, including:
a) That they be composed exclusively of non- executive directors, with a majority of independent directors.
b) That their chairpersons be independent directors.
c) That the Board of Directors select members of these committees taking into account their knowledge, skills and experience and the duties of each committee; discuss their proposals and reports; and require them to render account of their activities and of the work performed in the first plenary session of the Board of Directors held after each committee meeting.
d) That the committees be allowed to avail themselves of outside advice when they consider it necessary to perform their duties.
e) That their meetings be recorded and the minutes be made available to all directors.
Explain
1. The supervision and control committees which are attributed the powers referred to in recommendation 52 are the Audit and Control Committee and the Nominating, Compensation and Corporate Governance Committee. The composition and operation rules of the two Committees are set out in the Regulation of the Board of Directors and in the specific Regulations of each one of them. Likewise, both Committees are not only consistent with legally dispositions applicable but are also an improvement upon them, in certain areas. For example, according to the Regulation of the Board of Directors, the Nominating, Compensation and Corporate Governance Committee must have a majority of independent members, as opposed to the minimum of two according to prevailing laws. In fact, in practice, the Committee is composed of three independent Directors, and two with the category of "Other external".
The Board of Directors has other Consulting Committees which are allocated other functions (Regulation and Institutional Affairs Committee, Sustainability and Quality Committee, and Strategy and Innovation Committee), which are strongly linked with the businesses developed by the Company and with management aspects, and, in particular, the Sustainability and Quality Committee has some of the functions set out in Recommendations 53 and 54 below. These Committees are expressly regulated in the Regulation of the Board of Directors, although with fewer details with respect to those that are legally mandatory. However, all these non-mandatory committees are, in practice, subject to the operating rules set out in Recommendation 52 c), d) and e). It has been considered that Committees with powers in matters linked to the Company's businesses and management aspects do not necessarily have to be chaired by independent Directors but rather it is preferable to take into account the technical knowledge and specific expertise of their members when appointing the Director to chair them who should sit on these committees. It should also be noted that all Board Committees are composed of a majority of independent Directors.
That verification of compliance with the company's policies and rules on environmental, social and corporate governance matters, and with the internal codes of conduct be assigned to one or divided among more than one committee of the Board of Directors, in the exercise of its power of self-organisation, may have decided to create. And that such committee be composed exclusively of non-executive directors, with a majority of these being independent directors, and that the minimum functions indicated in the next recommendation be specifically assigned to it.
Complies
The minimum functions referred to in the foregoing recommendation are the following:
a) Monitoring of compliance with the company’s internal codes of conduct and corporate governance rules, and ensuring that the corporate culture is aligned with its purpose and values.
Consolidated management report 2022
l 1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
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b) Monitoring the implementation of the general policy on communication of economic and financial information, non-financial and corporate information and communication with shareholders and investors, proxy advisors and other stakeholders. The manner in which the entity communicates and handles relations with small and medium-sized shareholders must also be monitored.
c) The periodic evaluation and review of the company’s corporate governance system, and environmental and social policy, with a view to ensuring that they fulfil their purposes of promoting the interests of society and take account, as appropriate, of the legitimate interests of other stakeholders.
d) Supervision of the company’s environmental and social practices to ensure they are in alignment with the established strategy and policy.# Consolidated management report 2022
e) Supervision and evaluation of the way in which relations with the various stakeholders are handled.
Complies
Complies
Complies
Complies
Complies
Complies
Complies
Complies
Complies
Partially complies
The Nominating, Compensation and Corporate Governance Committee is empowered to propose that the Board of Directors cancels a variable remuneration payment in the event of circumstances such as those described in this recommendation. The Nominating, Compensation and Corporate Governance Committee will also assess if exceptional circumstances of this kind may even entail the termination of the relationship with the person responsible, proposing measures which are deemed pertinent to the Board of Directors.
Explain With regards to the conditions applicable to termination of contracts, the Executive Chairman, Mr. José María Álvarez-Pallete López, and the Chief Operating Officer (C.O.O.), Mr. Ángel Vilá Boix, maintain the conditions of their previous contract which provided for agreed economic compensation for the termination of the employment relationship, where applicable, that can amount to four years' of remuneration at the most. Every annual payment includes the last fixed remuneration and the arithmetic average of the last two variable annual remuneration received according to contract.
Indicate whether any director voted against or abstained from approving this report.
No.
I declare that the details included in this statistical annex coincide and are consistent with the descriptions and details included in the annual corporate governance report published by the company.
-- 2. This section may also be used to provide any other information, explanation or clarification relating to previous sections of the report, so long as it is relevant and not redundant. Specifically, state whether the company is subject to any corporate governance legislation other than that prevailing in Spain and, if so, include any information required under this legislation that differs from the data requested in this report.
The company may also state whether it voluntarily complies with other ethical or best practice codes, whether international, sector-based, or other. In such a case, name the code in question and the date the company began following it. It should be specifically mentioned that the company adheres to the Code of Good Tax Practices of 20 July, 2010.
Note 1 to Section 4.2.2. of Annual Corporate Governance Report and Section A.2. of Annual Corporate Governance Report Statistical Annex In accordance with the last submitted communication by BlackRock, Inc.to the Spanish National Securities Market Commission (CNMV) on March 31, 2020, the details of the control chain through this entity owns the voting right and/or the financial instruments is the following:
Telefónica, S. A. 502
BlackRock, Inc., BlackRock Holdco 2, Inc., BlackRock Financial Management, Inc., BlackRock International Holdings, Inc., BR Jersey International Holdings, L.P., BlackRock Holdco 3, LLC, BlackRock Cayman 1 LP, BlackRock Cayman West Bay Finco Limited, BlackRock Cayman West Bay IV Limited, BlackRock Group Limited, BlackRock Finance Europe Limited, BlackRock (Netherlands) B.V.
Note 2 to Section A.3 of Annual Corporate Governance Report Statistical Annex
In those cases where the total percentage of voting rights does not coincide with the sum of direct and indirect shareholdings, this is due to the rounding of decimals. The total percentage of voting rights represented on the Board of Directors (8.74%) is the result of adding the total percentage of voting rights held by members of the Board of Directors (0.37%) and the total percentage of voting rights of the Company's significant shareholders represented on the Board of Directors: Banco Bilbao Vizcaya Argentaria, S.A. (4.87%), represented on the Board of Directors by the Proprietary Director Mr. José María Abril Pérez, and CaixaBank, S.A. (3.50%), represented on the Board of Directors by the Proprietary Director Mr. Isidro Fainé Casas.
Note 3 to Section C.1.11 of Annual Corporate Governance Report Statistical Annex
Mr. Peter Löscher resigned as Chairman of the Board of Directors of Sulzer AG on April 6, 2022. Mr. José María Abril resigned as member of the Board of Directors of Ibermática, S.A. in December 2022. Ms. Verónica Pascual Boé resigned as Global Manager of Robótica Móvil Autónoma in January 2023. In addition, other positions held by the Company's Directors (other than those requested in section C.1.11) are listed below:
Mr. José María Álvarez-Pallete López is a member of the Advisory Board of SEAT, S.A., Chairman of the GSMA Association (since February 2022), Chairman of Telefónica Foundation (since February 2022), Trustee of Profuturo Foundation and member of Board of Trustees of ”la Caixa” Banking Foundation (since February 2022).
Mr. Isidro Fainé Casas is Honorary Chairman of Naturgy Energy Group, S.A., Special Advisor to the Board of the Bank of East Asia Limited, member of the Board of Trustees of the Museo Nacional del Prado and member of the Board of Trustees of the Carlos Slim Foundation.
Mr. José Javier Echenique Landiríbar is a Trustee of the Novia Salcedo Foundation and Advisor of the Deusto Business School.
Mr. Ángel Vilá Boix is a Trustee of Telefónica Foundation and Member of the Advisory Boards of Telefónica España and Telefónica Tech.
Mr. Juan Ignacio Cirac Sasturain is Co-Director of the Centre for Quantum Sciences and Technologies Munich, Director of the International Max-Planck School of Quantum Sciences and Technologies, and Universal Honorary Professor of Technology Munich.
Mr. Peter Erskine is Chairman of the BRAINSTORM Charity.
Ms. Carmen García de Andrés is President of the Tomillo Foundation, Member of the Board of Directors of the Spanish Association of Foundations (AEF), currently serving as its Treasury and member of the executive committee, Treasury member of the Board of Trustees of the Fundación Secretariado Gitano, of the Fundacion Somos F5, Member of the Board of Trustees of the Xavier de Salas Foundation, and Co-Founder and Member of the Board of Trustees of the Fundación Aprendiendo a Ser. Likewise, collaborate mentoring women´s professional development programs.
Mr. Peter Löscher is Emeritus Member of the Advisory Council of the Singapore Economic Development Board, Member of the International Advisory Board of Bocconi University and Honorary Professor at Tongji University (Shanghai).
Mr. Francisco José Riberas Mera is Chairman of Sernauto (Association of Automotive Suppliers), and Chairman of the Spain-China Advisory Council Foundation.
Note 4 to Section C.1.12 of Annual Corporate Governance Report Statistical Annex
In accordance with the provisions of Article 29.2 of the Regulations of the Board of Directors, the Directors must dedicate the necessary time and effort to the performance of their duties, and for this purpose they must inform the Nominating, Compensation and
Telefónica, S. A. 503
Corporate Governance Committee of their other professional obligations in case they might interfere with the performance of their duties as Directors. In this regard, those who belong to more than five Boards of Directors of other companies other than Telefónica, S.A. and the companies of its Group may not be appointed as Directors of the Company. For these purposes, a) all the Boards of Directors of companies that form part of the same Group shall be computed as a single Board; and b) those Boards of proprietary companies or companies that constitute vehicles or complements for the professional practice of the Director, his/her spouse or a person with an analogous relationship of affection, or his/her closest relatives, shall not be computed. Exceptionally, and for duly justified reasons, the Board of Directors may exempt the Director from this prohibition.
In accordance with the provisions of Article 31.4 of the Company's Bylaws, in order for a Director to be appointed Chairman, he must have been a member of the Board of Directors for at least three years prior to his appointment. However, the aforementioned seniority shall not be necessary when the appointment is carried out with the favorable vote of at least 85% of the members of the Board of Directors.
BBVA and/or Group BBVA: Banco Bilbao Vizcaya Argentaria, S.A. and/or the companies that form part of its group. CaixaBank and/or Group CaixaBank: CaixaBank, S.A. and/ or the companies that form part of its group. N/A is indicated in those cases in which no proposal has been made to the Shareholders' Meeting as the transaction has been approved by the Board of Directors. Regarding operations of derivatives, the notional value and fair value of the operations carried out with BBVA and/or BBVA Group, and CaixaBank and/or CaixaBank Group are listed. See supplementary information in the 'Derivatives policy' section of Note 19 (Derivative financial instruments and risk management policy), and in Note 11 (Related parties) to the 2022 Consolidated Financial Statements of Telefónica, S.A.
There are no transactions that meet the requirements set forth in this Section.
There are no transactions that meet the requirements set forth in this Section.
There are no transactions that meet the requirements set forth in this Section carried out by Telefónica, S.A. or its subsidiaries with Grupo Telefónica Factoring and with Adquira España, S.A. However, this information is included in Note 10 (Associates and joint ventures) and in Note 11 (Related parties) of the Consolidated Annual Accounts of Telefónica, S.A. corresponding to fiscal year 2022.
It is noted that Recommendations 2, 10, 11, 19, 20, 23, 24 and 28 have been indicated as not applicable as the situation referred to in these Recommendations has not been verified during the 2022 financial year.
Financing agreements: On March 15, 2018, Telefónica, S.A., as borrower, and a group of credit entities, as lenders, with National Westminster Bank plc as the agent bank, entered into a syndicated loan amounting up to EUR 5,500 million. On January 13, 2022, Telefónica, S.A. executed an amendment to the referred syndicated facility agreement with several domestic and international financial entities for a maximum aggregate amount of five thousand and five hundred (5,500) million euros, linked to sustainability objectives: greenhouse gas emissions reduction and increase of women in executive positions. Likewise, on December 11, 2015, Telefónica, S.A., as borrower, and Banco Bilbao Vizcaya Argentaria, S.A. Niederlassung Deutschland, the Bank of Tokyo-Mitsubishi UFJ, Ltd., sucursal in Spain, Mizuho Bank Ltd, AB Svensk Exportkredit and Société Générale S.A., as original lenders, and with the support of Exportkreditnämnden, signed a financing agreement amounting up to USD 750 million. Also on that same date, Telefónica, S.A., as borrower, and Banco Santander, S.A. and Crédit Agricole Corporate and Investment Bank as original lenders, with the support of Finnvera Plc, entered into a financing agreement amounting up to EUR 500 million.
As provided for in all of the aforementioned contracts, in the event of a change of control in Telefónica, S.A., lenders may, under certain circumstances, require the early termination of these financing agreements. The financing contracts consider the usual criteria in these types of agreement to determine if there has effectively been a change of control, such as obtain a majority of the voting rights, have the power to appoint a majority of the members of the management body, or have control over the financial and operating policies of the company.
Finally, it should be said that as of the year 2010, Telefónica, S.A. adheres to the Code of Good Fiscal Practices, as approved by the Large Companies' Forum -a body in which major Spanish companies and the Spanish tax authorities participate-, and complies with the content of the same. Similarly, Telefónica Group is committed to the application of other international regulations and initiatives in the area of sustainability as well as, among others, the Universal Declaration of Human Rights, the United Nations Global Compact, and other conventions and treaties agreed by international bodies such as the Organization for Economic Cooperation and Development and the International Labor Organization.
This annual corporate governance report was approved by the company’s Board of Directors at its meeting held on February 22, 2023. Indicate whether any Directors voted against or abstained from voting on the approval of this report. No.
Consolidated management report 2022
* 1. Strategy and growth model
* 2. Non-financial Information statement
* 3. Risks
* 4. Annual Corporate Governance Report
* 5. Annual Report on Remuneration of the Directors
* 6. Other information
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Consolidated management report 2022
* 1. Strategy and growth model
* 2. Non-financial Information statement
* 3. Risks
* 4. Annual Corporate Governance Report
* 5. Annual Report on Remuneration of the Directors
* 6. Other information
Consolidated Annual Report 2022
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This section 5.1 and the section 5.2 below form the Annual Report, which must be drawn up and submitted to a vote of the General Shareholders' Meeting in an advisory manner. Pursuant to the provisions in Act 5 of April 12, 2021, amending the redrafted text of the Corporate Enterprises Act, this report forms part of the Company's Management Report and is also published as part of the Annual Corporate Governance Report. This will remain accessible on the websites of the Company and the Spanish National Securities Market Commission (CNMV) for the legally stipulated term.
This report is essentially composed of two sections:
In spite of the complex macroeconomic backdrop, Telefónica has once again delivered sustainable growth in 2022, evidencing its expertise in managing the business in this environment. Telefónica has gained strength in its key markets. In Spain, OIBDA improved steadily thanks to greater efficiencies. In Brazil, the outstanding strength of Vivo's operations drove year-on-year organic OIBDA margin growth while revenues grew at double-digit rates. Germany again showed strong commercial momentum, with revenues and OIBDA accelerating. Meanwhile, VMO2 has already achieved 30% of the annual synergies projected at £540M by the end of 2022. T. Infra continues to explore opportunities for growth and value creation with its new fiber vehicles, with the inclusion of Spain and the United Kingdom in July. T. Tech is growing at scale over and above market levels and has a strong commercial funnel.
Based on the above, Telefónica has confirmed objective performance and the dividend set for 2022. It should be recalled that the Company published its 2022 objectives on February 24, the same day that the invasion of Ukraine began. Since then, the macroeconomic environment has worsened considerably, but despite this, Telefónica revised its objectives upwards in July, and has managed to finish the year on track to meet the aforementioned growth forecast. This is further evidence of the additional management effort:
CapEx grew +4.6% organic year-on-year, bringing the organic CapEx/Sales ratio to 14.8% (in line with the target of 15%).
•Free Cash Flow has increased to €4,566M.
•The leverage ratio improved compared to the previous year, and Net Financial Debt stood at €26,687M.
As part of Telefónica's commitment to create value for its stakeholders, the following milestones were achieved in 2022:
•Reduction of CO2 emissions by 80% compared to 2015 globally.
•Publication of the in-depth Life Cycle Analysis of connectivity solutions according to the EU Taxonomy criteria (first company in the sector to do this).
•Approval by the Board of Directors of the Group's Equality Policy, which addresses wage gaps, equal opportunities and greater parity.
•31.3% female executives at December 31, 2022.
In addition, in the macroeconomic context and high uncertainty, the 2022 Total Shareholder Return (“TSR”) was -5.27% while the median TSR of the companies that make up the comparison group for measuring this objective in Long-Term Variable Compensation was -23.7%. Accordingly, Telefónica is in fifth position compared to the 14 companies which comprise the said group.
Following the General Shareholders' Meeting held each year, the NCCGC carries out a process of reflection on the adequacy of the Remuneration Policy to Telefónica's strategic objectives and the interests of its stakeholders. As part of its commitment to ongoing listening to its shareholders, the NCCGC maintains a constant and transparent dialogue with shareholders to learn, inter alia, their opinion on the remuneration policy and to test any changes that may be appropriate. The NCCGC also takes advantage of this interaction to provide shareholders with more context on the decisions taken by the Board of Directors over the past fiscal year. The reflection process also took into account the results of the votes on the annual report on directors' remuneration in the last two fiscal years and those relating to the directors' remuneration policy approved on April 23, 2021.
Based on the findings of the reflection process, the NCCGC has proposed to the Board of Directors a new Remuneration Policy with the following features:
•The proposed new policy continues along the lines of the policy approved at the General Shareholders' Meeting held on April 23, 2021.
•In relation to the Executive Directors:
◦The possibility of granting extraordinary remuneration is removed.
◦Both the amounts and the characteristics of the fixed and variable elements of remuneration remain unchanged. In this respect, the Fixed Remuneration remains unchanged since 2013.
◦Notwithstanding the above, the maximum amount of Short-Term Variable Remuneration 2023 is limited to 125% of target. This maximum level is lower than the one included in the Remuneration Policy and the one set in 2022 (129.5% of the target).
◦The period in which it is possible to recover all or part of any of the Executive Directors' variable remuneration components after they have been paid (clawback), is extended by twelve (12) additional months, up to thirty-six (36) months.
•There is no change with respect to the remuneration of the Directors in their position as such.
This new Remuneration Policy will be brought to a vote at the Ordinary General Shareholders' Meeting to be held in 2023 and if approved, will come into effect on the same day.
The most relevant aspects of the remuneration accrued in 2022 by the Executive Directors are detailed below:
•Total remuneration accrued in 2022 vs. 2021: decrease of 22.2% for the Executive Chairman and 24.5% for the Chief Operating Officer.
•Total variable remuneration accrued vs. variable remuneration initially granted: 63.6% for the Executive Chairman and 61.5% for the Chief Operating Officer.
•Short-Term Variable Remuneration: The relative metrics and weights determined for 2022 were Operative Revenue (30%), OIBDA (30%), Free Cash Flow (20%) and non-financial objectives - ESG (20%). Bearing in mind the foregoing, the weighted payment coefficient has risen to 121.3% of the maximum amount. This percentage is mainly explained by the fact that the degree of performance of the financial objectives as a whole was above 100%. In addition, the degree of performance of the non-financial - ESG objectives as a whole has also exceeded the target levels.
•Long-Term Variable Remuneration: The performance period for the third cycle (2020-2023) of the 2018-2023 Long Term Incentive Plan ended on December 31, 2022. 50% of the incentive was subject to the relative TSR and 50% to the Free Cash Flow generated in each of the years in the performance period. No amount whatsoever was accrued regarding the relative TSR due to the behavior of Telefónica’s shares related to the comparison group, notwithstanding the improved performance of the stock. However, the Free Cash Flow target has been achieved. The incentive shall be paid during March 2023.
Taking into account the Telefónica’s share price as at December 31, 2022, the economic value of the incentive to be received in shares by the Executive Directors is of 25.35% of the incentive originally awarded.
The sections below set out information on the applicable guidelines for the Directors' remuneration, along with a breakdown of the remuneration for the 2022 fiscal year and forecasts for the 2023 fiscal year.
The main focus of Telefónica’s remunerative strategy is to attract, retain and motivate professionals of the Company, enabling it to achieve its strategic targets within the highly competitive and globalised setting in which it performs its business, by applying the most appropriate measures and practices for such purpose. Based on the foregoing, the principles of the Remuneration Policy are the following:
| Executive Directors | Non-Executive Directors | |
|---|---|---|
| Value creation | The Policy is consistent with Telefónica's commitment to growth, efficiency and long-term sustainable value creation for its stakeholders. | |
| Pay for Performance | A significant part of the total remuneration for the Executive Directors is variable and receiving it is subject to achieving financial, business, value creation and non-financial objectives, including ESG objectives. These objectives are predetermined, specific, quantifiable and aligned with the Company’s corporate plan. | |
| Flexibility | The variable remuneration is not guaranteed and is sufficiently flexible so that there is a possibility of not paying this component. | |
| Competitiveness | In order to ensure the Company has the best professionals on board, the remuneration package must be competitive, both in its structure and its overall amount, with respect to other comparable companies at an international level. | |
| Good Governance | When determining the remuneration for the Directors, the Company takes into consideration the developments taking place in regulations, best practices and national and international recommendations and trends related to the remuneration of Directors of companies listed on the stock market. | |
| Fair Pay | Fair remuneration is provided for professional value, skills, experience, responsibility undertaken and results achieved. The Remuneration Policy for the Executive Directors is aligned with the policy for the other employees and shares the same principles and criteria for action and incorporating the components included in the remuneration package for Telefónica's management group. The Policy is consistent with Telefónica's inclusive culture, which includes a commitment to diversity and inclusion management as a key element in connecting talent and growth as a company. | |
| Suitability | The amounts are sufficient to remunerate the qualifications, time spent and responsibility of the Directors, guaranteeing their required loyalty and allegiance to the Company, without compromising the independence of the Non-Executive Directors. | |
| Transparency | The level of transparency in relation to remuneration is in line with the best corporate governance practices in order to create trust among all the stakeholders, including shareholders and investors. |
The principles set out in this section are applicable both to the Remuneration Policy approved at the General Shareholders' Meeting held on April 23, 2021 and to the Remuneration Policy to be submitted to the General Shareholders' Meeting to be held in 2023.
The Policy is consistent with Telefónica's commitment to diversity and inclusion management as a key element in connecting talent and growth as a company. Accordingly, Telefónica's staff is remunerated on the basis of their professional value, skills, experience, responsibility undertaken and results achieved.
As specified in the introduction to the report, the NCCGC regularly conducts a reflection process on the applicable Remuneration Policy, in which it considers both internal and external factors:
Of particular significance were the comments, recommendations and suggestions received from shareholders regarding the Remuneration Policy. The NCCGC also took into account the results of the votes on the annual report on directors' remuneration in the last two fiscal years and those relating to the directors' remuneration policy approved on April 23, 2021.
Bearing in mind all of the above, the NCCGC has proposed a new Remuneration Policy to the Board of Directors, which is in keeping with the previous policy. As regards the Executive Directors, both the amounts and features of the fixed and variable components of remuneration remain unchanged. In addition, the new Remuneration Policy removes the possibility of awarding extraordinary remuneration and extends up to thirty six (36) months the period in which it is possible to recover all or part of any of the Executive Directors' variable remuneration components after they have been paid (clawback). No change was made to the Directors’ remuneration in their positions as such.
This new Remuneration Policy will be brought to a vote at the General Shareholders' Meeting to be held in 2023 and, if approved, will come into effect on the same day. Until that date, the Remuneration Policy approved by the Ordinary General Shareholders' Meeting held on April 23, 2021 will be in effect.
As specified above, on the date of this Report, the Executive Directors of Telefónica, S.A. are Mr. José María Álvarez-Pallete López, Executive Chairman, and Mr. Ángel Vilá Boix, Chief Operating Officer/COO.
The remunerative system for Telefónica’s Executive Directors is characterized by its competitiveness and high demands. The variable remuneration, which is designed to incentivize achievement of the company’s short- and long- term objectives, is one of the fundamental pillars of this system. In this respect, Telefónica’s long-term strategy is based on the following three basic pillars, which are linked to the variable remuneration of Telefónica’s whole human team:
i. Growth, in the form of Operative Revenue and Total Shareholders Return;
ii. Efficiency, through improving the OIBDA, generating Free Cash Flow and efficient consumption of natural resources or the circular economy;
iii. Trust.
Telefónica is a company that is fully committed to sustainability. For such purpose, factors such as customer trust, society trust, gender equality or the contribution to the reduction of climate change are weighted. Therefore, receiving the Short-Term and Long-Term Variable Remuneration is linked to achieving certain financial and business operational as well as sustainability (ESG) objectives. All the objectives are predetermined, specific, quantifiable and aligned with Telefónica’s strategic goals, strictly determined and assessed by the NCCGC, which monitors them, so that their alignment with Telefónica’s social interests is ensured.
The Executive Directors' pay package is leveraged mainly on variable remuneration, with most of the total remuneration being received only if the objectives set out for the short- and long-term variable remuneration are met. This pay structure is consistent with the “pay for performance” principle
The Executive Directors therefore may not receive any variable remuneration in the event that the minimum performance thresholds are not met. The short-term and long-term variable remuneration percentage is significant in relation to the total remuneration. In any case, such percentage of their total remuneration (considering, for such purpose, the sum of the Fixed Remuneration, Short-Term Variable Remuneration and the annualized long-term incentive) can reach a maximum of 85%.
The pay mix for Telefónica’s Executive Directors is shown below, assuming a situation in which the stipulated targets are achieved:
At Telefónica, results-based remuneration has a significant weighting in total remuneration (remuneration structure for 100% or target level achievement)*
| Executive Chairman | Chief Operating Officer | |
|---|---|---|
| Performance-related remuneration | 79% | 77% |
| Fixed Remuneration | 21% | 23% |
| Short-Term Variable Remuneration | 37% | 35% |
| Long-Term Variable Remuneration* | 42% | 42% |
*The remuneration mix is shown in accordance with a Long-Term Variable Remuneration allocation equivalent to 200% of the Fixed Remuneration for the Executive Chairman and 180% for the Chief Operating Officer. To this end, Fixed Remuneration does not include remuneration in kind, contributions to pension plans for Telefónica employees or contributions to the Executive Pension Plan.
| Type of objective | Metric | Weighting |
|---|---|---|
| Short-Term Variable Remuneration | ||
| Operating and financial objectives (80%) | Operating Revenue | 30% |
| OIBDA | 30% | |
| Free Cash Flow | 20% | |
| Sustainability objectives - ESG (20%) | NPS | 5% |
| NPS GAP | 4% | |
| Climate Change - GHG Emissions | 5% | |
| Gender Equality - % of women in executive positions | 3% | |
| Society Trust - REP Trak | 3% | |
| Long-Term Variable Remuneration | ||
| Value creation for shareholders and financial objectives (90%) | Relative TSR* | 50% |
| Free Cash Flow | 40% | |
| Sustainability objectives - ESG (10%) | Neutralization of CO2 Emissions | 10% |
*The comparison group consists of companies belonging to the telecommunications sector, weighted according to their relevance for Telefónica.# Components of the remuneration package in 2023:
The elements included in the remuneration package for executive directors for the performance of their executive duties are similar to those of the 2022 fiscal year, however, without the possibility of awarding any extraordinary variable remuneration:
Purpose: Suitable compensation for performing their executive duties according to the level of responsibility, leadership and performance within the organization, promoting the retention of key staff and attracting top talent and creating sufficient economic independence to balance the significance of other remunerative items.
Amount: No increases in the Executive Directors’ fixed remuneration are expected during 2023.
Functioning: The annual gross fixed remuneration is paid on a monthly basis in cash. This remuneration is set by the Board of Directors at the proposal of the NCCGC and may be adjusted every year depending on the criteria approved from time to time by the NCCGC. The maximum annualized increase during the term of the Policy may not exceed 10% of the gross annual salary. In certain situations, such as a change in the size and complexity of the business, a change in responsibility, development in the position and/or special retention and motivation needs, the NCCGC may decide to apply higher increases. The underlying reasons will be explained in the relevant Annual Report on the Directors’ Remuneration.
Consolidated management report 2022
l 1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 512
Purpose: To reward the performance of a combination of financial, operational, business and non-financial objectives, including ESG objectives, that are predetermined, specific, measurable and aligned with Telefónica's strategic objectives.
Amount:
Metrics: For the fiscal year 2023, the NCCGC has reviewed the objectives, metrics and performance scales to be applied in order to ensure fulfillment of the Telefónica Group’s corporate Plan. As a result, the Board of Directors has selected the quantifiable and measurable metrics that best reflect the Telefónica Group’s value creation levers, according to a proposal made by the NCCGC:
Functioning: The aforementioned objectives are approved by the Board of Directors at the beginning of each fiscal year, according to a proposal made by the NCCGC. The maximum level of the Short-Term Variable Remuneration in 2023 is set at 125% of target in the case of the maximum achievement of the pre-determined targets. This maximum level is lower than that set out in the Remuneration Policy (129.5% of target). For the purpose of calculating the payment coefficient obtained for each level of objective performance, a performance scale is determined for each metric, which includes a minimum threshold below which no incentive is paid. In the case of 100% objective performance, the target Short-Term Variable Remuneration will be paid and, in case of maximum objective performance the maximum Short-Term Variable Remuneration will be received. Information in greater detail is provided below about the scales for achieving each of the targets and how the stipulated maximum is achieved:
| Metrics | Weighting (%) | Payments levels (% of target) | % of maximum weighted payment |
|---|---|---|---|
| Min. | Target | ||
| Financial Objectives (80%) | |||
| Operating Revenue | 30% | 50% | 100% |
| OIBDA | 30% | 50% | 100% |
| Free Cash Flow | 20% | 50% | 100% |
| ESG Objectives (20%) | |||
| NPS | 5% | 50% | 100% |
| NPS GAP | 4% | 50% | 100% |
| Climate Change - GHG Emissions | 5% | 50% | 100% |
| Gender Equality - % of women in executive positions | 3% | 50% | 100% |
| Society’s Trust - REP Trak | 3% | 50% | 100% |
| Total | 100% |
Consolidated management report 2022
l 1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 513
In order to calculate the amount of the Short-Term Variable Remuneration, the NCCGC firstly considers the level of performance and weighting of each target on an individual basis and then the overall level of achievement of the objectives as a whole. For such purpose, it applies the internal objective assessment rules and procedures set out by the Company for its executives. When conducting this assessment, the NCCGC is supported by the Audit and Supervisory Committee, which provides information about the results audited by the company’s external auditor (PRICEWATERHOUSECOOPERS AUDITORES, S.L.) and by the internal audit. The Committee also considers any associated risk for both setting the targets and assessing their performance thereof. In this respect, any positive or negative economic effects caused by extraordinary events that could distort the findings of the assessment are disregarded and the long- term quality of the results and any associated risk are considered in the proposed Short-Term Variable Remuneration. The Short-Term Variable Remuneration is fully paid in cash providing the targets set for this purpose have been achieved. This remuneration will not be paid until the NCCGC and the Audit and Supervisory Committee have carried out the actions described above in the first quarter of the following year. Moreover, the NCCGC is authorized make a proposal to the Board of Directors to fully or partially cancel payment of the short-term variable remuneration if certain unforeseen circumstances arise, as described in this Report, as well as its partial or full clawback within twenty- four (24) months after the payment thereof.
Purpose: To increase the Executive Directors’ and management team’s commitment to the company and its corporate plan, linking their remuneration to creating value for the shareholders and sustainable strategic objective performance, so that they are in line with the best remuneration practices. In turn, by means of its Long-Term Incentive Plan, the company also aims at offering a competitive remuneration package that contributes to retaining the managers who hold key positions in the organization.
Description: A new Long-Term Incentive Plan 2021-2026 was approved by the General Shareholders’ Meeting held in 2021, consisting of payment with Telefónica, S.A.’s shares. The Executives of the Telefónica Group, including the Executive Directors of Telefónica, S.A., who meet the requirements stipulated for such purpose from time to time, are invited to take part in such Plan. The total term of the Plan is five (5) years divided into three (3) cycles, which are independent from each other, of three (3) years each (in other words, by delivering the shares corresponding to each cycle once three years have elapsed counted from the start of each cycle).
Metrics of the Long-Term Incentive Plan 2021-2026: The metrics determined for the Third Cycle of the Long- Term Incentive Plan 2021-2026 are the Relative TSR (50%), Free Cash Flow (40%) and Neutralization of CO2 Emissions (10%).
| Metrics | Weighting (%) | Company results | Incentive to be accrued (%) |
|---|---|---|---|
| Relative TSR¹ | 50% | 75th percentile or above | 100% |
| Median | 30% | ||
| Below median | 0% | ||
| Free Cash Flow | 40% | 100% achievement | 100% |
| 90% achievement | 50% | ||
| Lower than 90% achievement | 0% | ||
| Neutralization of CO2 emissions: scopes 1+2 in 2025² | 10% | 100% achievement | 100% |
| 90% achievement | 50% | ||
| Lower than 90% achievement | 0% |
¹Comparison group: Vodafone Group, America Movil, Deutsche Telekom, BT Group, Orange, Telecom Italia, Telenor, TeliaSonera, Swisscom, Koninklijke, KPN, TIM Brasil, Proximus, Millicom, Liberty Global.
²In addition, in order for the incentive to be paid, a minimum level of emission reductions must be achieved.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 514
Each of these metrics is explained below:
Definition: Share profitability taking into account the sum of the cumulative variation of Telefónica’s share value, plus the dividends and other similar items received by shareholders during the cycle in question.
Determining the level of achievement: The evolution of TSR from Telefónica’s shares is measured from the beginning of the cycle (2023) until the end of such cycle (2025), in relation to the TSR from other companies pertaining to the telecommunication sector, weighted depending on their relevance to Telefónica S.A. that, for the purpose of the Plan, will be used as the comparison group. The companies included in the comparison group are the following: Vodafone Group, America Movil, Deutsche Telekom, BT Group, Orange, Telecom Italia, Telenor, TeliaSonera, Swisscom, Koninklijke KPN, TIM Brasil, Proximus, Millicom y Liberty Global.
Performance Scale: The number of shares to be delivered associated with the performance of this objective will be between 15% of the number of theoretical shares granted, in the case the evolution of the TSR of Telefónica S.A.’s shares is, at least, the median of the Comparison Group (below this threshold no incentive will be payable) and 50% if the evolution is in the third or higher quartile of the comparison group. The percentage by linear interpolation is calculated for those that are between the median and the third quartile.
Definition: Free cash flow generation (FCF).
Determining the level of achievement: The level of FCF generated by the Telefónica Group is measured during each year, in comparison with the value set in the budgets approved by the Board of Directors for each year, considering the final level of FCF performance, the average of the annual partial results obtained and approved by the NCCGC.
Performance Scale: For each cycle, the Board of Directors, according to a proposal made by the NCCGC, determines a performance scale that includes a minimum threshold of 90% performance, below which no incentive is paid and the performance of which implies 20% of the theoretical shares granted being delivered, and a maximum level of 100% performance, which implies 40% of the theoretical shares granted being delivered.
Definition: Level of neutralization of the Telefónica Group's CO2 emissions level by December 31, 2025, with the additional requirement for this part of the incentive to be paid being to achieve a minimum level of scope 1 + 2 emissions reduction, in line with the 1.5 ºC scenario of the Paris Agreement (SBTi) and with the Company's objective of neutralise all its emissions to reach 1+2 by 2025 in its main markets. Emissions neutralization refers to the purchase of carbon credits to absorb CO2 from the atmosphere. Carbon credits involve the purchase of CO2 certificates on the voluntary market. These credits are generated from projects that absorb or reduce CO2 from the atmosphere, which must be certified to international standards of the highest quality and where possible have social benefits associated with them. This is verified on an annual basis by an external auditor. By 2023 and 2024, in line with Telefónica's Climate Action Plan, and SBTi recommendations, carbon credits from reduced emissions from deforestation and degradation will be allowed, with the aim of contributing to slowing deforestation in certain regions where Telefónica has operations. Scope 1 and 2 emissions consist of direct and indirect CO2 emissions from daily activity caused by fuel consumption, leakage of refrigerant gases and electricity use.
Determining the level of achievement: Neutralisation/ offsetting of emissions is calculated as the difference between Scope 1+2 emissions and the amount of carbon credits retired on behalf of the Company. The level of direct and indirect CO2 emissions from Telefónica's daily activity is calculated in accordance with the following formula:
CO2 emission = Activity Data x Emission Factor
Where:
– Activity Data: The amount of energy, fuel, gas, etc. consumed by the company during the year.
– Emission Factor: The amount of CO2 emitted into the atmosphere by the consumption of each activity unit.
For electricity, the emission factor provided by official sources (European Union, Ministries, CNMC, etc.) is used and for fuels the GHG Protocol emission factors are used.
Performance Scale: For each cycle, the Board of Directors, according to a proposal made by the NCCGC, determines a performance scale that includes a minimum threshold of 90% achievement, below which no incentive is paid and the achievement of which implies 5% of the theoretical shares granted being delivered, and a maximum level of 100% achievement, which implies 10% of the theoretical shares granted being delivered. In addition, achieving a minimum level of emission reductions of Scope 1 + 2, in line with the 1.5°C scenario of the Paris Agreement (SBTi), will be necessary for this part of the incentive to be paid.
Operation of the third cycle of the Long-Term Incentive Plan 2021-2026: The NCCGC conducts an assessment of the objectives on an annual basis and, once each cycle has ended, the level of performance is determined. When conducting this
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 515
assessment, the NCCGC is supported by the Audit and Supervisory Committee, which provides information on the results audited by the external auditor and the Company's internal auditor, which will have been analyzed first by the Audit and Supervisory Committee itself. The NCCGC also considers any associated risk for both setting the targets and assessing their achievement. When determining the objective performance level, any positive or negative economic effects caused by extraordinary events that may distort the findings of the assessment are disregarded and the long-term quality of the results are considered in the proposed Long-Term Variable Remuneration. In order for each of the members to be entitled to receive the corresponding shares, they must have held an employment or commercial relationship with the Telefónica Group on the date the shares of each cycle are settled (subject to the exceptions considered appropriate) and they must have been associated with the Telefónica Group for at least one year. The Members will not receive the shares to which they may be entitled until the NCCGC and the Audit and Supervisory Committee have carried out the actions described above.The amount paid, if any, will be subject to the malus and clawback clauses set forth in the following subsection “Malus and clawback clauses for the variable remuneration” of this Report. In any case, 100% of the shares settled within the scope of the Plan to the Executive Directors are subject to a retention period of two years. In addition, as stipulated in Remuneration Policy the Executive Directors must hold (directly or indirectly) a number of shares (including those settled as remuneration) equivalent to two years’ gross fixed remuneration as long as they are members on the Board of Directors and perform executive duties. Until this requirement is met, the retention period for any shares given to Executive Directors under the Plan, if any, is three years. The foregoing is not applicable to the shares that the Executive Directors need to sell to pay the costs related to their acquisition or, with prior consideration of the NCCGC, to cover extraordinary situations where this is required.# Incentives assigned to the Long-Term Variable Remuneration in force in 2023
As mentioned above, the cycles in force in 2023 related to the long-term incentive plans are as follows:
| Performance period | Year shares are delivered | Number of granted shares | (Value of shares granted as percentage of Fixed Remuneration) | Executive Chairman | Chief Operating Officer |
|---|---|---|---|---|---|
| Long-Term Incentive Plan 2021-2026: | |||||
| First cycle 2021-2023 | 2024 | 1,094,000 | (200)% | 819,000 | (180)% |
| Second cycle 2022-2024 | 2025 | 995,000 | (200)% | 745,000 | (180)% |
| Third cycle 2023-2025 | 2026 | 1.110.000 | (200)% | 831.000 | (180)% |
The value of the maximum shares granted in each cycle of the Plan is lower than the upper limit set in the Remuneration Policy (250% of the Fixed Remuneration) and in the resolution of the General Shareholders' Meeting held on April 23, 2021.
As noted in this Report, as well as in previous annual reports on directors' remuneration, the maximum number of shares granted under each of the cycles is significantly Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 516 lower than the maximum limit approved by the Annual General Meeting in 2021. The number of shares to be provided at the end of each cycle of the Plan will depend on the maximum number of shares granted and the level at which the objectives of the Plan are achieved.
In the event of a change in control in Telefónica, the cycles in progress in 2023 will be subject to early settlement on a pro rata basis, delivering to the Members, where appropriate, the shares, or the equivalent amount in cash, taking into account for such purpose the closing price of the last stock exchange session of the month immediately prior to the date on which the change of control occurs. The incentive to be paid is pro-rated for the time elapsed since the start date of the relevant cycle, and adjusted according to the achievement of targets on the date of the change of control.
The Pension Plan for the Executive Directors follows the same structure as in recent years and both the determination of the amounts and the conditions described below are identical to those applied to the rest of Telefónica's staff in Spain:
As described in each of the Executive Directors contracts, the Pension Plan is a defined-contribution plan and the contingencies covered are as follows: retirement; the member’s death; the beneficiary’s death; total and permanent disability to work in one’s usual profession, absolute and permanent incapacity for all work and serious disability; and severe or major dependency of the member. The benefits consist of the economic right accrued by the beneficiaries as a result of the occurrence of any of the contingencies covered by this Pension Plan. It is quantified according to the number of account units that correspond to each member based on the amounts contributed to the Pension Plan and is assessed for the purpose of payment according to the value of the account unit from the business day before the date when the benefits become effective. The members may also exercise their vested rights, in whole or in part, on an exceptional basis in the event of serious illness or long-term unemployment. The Pension Plan is included within the “Fonditel B Fondo de Pensiones,” managed by Fonditel Pensiones, EGFP, S.A.
In the fiscal year 2023 the law may change the financial and tax limits for contributions to pension plans. In this respect, as has been the case in the past, a collective unit- link insurance policy has been taken out to cover the excess of contribution over the annual fiscal limits included in the legislation This unit-link insurance policy taken out with the company Plus Ultra, Seguros Generales y Vida, S.A. de Seguros y Reaseguros covers the same contingencies as those included in the Pension Plan with the same exceptional liquidity events in the case of serious illness or long-term unemployment.
In addition to the life insurance policy covering death or disability described above, the Executive Directors are provided with a general health insurance policy and dental coverage as remuneration in kind and they are also provided with a company vehicle, all of the foregoing in line with the general policy applicable to the Company’s Executives. The Executive Directors also participate in the Global Employee Share Purchase Plan (GESP), under the same conditions as the rest of Telefónica's employees. The Executive Directors have decided to allocate the maximum amount established in the GESP (€1,800) to the acquisition of shares. Moreover, Telefónica has taken out a third-party liability insurance policy (D&O) for its managers, executives and staff performing similar duties in the Telefónica Group, with the usual terms and conditions for these kinds of insurance policies. This policy also includes the company’s subsidiaries in certain cases.
Regarding clawback formulae or clauses in order to claim the return of the variable remuneration components based on results, the following should be taken into account if such components have been paid based on data that is later clearly shown to be inaccurate, and in order to adopt measures to avoid any conflict of interest:
The Remuneration Policy standardizes the malus and clawback clauses for all variable remuneration. The Remuneration Policy to be submitted to the vote of the AGM in 2023 stipulates that the Board of Directors will decide, with a prior report issued by the NCCGC, if necessary, on the following: (i) partial or full cancellation of the variable remuneration pending payment (malus) and/ or (ii) partial or full recovery of any variable remuneration component within thirty-six (36) months after its payment (clawback), if certain exceptional situations arise that affect the Company’s results or are related to the Executive Director’s inappropriate conduct. For these purposes, exceptional situations shall be deemed as those that will be subject to assessment by the Board of Directors, among others, as examples but not limited thereto, the following:
The contracts signed with the Executive Directors are for an indefinite term and include a non-competition clause. This clause implies that, once the relevant contract has been terminated and during the valid term of the clause (two years after the termination of the contract for any reason), the Executive Directors may not indirectly or directly render their services themselves or through others, either on their own behalf or for third parties, to Spanish or foreign companies that engage in the same or similar business activities as Telefónica.
Regarding the conditions related to the termination of the contracts, the Executive Chairman, Mr. José María Álvarez- Pallete López, and the Chief Operating Officer, Mr. Ángel Vilá Boix, have the same terms and conditions as in their previous contracts, which specify agreed severance pay for termination of the relationship, when appropriate, which could amount to a maximum of four (4) annual payments. Each annual payment consists of the last fixed remuneration and the arithmetic mean of the sum of the last two (2) amounts of annual variable remuneration paid pursuant to the contracts.
In addition, the Executive Directors are members of an Executive Pension Plan that covers the contingencies of retirement, early retirement, permanent total or absolute disability or severe disability and death, the annual contribution to which is equivalent to 35% of the Fixed Remuneration, after deducting the contributions made to the Pension Plan for Telefónica employees described in section D above. However, the receipt of the remuneration described in the previous paragraph is incompatible with the awarding of any financial rights related to this Executive Pension Plan. Therefore, if an Executive Director receives the aforementioned financial remuneration, he/ she would not be entitled to any financial rights under this Plan.
The implementation vehicle of this Plan approved in 2006 is a unit-linked group life insurance policy taken out with an insurance company, and the amount of the benefit under this guarantee will be equivalent to the mathematical provision applicable to the insured on the date on which the policyholder notifies and proves to the insurance company that he/she is in one of the situations covered by the Plan.
There is currently no vesting of economic rights in favor of the Executive Directors. In the case of legislative amendments on this matter, according to a proposal made by the NCCGC, the Board of Directors could make the appropriate adjustments. Even though there are no changes planned for the functioning of this Plan, any adjustments to be made to the Executive Pension Plan must be approved by the Board of Directors. These adjustments must be justified and proposed by the NCCGC. The reasons for the adjustments must be duly explained in the annual report on the directors’ remuneration.
Consolidated Annual Report 2022
Telefónica, S. A. 518
The contracts that currently regulate the Executive Directors performing their duties and responsibilities are of a commercial nature and include clauses that are normally used for these kinds of contracts. These contracts have been proposed by the NCCGC, approved by the Board of Directors and have not suffered any significant modifications in 2022.
In addition to the severance pay terms and conditions explained in the previous point, a summary is provided below of the main terms and conditions of the Executive Directors’ contracts:
Executive Directors more than meet the shareholding commitment of two years’ gross fixed remuneration. As stipulated in the Remuneration Policy, the Executive Directors must hold (directly or indirectly) a number of shares (including those provided as remuneration) equivalent to two (2) years’ gross fixed remuneration as long as they are members on the Board of Directors and perform executive duties.
The term set for achieving this objective is five years, counted from 1 January 2019 or, in the case of Executive Directors appointed at a later time, counted from the date of their appointment, unless the Board of Directors/ NCCGC approve a longer term when exceptional situations arise.
| Shareholding Requirement | |
|---|---|
| Executive Chairman | 200% Gross Fixed Remuneration |
| Chief Operating Officer | 200% Gross Fixed Remuneration |
As long as the number of shares subject to this commitment has not been reached, the shares that the Executive Director receives within the scope of any variable remuneration component will be subject to a minimum retention period of 3 years; therefore raising the Executive Director’s level of commitment. The foregoing is not applicable to the shares that the Executive Directors need to sell to pay the costs related to their acquisition or, with prior consideration of the NCCGC, to cover extraordinary situations where this is required.
This commitment will be verified by the NCCGC, which, among other issues, will consider aspects such as the share price to be taken into account or the regularity with which the holding commitment will be reviewed. Although this requirement came into force on January 1, 2019, the Executive Directors are allowed until December 31, 2023 to comply with it
As of December 31, 2022, the Executive Chairman of the Company, Mr José María Álvarez-Pallete López, held 2.168.574 shares in Telefónica, S.A. The Chief Operating Officer (COO), Mr. Ángel Vilá Boix, held 624.248 Telefónica shares. The price at which the Executive Directors acquired their shares represents an amount that was well over twice their Fixed Remuneration.
Consolidated Annual Report 2022
Telefónica, S. A. 519
| Board of Directors | Executive Committee | Advisory or Supervisory Committee (*) | Chairman (**) |
|---|---|---|---|
| €240,000 | €80,000 | €22,400 | |
| Vicepresident | €200,000 | €80,000 | - |
| Propietary Member | €120,000 | €80,000 | €11,200 |
| Independent Member | €120,000 | €80,000 | €11,200 |
| Other External Member | €120,000 | €80,000 | €11,200 |
() In addition, the amount of the attendance fee for each of the meetings of the Advisory or Supervisory Committees is €1,000.
(*) In this regard, the Executive Chairman has waived payment of the aforementioned amounts (i.e. €240,000 as Chairman of the Board of Directors and €80,000 as Chairman of the Executive Committee), as he has done in previous years. The Executive Directors can waive payment of the aforementioned amounts. Moreover, the Non-Executive Directors receive the remuneration payable to them due to being members of certain management bodies of Telefónica’s subsidiaries and investee companies.
The remuneration payable in the financial year 2022 was in line with the terms of the Remuneration Policy approved on a binding basis at the General Shareholders’ Meeting held on April 23, 2021, pursuant to the provisions in the Transitional Provision of Article 529 Novodecies of the Spanish Corporate Enterprises Act. More details on the current Remuneration Policy can be found at the following link: https://www.telefonica.com/es/wp-content/uploads/sites/4/2021/10/politica-remuneraciones-consejeros-telefonica.pdf
There have been no deviations from the procedure for the application of the remuneration policy, nor have any temporary exceptions been applied. In this respect, the remuneration payable in 2022 to the Executive Directors and the Directors in their positions as such consists of the same components as those described for the current Remuneration Policy in force in 2023. The detailed description of the Directors’ remunerative system for 2022 was included in section 5.1.4 of the Annual Report on the Directors’ Remuneration for 2021. This report was approved by 53.28% of the votes cast, with a 42.89% of votes against and 3.83% abstentions.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 520
The pay mix for Telefónica’s Executive Directors in the last two years is shown below:
1 Extraordinary remuneration as a consequence of extraordinary efforts made by executive directors in corporate transactions of special relevance. The remuneration policy to be submitted to the 2023 Annual General Meeting eliminates the possibility of receiving this type of remuneration.
2 In order to determine the incentive value of the second and third cycle of the 2018-2023 Long-Term Incentive Plan, the number of accrued shares by each Executive Director has been multiplied by the Telefonica's share price as at December 31, 2021, and December 31, 2022, respectively.
The following table compares the accrued amount of long-term variable remuneration for the period 2021-2022, in relation to the amounts granted for a target scenario of achievement objectives (that is, 100% achievement)
| % (accrued amount / target amount granted) | 2021 | 2022 |
|---|---|---|
| Executive Chairman | 64.4% | 63.6% |
| Chief Operating Officer | 62.7% | 61.5% |
For fiscal year 2022, the Board of Directors approved, according to a proposal made by the NCCGC, the quantifiable and measurable metrics that best reflected the levers for creating value for the Telefónica Group with the aim of guaranteeing fulfillment of its corporate plan. These metrics and their relative weightings are the following:
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information
Consolidated Annual Report 2022 Telefónica, S. A. 521
| METRIC | DEFINITION AND MEASURING METHOD # 3% Short-Term Variable Remuneration
Throughout the year, the NCCGC monitored such objectives set for the Short-Term Variable Remuneration in 2022, payable in 2023. The aforementioned objectives were finally assessed based on the audited accounts for the fiscal year 2022, according to the following process:
As a result of the foregoing, and according to that stipulated in recommendation 59 of the Good Governance Code, the Board agreed to pay the Executive Directors during the first quarter of 2023 the amounts set out below, based on the following levels of achievement:
| Objectives | Metrics | Minimum | Target | Max. | Weighting (%) | Results (% achievement over the target levels) |
|---|---|---|---|---|---|---|
| Financial Objectives | Operating Revenue | 30% | 100.8% | |||
| OIBDA | 30% | 101.5% | ||||
| Free Cash Flow | 20% | 108.5% | ||||
| ESG Objectives | NPS | 5% | 111.1% | |||
| GAP NPS | 4% | 103.7% | ||||
| Climate Change - GHG Emissions | 5% | 54%* | ||||
| Society’s Trust - REP Trak | 3% | 103.0% | ||||
| Gender Equality - % of Women in | 3% | 100.8% | ||||
| executive positions |
*The GHG Emissions climate change KPI has an inverse payout curve, so that achievements below 100% (emissions level below the target) are positive, and result in payouts above 100%. The level of achievement of all objectives has been between the target level and the maximum level, with the exception of the GHG emission reduction objective, where the maximum level has been exceeded.
After applying the performance scales for each of the objectives, a weighted payment coefficient of 121.3% has been determined. This payment coefficient corresponds to €4,198,897 for the Executive Chairman (121.3% of the target amount) and €2,911,200 for the Chief Operating Officer (121.3% of the target amount). The Short-Term Variable Remuneration target was 180% of the Annual Fixed Remuneration for the Executive Chairman and 150% of the Annual Fixed Remuneration for the Chief Operating Officer.
The General Shareholders’ Meeting held in 2018 approved a Long-Term Incentive Plan consisting of providing Telefónica, S.A.’s shares, aimed at Executives of Telefónica that, meeting the requirements stipulated for such purpose from time to time, were invited to participate therein, including the Executive Directors de Telefónica, S.A. The measurement period for the objectives of the third cycle of the 2018-2023 Plan ended on December 31, 2022.
The theoretical number of granted shares, corresponding to the Executive Directors, if 100% of the TSR and Free Cash Flow objectives are achieved, was as follows:
In order to determine the correct number of shares to be granted at the end of the aforementioned cycle, the NCCGC analyzed the level of achievement of each of the two objectives.
| Metrics | Weighting (%) | Company Results | Incentive Accrued |
|---|---|---|---|
| Relative TSR* | 50% | 75th percentile or above | 100% |
| Median | 30% | ||
| Below median | 0% | ||
| Free Cash Flow | 50% | 100% of achievement | 100% |
| 90% performance | 50% | ||
| Lower than 90% performance | 0% |
* Peer group: America Movil, BT Group, Deutsche Telekom, Orange, Telecom Italia, Vodafone Group, Proximus, Koninklijke KPN, Millicom, Swisscom, Telenor, TeliaSonera and Tim Brasil.
Regarding the Relative TSR, the weighting of which is 50%, Kepler provided the NCCGC with the calculation of Telefónica’s Relative TSR since the beginning of the cycle (2020) until its end (2022), related to the TSR obtained by certain companies belonging to the telecommunications sector, weighted according to their relevance for Telefónica which are included in the comparison group are the following: America Movil, BT Group, Deutsche Telekom, Orange, Telecom Italia, Vodafone Group, Proximus, Koninklijke KPN, Millicom, Swisscom, Telenor, TeliaSonera and Tim Brasil Telefónica’s TSR ended up being below the median according to the achievement scale used. Therefore, no right whatsoever was generated to receive shares linked to achieving the Relative TSR objective.
Regarding the Free Cash Flow, the weighting of which is the remaining 50%, the Planning and Supervision Department drew up a report related to the Free Cash Flow generated by the Telefónica Group in each year in the objective measurement period (2020, 2021 and 2022), based on the results audited by the company’s internal and external auditors, comparing it with the value set in the budgets approved by the Board of Directors for each fiscal year. The final performance was considered as the average of the partial annual results obtained and approved by the NCCGC.
The NCCGC has been conducting annual monitoring of the Free Cash Flow and the level of performance is determined once the report issued by the Planning and Supervision Department has been analyzed. When conducting this assessment, the NCCGC was supported by the Audit and Supervisory Committee, which provides information about the results audited by the Company’s external auditor. In this respect, the annual achievement level of Free Cash Flow was 113% (year 2020), 135% (year 2021) and 108.5% (year 2022). Therefore, the payment coefficient linked to Free Cash Flow was 100%.
Bearing in mind the results of the Relative TSR and the Free Cash Flow, the weighted payment coefficient amounted to 50%.(133,500 shares for the Executive Chairman and 99,000 shares for the Chief Operating Officer). The value of these shares at December 31, 2022 was 25.3% of the value of the maximum incentive initially granted in 2020. This incentive will be paid during March 2023.
The contributions made in 2022 to the “Fonditel B, Fondo de Pensiones” Pension Plan:
The contributions made in 2022 to the unit link insurance policy, related to the Pension Plan, taken out with Plus Ultra, Seguros Generales y Vida, S.A. de Seguros y Reaseguros were as follows:
The Pension Plan for the Executive Directors follows the same scheme and is aligned with the Pension Plan for Telefónica’s employees regarding its terms and conditions and the contribution percentages.
| Contribution (% regulatory salary) | Fonditel Pension Plan + Unit-Link insurance policy | Total |
|---|---|---|
| Executive Chairman | €7,574 + €124,543 | €132,117 |
| Chief Operating Officer | €6,721 + €65,439 | €72,160 |
The contribution percentages are aligned with Telefónica's employee pension plan. The amount of the vested rights on December 31, 2022 was as follows:
The mathematical provision of the unit-link insurance policy on December 31, 2022, was as follows:
It should be noted that the development of accumulated funds reflects both the contributions made and the revaluation of these funds. Additional information about the features of the Pension Plan for employees can be found in section 5.1.4.D) of this report.
In this respect, the Executive Directors receive the following benefits:
The cost of this remuneration in kind in 2022 amounted to €80,784 for the Executive Chairman and €64,905 for the Chief Operating Officer. Additionally, in the statistic annex shows the remuneration in kind corresponding to the vehicle in use (€18,429). Telefónica has also taken out a third-party liability policy (D&O) for directors, executives and other staff with similar duties in the Telefónica Group, with the customary terms and conditions for this type of insurance.
As explained in section 5.1.4 above, there is currently no vesting of economic rights in favor of the Executive Directors. In the case of legislative amendments on this matter, according to a proposal made by the NCCGC, the Board of Directors could make the appropriate adjustments. In addition, if any severance pay is received due to the termination of the employment relationship, this will be incompatible with the being granted any economic right whatsoever linked to this Plan.
The contributions in 2022 to the benefits plan were as follows:
Telefónica, S. A. 524
Further information:
Remuneration of the directors in their positions as such
The remuneration payable to the Directors in their positions as such is according to the same scheme as the one described in section 5.1.5 of this report and the one applied in previous fiscal years. In this respect, as explained in section 5.1.5 of the Annual Directors’ Remuneration Report for 2021, in the year 2022 the Executive Chairman waived payment of €240,000 as Chairman of the Board of Directors, and €80,000 as Chairman of the Executive Committee. External Directors also receive the remuneration to which they are entitled for belonging to certain Management Decision-Making Bodies of some Subsidiaries and affiliates of Telefónica.
According to the foregoing, the aggregate remuneration for the items in 2022 was as follows:
| 2022 | 2021 | |
|---|---|---|
| Fixed amount due to being a member on the Board, Executive Commission and Advisory or Supervisory Committees | €2,604,801 | €2,841,100 |
| Fees for attending the meetings of the Advisory or Supervisory Committees | €247,000 | €260,000 |
| Remuneration for being a member on certain Management Decision- Making Bodies of some subsidiaries of Telefónica | €1,068,598 | €704,912 |
During the fiscal year 2022, the Directors in their positions as such did not accrue payments for early termination or termination of their contracts, or advances, loans or guarantees, or payments made by Telefónica to a third party to which the director provides services, or any other remuneration item apart from the ones already mentioned. The individual amounts per director are provided in the statistical annex attached to this Report.
GRI 2-20
The NCCGC, the responsibilities and duties of which are stipulated in Article 40 of the Articles of Association, Article 23 oNCCGC’s Regulations, plays a crucial role in defining the Telefónica Group’s Remuneration Policy and in developing and deciding on its components; however the most important decisions must be approved by the Board of Directors. The Committee’s mandate, within the scope of remuneration, consists of continuously reviewing and updating the remuneration system applicable to the Directors and Senior Executive Directors and designing new remuneration plans that enable the Company to attract, retain and motivate the most outstanding professionals, aligning their interests with the Company’s strategic objectives. In addition, other bodies and external advisors take part in the process of determining the Remuneration Policy. The functions performed by the various company bodies involved in determining and approving the Remuneration Policy and its conditions are explained below, along with a reference to the involvement of external advisors in this matter:
Consolidated management report 2022
l
1. Strategy and growth model
2. Non-financial Information statement
3. Risks
4. Annual Corporate Governance Report
5. Annual Report on Remuneration of the Directors
6. Other information
Consolidated Annual Report 2022
Telefónica, S. A. 525
| | General Shareholders’ Meeting # Consolidated Annual Report 2022
Geographic distribution: Mainly companies with their parent company located in Continental Europe and in the United Kingdom are included, as well as representative North American enterprises in the technology, media and entertainment sector or related to such sector that are benchmarks for the company.
Distribution by sector: It is a multi-sector sample, with homogeneous distribution among the business sectors.
Audit and Supervisory Committee: It analyzes the results audited by the external and internal auditor to evaluate achievement of the objectives for the variable remuneration.
Determining and designing the remuneration elements: Applying the variable remuneration: Analysis of the external competitiveness of the remuneration: Planning and Control, Corporate Ethics and Sustainability: Human Resources: They prepare reports related to the achievement level of the operative, financial and non-financial targets based on the results audited by the Company’s external and internal auditor.
Secretary General: This person prepares the formal documents related to the Remuneration Policy to be submitted to the General Shareholders’ Meeting, the Board of Directors, the Executive Committee and/or the Advisory or Supervisory Committees. Together with HR Management, he/she prepares the Annual Report on the Directors’ Remuneration.
Human Resources: Together with the General Secretary, it prepares the Annual Report on Directors' Remuneration. It prepares the proposals related to the design of the Remuneration Policy applicable to the Executive Directors. Together with the General Secretary, it prepares the Annual Report on Remuneration of the Directors. It regularly reviews the Directors’ remuneration.
External Advisors in 2022: WTW provided advice on preparing the Annual Report on Remuneration of the Directors for 2022. The law firm Garrigues also took part in the review of the aforementioned report. Mercer-Kepler analyses the level of achievement of the Total Shareholder Return (TSR) of Telefónica for each of lifecycles of the share plan on a quarterly basis. WTW provides advice on the comparative analysis of the Directors’ and the Senior Executives’ remuneration package against the market.
Pursuant to Article 40 of the Articles of Association, Article 23 of the Board of Directors’ Regulations and Article 1 of the NCCGC’s Regulations, the Committee must be composed of no fewer than three Directors appointed by the Board of Directors; they must be external or Non- Executive Directors and the majority of them must be independent Directors. The Independent Coordinating Director must be a member on the Committee. Lastly, it is also stated that the Chairperson of this Committee must be an independent Director in all cases. In this respect, the Committee is composed of the following Directors:
| Name | Position | Type | Date of Appointment |
|---|---|---|---|
| Mr. José Javier Echenique Landiríbar | Chairman | Independent | May 4, 2017 (as a Member) December 18, 2019 (the date he was appointed as Chairman) |
| Mr. Peter Erskine | Member | Other External Director | February 27, 2008 |
| Mr. Peter Löscher | Member | Independent | April 17, 2020 |
| Ms. María Luisa García Blanco | Member | Independent | December 18, 2019 |
| Mr. Francisco Javier de Paz Mancho | Member | Other External Director | April 8, 2016 |
The NCCGC applies the Technical Guide 1/2019 on Appointment and Remuneration Committees, approved by the National Securities Market Commission on February 20, 2019, as well as the revised CNMV’s Good Governance Code for Listed Companies published on June 20, 2020.
During fiscal year 2022 and up to the date this report was approved, the most significant activities carried out by the NCCGC have been the following:
Year 2022:
* Drawing up an Annual Work Plan for 2022, in order to ensure suitable planning to guarantee the objectives sought are effectively achieved by the Committee.
* Proposals for appointments related to the Board of Directors and its Committees, and to the Boards of Subsidiary Companies.
* Analysis of the organizational structure of the Telefónica Group and other issues related to the staff.
* Evaluation of objective performance linked to the short-term variable remuneration of Executive Directors for the fiscal year 2021 (payable in 2022).
* Assessment of fulfillment of the objectives linked to the second cycle 2019-2022 of the 2018-2023 Long-Term Incentive Plan for the Executive Directors.
* Analysis of the Executive Directors’ total remuneration for 2022.
* Analysis of the total remuneration for the members of the Executive Committee in 2022.
* Proposal for determining and monitoring the objectives linked to the short-term variable remuneration of Executive Directors for the fiscal year 2022.
* Proposal regarding the 2021 Annual Report on the Directors’ Remuneration to be submitted to the Board of Directors and subsequently submitted to the Ordinary General Shareholders’ Meeting held in 2022.
Year 2023:
* Analysis of the Executive Directors’ total remuneration for 2023.
* Evaluation of objective performance linked to the Short-Term Variable Remuneration of Executive Directors for fiscal year 2022 (payable in 2023).
* Assessment of the achievement of the objectives linked to the third cycle 2020-2023 of the Long-Term Incentive Plan 2018-2023 (to be paid out in 2023).
* Proposal for determining the objectives linked to the Short-Term Variable Remuneration of the Executive Directors for fiscal year 2023.
* Proposal for determining the objectives linked to the third cycle 2023-2026 of the Long-Term Incentive Plan 2021-2026.
* Proposal for the Directors’ Remuneration Policy to be submitted to the Board of Directors and subsequently to the Ordinary General Shareholders’ Meeting to be held in 2023.
* Proposal for the 2022 Annual Report on the Directors’ Remuneration to be submitted to the Board of Directors and subsequently to the Ordinary General Shareholders’ Meeting to be held in 2023.
Moreover, it should be pointed out that the NCCGC can request the Board of Directors to hire legal, accounting and financial advisors and other experts at the company’s expense. In this respect, WTW provided advice on drawing up this Annual Report on the Directors’ Remuneration. Likewise, the law firm Garrigues took part in the review thereof.
Telefónica’s Remuneration Policy has the following features that enable its exposure to excessive risks to be reduced and adjustment to the Company’s long-term targets, values and interests:
Adopting measures related to the staff categories whose professional work has a significant impact on the Company’s risk profile:
* The NCCGC supervises the examination, analysis and application of the remuneration policy of the professionals whose work could have a significant impact on the Company’s risk profile.
* No guaranteed variable remuneration.
* The variable remuneration is only payable after the date the relevant annual accounts have been drawn up, once the achievement level of the operating and financial objectives can be determined.
* The NCCGC considers the quality of the results in the long-term and any associated risk in the evaluation process of variable remuneration.
* The design of the Long-Term Incentive Plans, each one with three-year cycles, implies an interrelation with the results in each year, therefore acting as an alignment catalyst with the company’s long-term interests and cautious decision-making.
* The NCCGC is authorized to propose cancellation of payment of the variable remuneration to the Board of Directors under certain circumstances. Detailed information on this point can be found in section 5.1.6 of this report.
The Remuneration Policy contains specific and consistent malus and clawback clauses, to be applied to any variable remuneration component. In this respect, there is a possibility to (i) partially or fully cancel the variable remuneration pending payment (malus) and/or (ii) partially or fully recover any variable remuneration component within thirty-six (36) months after payment thereof (clawback), when certain exceptional situations arise that affect the company’s results or are related to the Chief Operating Officer’s inappropriate conduct.
The NCCGC is composed of 5 members, two of whom are also members on the Audit and Supervisory Committee.The fact that some Directors are members of these two Committees ensures that the risks related to remuneration are taken into account in the discussions held by both Committees and in their proposals submitted to the Board, both in the determination and assessment process of the annual and multiannual incentives.
According to the Remuneration Policy, at the proposal of the NCCGC, the Board of Directors is authorized to agree on the possible revaluation or modification of the remuneration linked to the results if there are significant internal or external changes that mean they need to be reviewed.
See Annex II (Remuneration to the Board and Senior Management) of the Consolidated Annual Accounts of Telefónica corresponding to fiscal year 2022.
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 530
Statistical Annex (established by Circular 3/2021, of September 28, of the National Securities Market Commission, which modifies Circular 4/2013, of June 12, which establishes the annual remuneration report models of the Directors of listed public limited companies)
Unless otherwise indicated all data as of December 31, 2022.
| Number | % of total Votes cast | Votes against | % cast | Votes in favour | % cast | Blank ballots | % | Abstentions | % cast | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 3,234,412,128 | 55.97% | 1,387,366,467 | 42.90% | 1,723,151,319 | 53.28% | — | — | —% | 123,894,342 | 3.84% |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 531
| Name | Type | Period of accrual in 2022 |
|---|---|---|
| Mr. JOSÉ MARÍA ÁLVAREZ-PALLETE LÓPEZ | Executive Chairman | From 01/01/2022 to 31/12/2022 |
| Mr. ISIDRO FAINÉ CASAS | Proprietary Vice Chairman | From 01/01/2022 to 31/12/2022 |
| Mr. JOSÉ MARÍA ABRIL PÉREZ | Proprietary Vice Chairman | From 01/01/2022 to 31/12/2022 |
| MR. JOSÉ JAVIER ECHENIQUE LANDIRÍBAR | Independent Vice Chairman | From 01/01/2022 to 31/12/2022 |
| Mr. ÁNGEL VILÁ BOIX | Chief Operating Officer | From 01/01/2022 to 31/12/2022 |
| Mr. JUAN IGNACIO CIRAC SASTURAIN | Independent Director | From 01/01/2022 to 31/12/2022 |
| Mr. PETER ERSKINE | Other External Director | From 01/01/2022 to 31/12/2022 |
| Ms. CARMEN GARCÍA DE ANDRÉS | Independent Director | From 01/01/2022 to 31/12/2022 |
| Ms. MARÍA LUISA GARCÍA BLANCO | Independent Director | From 01/01/2022 to 31/12/2022 |
| Mr. PETER LÖSCHER | Independent Director | From 01/01/2022 to 31/12/2022 |
| Ms. VERÓNICA PASCUAL BOÉ | Independent Director | From 01/01/2022 to 31/12/2022 |
| Mr. FRANCISCO JAVIER DE PAZ MANCHO | Other External Director | From 01/01/2022 to 31/12/2022 |
| Mr. FRANCISCO JOSÉ RIBERAS MERA | Independent Director | From 01/01/2022 to 31/12/2022 |
| Ms. MARÍA ROTONDO URCOLA | Independent Director | From 01/01/2022 to 31/12/2022 |
| Ms. CLAUDIA SENDER RAMÍREZ | Independent Director | From 01/01/2022 to 31/12/2022 |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 532
| Name | Fixed Remuneration | Per diem allowances | Remuneration for membership of Board’s committees | Salary | Short-term variable remuneration | Long-term variable remuneration | Severance pay | Other grounds | Total in 2022 | Total in 2021 |
|---|---|---|---|---|---|---|---|---|---|---|
| MR. JOSÉ MARÍA ÁLVAREZ-PALLETE LÓPEZ | 0 | 0 | 0 | 1,923 | 4,199 | 0 | 0 | 0 | 6,122 | 7,654 |
| MR. ISIDRO FAINÉ CASAS | 200 | 0 | 80 | 0 | 0 | 0 | 0 | 0 | 280 | 280 |
| MR. JOSÉ MARÍA ABRIL PÉREZ | 200 | 9 | 91 | 0 | 0 | 0 | 0 | 0 | 300 | 302 |
| MR. JOSÉ JAVIER ECHENIQUE LANDIRÍBAR | 200 | 24 | 114 | 0 | 0 | 0 | 0 | 0 | 338 | 337 |
| MR. ÁNGEL VILÁ BOIX | 0 | 0 | 0 | 1,600 | 2,911 | 0 | 0 | 0 | 4,511 | 5,840 |
| MR. JUAN IGNACIO CIRAC SASTURAIN | 120 | 30 | 34 | 0 | 0 | 0 | 0 | 0 | 184 | 163 |
| MR. PETER ERSKINE | 120 | 19 | 114 | 0 | 0 | 0 | 0 | 0 | 253 | 257 |
| MS. CARMEN GARCÍA DE ANDRÉS | 120 | 32 | 34 | 0 | 0 | 0 | 0 | 0 | 186 | 163 |
| MS. MARÍA LUISA GARCÍA BLANCO | 120 | 32 | 45 | 0 | 0 | 0 | 0 | 0 | 197 | 165 |
| MR. PETER LÖSCHER | 120 | 23 | 114 | 0 | 0 | 0 | 0 | 0 | 257 | 251 |
| MS. VERÓNICA PASCUAL BOÉ | 120 | 7 | 11 | 0 | 0 | 0 | 0 | 0 | 138 | 141 |
| MR. FRANCISCO JAVIER DE PAZ MANCHO | 120 | 33 | 125 | 0 | 0 | 0 | 0 | 0 | 278 | 277 |
| MR. FRANCISCO JOSÉ RIBERAS MERA | 120 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 120 | 120 |
| MS. MARÍA ROTONDO URCOLA | 120 | 20 | 22 | 0 | 0 | 0 | 0 | 0 | 162 | 35 |
| MS. CLAUDIA SENDER RAMÍREZ | 120 | 18 | 22 | 0 | 0 | 0 | 0 | 0 | 160 | 160 |
Consolidated management report 2022 l 1. Strategy and growth model 2. Non-financial Information statement 3. Risks 4. Annual Corporate Governance Report 5. Annual Report on Remuneration of the Directors 6. Other information Consolidated Annual Report 2022 Telefónica, S. A. 533
| Name of Plan | Financial instruments at start of 2022 | Financial instruments granted at start of 2022 | Financial instruments consolidated during the year | Instruments matured but not exercised | Financial instruments at end of 2022 | Net profit from shares handed over or consolidated financial instruments (thousand €) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| No. of instruments | No. of equivalent shares | No. of instruments | No. of equivalent shares | No. of instruments | No. of equivalent shares/ handed over | Price of the consolidated shares | No. of instruments |
| Name | Remuneration from consolidation of rights to savings system (thousand €) | Contribution over the year from the company (thousand €) | Amount of accumulated funds (thousand €) |
|---|---|---|---|
| Mr. José María Álvarez-Pallete López | 132 | ||
| Mr. Ángel Vilá Boix | 72 |
| Name | Savings systems with consolidated economic rights Year 2022 | Savings systems with consolidated economic rights Year 2021 | Systems with consolidated economic rights Year 2022 | Systems with consolidated economic rights Year 2021 | Systems with unconsolidated economic rights Year 2022 | Systems with unconsolidated economic rights Year 2021 |
|---|---|---|---|---|---|---|
| Mr. José María Álvarez-Pallete López | 132 | 132 | 541 | 541 | 1,144 | 1,133 |
| Mr. Ángel Vilá Boix | 72 | 72 | 488 | 488 | 793 | 802 |
| Name | Amount of accumulated funds (thousand €) Year 2022 | Amount of accumulated funds (thousand €) Year 2021 |
|---|---|---|
| Mr. José María Álvarez-Pallete López | 9,982 | 10,636 |
| Mr. Ángel Vilá Boix | 7,762 | 8,198 |
| Name | Item | Remuneration | Amount |
|---|---|---|---|
| Mr. José María Álvarez-Pallete López | Health insurance premium | 6 | |
| Mr. José María Álvarez-Pallete López | Life insurance premium | 75 | |
| Mr. Ángel Vilá Boix | Health insurance premium | 6 | |
| Mr. Ángel Vilá Boix | Life insurance premium | 59 | |
| Mr. Ángel Vilá Boix | Company vehicle | 18 |
| Name | Fixed Remuneration | Per diem allowances | Remuneration for membership of Board’s committees | Salary | Short-term variable remuneration | Long-term variable remuneration | Severance pay | Other grounds | Total in 2022 | Total in 2021 |
|---|---|---|---|---|---|---|---|---|---|---|
| MR. JOSÉ MARÍA ÁLVAREZ-PALLETE LÓPEZ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| MR. ISIDRO FAINÉ CASAS | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| MR. JOSÉ MARÍA ABRIL PÉREZ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| MR. JOSÉ JAVIER ECHENIQUE LANDIRÍBAR | 90 | 0 | 0 | 0 | 0 | 0 | 0 | 88 | 178 | 158 |
| MR. ÁNGEL VILÁ BOIX | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| MR. JUAN IGNACIO CIRAC SASTURAIN | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 90 | 90 | 0 |
| MR. PETER ERSKINE | 80 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 80 | 63 |
| MS. CARMEN GARCÍA DE ANDRÉS | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| MS. MARÍA LUISA GARCÍA BLANCO | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 88 | 88 | 51 |
| MR. PETER LÖSCHER | 119 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 119 | 100 |
| MS. VERÓNICA PASCUAL BOÉ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 60 | 60 | 0 |
| MR. FRANCISCO JAVIER DE PAZ MANCHO | 171 | 0 | 0 | 0 | 0 | 0 | 0 | 155 | 326 | 295 |
| MR. FRANCISCO JOSÉ RIBERAS MERA | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| MS. MARÍA ROTONDO URCOLA | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| MS. CLAUDIA SENDER RAMÍREZ | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 128 | 128 | 38 |
| Name of Plan | Financial instruments at start of 2022 | Financial instruments granted at start of 2022 | Financial instruments consolidated during the year | Instruments matured but not exercised | Financial instruments at end of 2022 |
|---|---|---|---|---|---|
| No. of instruments | No. of equivalent shares | No. of instruments | No. of equivalent shares | No. of instruments | |
| No. of instruments | No. of instruments | No. of instruments | No. of instruments | No. of instruments | |
| No data | No data | No data | |||
| MR. JOSÉ MARÍA ÁLVAREZ-PALLETE LÓPEZ | Performance Share Plan (“PSP”) 2020-2023 (Third Cycle) | 267,000 | 267,000 | 0 | 0 |
| Performance Share Plan (“PSP”) 2021-2024 (First Cycle) | 1,094,000 | 1,094,000 | 0 | 0 | |
| Performance Share Plan (PSP) 2022-2025 (Second Cycle) | 0 | 0 | 995,000 | 995,000 | |
| Global Employee Share Plan ("GESP") 2022-2024 | 0 | 0 | 130 | 130 | |
| MR. ÁNGEL VILÁ BOIX | Performance Share Plan (“PSP”) 2020-2023 (Third Cycle) | 198,000 | 198,000 | 0 | 0 |
| Performance Share Plan (“PSP”) 2021-2024 (First Cycle) | 819,000 | 819,000 | 0 | 0 | |
| Performance Share Plan (“PSP”) 2022-2025 (Second Cycle) | 0 | 0 | 745,000 | 745,000 | |
| Global Employee Share Plan ("GESP") 2022-2024 | 0 | 0 | 130 | 130 |
| Name | Remuneration from consolidation of rights to savings system | No data |
|---|---|---|
| Name | Contribution over the year from the company (thousand €) | Amount of accumulated funds (thousand €) |
|---|---|---|
| Year 2022 | Year 2021 | |
| Savings systems with consolidated economic rights | Year 2022 | Year 2021 |
| Systems with Consolidated economic rights | Year 2022 | Year 2021 |
| Systems with unconsolidated economic rights | Year 2022 | Year 2021 |
| Mr. José María Álvarez-Pallete López | 0 | 0 |
| Mr. Ángel Vilá Boix | 0 | 0 |
| Name | Item | Remuneration | Amount |
|---|---|---|---|
| No data |
This should include a summary of the amounts corresponding to all the remuneration items included in this report that have accrued to each director (thousand €).
| Name | Total cash remuneration | Gross profit of consolidated shares or financial instruments | Remuneration for savings systems | Remuneration for other items | Total 2022 company | Remuneration accrued in group companies Total cash remuneration | Gross profit of consolidated shares or financial instruments | Remuneration for saving systems | Remuneration for other items | Total 2022 group | Total 2022 company + group |
|---|---|---|---|---|---|---|---|---|---|---|---|
| MR. JOSÉ MARÍA ÁLVAREZ- PALLETE LÓPEZ | 6,122 | 452 | 132 | 81 | 6,787 | 0 | 0 | 0 | 0 | 0 | 6,787 |
| MR. ISIDRO FAINÉ CASAS | 280 | 0 | 0 | 0 | 280 | 0 | 0 | 0 | 0 | 0 | 280 |
| MR. JOSÉ MARÍA ABRIL PÉREZ | 300 | 0 | 0 | 0 | 300 | 0 | 0 | 0 | 0 | 0 | 300 |
| MR. JOSÉ JAVIER ECHENIQUE LANDIRÍBAR | 338 | 0 | 0 | 0 | 338 | 178 | 0 | 0 | 0 | 178 | 516 |
| MR. ÁNGEL VILÁ BOIX | 4,511 | 335 | 72 | 83 | 5,001 | 0 | 0 | 0 | 0 | 0 | 5,001 |
| MR. JUAN IGNACIO CIRAC SASTURAIN | 184 | 0 | 0 | 0 | 184 | 90 | 0 | 0 | 0 | 90 | 274 |
| MR. PETER ERSKINE | 253 | 0 | 0 | 0 | 253 | 80 | 0 | 0 | 0 | 80 | 333 |
| MS. CARMEN GARCÍA DE ANDRÉS | 186 | 0 | 0 | 0 | 186 | 0 | 0 | 0 | 0 | 0 | 186 |
| MS. MARÍA LUISA GARCÍA BLANCO | 197 | 0 | 0 | 0 | 197 | 88 | 0 | 0 | 0 | 88 | 285 |
| MR. PETER LÖSCHER | 257 | 0 | 0 | 0 | 257 | 119 | 0 | 0 | 0 | 119 | 376 |
| MS. VERÓNICA PASCUAL BOÉ | 138 | 0 | 0 | 0 | 138 | 60 | 0 | 0 | 0 | 60 | 198 |
| MR. FRANCISCO JAVIER DE PAZ MANCHO | 278 | 0 | 0 | 0 | 278 | 326 | 0 | 0 | 0 | 326 | 604 |
| MR. FRANCISCO JOSÉ RIBERAS MERA | 120 | 0 | 0 | 0 | 120 | 0 | 0 | 0 | 0 | 0 | 120 |
| MS. MARÍA ROTONDO URCOLA | 162 | 0 | 0 | 0 | 162 | 0 | 0 | 0 | 0 | 0 | 162 |
| MS. CLAUDIA SENDER RAMÍREZ | 160 | 0 | 0 | 0 | 160 | 128 | 0 | 0 | 0 | 128 | 288 |
| TOTAL | 13,486 | 787 | 204 | 164 | 14,641 | 1,069 | 0 | 0 | 0 | 1,069 | 15,710 |
| Total amounts accrued and % annual variation Year 2022 | % variation 2022/2021 | Total amounts accrued and % annual variation Year 2021 | % variation 2021/2020 | Total amounts accrued and % annual variation Year 2020 | % variation 2020/2019 | Total amounts accrued and % annual variation Year 2019 | % variation 2019/2018 | Total amounts accrued and % annual variation Year 2018 | |
|---|---|---|---|---|---|---|---|---|---|
| EXECUTIVE DIRECTORS | |||||||||
| MR. JOSÉ MARÍA ÁLVAREZ-PALLETE LÓPEZ | 6,787 | -22.21 | 8,725 | 68.01 | 5,193 | -6.21 | 5,537 | -0.29 | 5,553 |
| MR. ÁNGEL VILÁ BOIX | 5,001 | -24.52 | 6,626 | 71.17 | 3,871 | -5.45 | 4,094 | -0.51 | 4,115 |
| EXTERNAL DIRECTORS | |||||||||
| MR. ISIDRO FAINÉ CASAS | 280 | 0.00 | 280 | 0.00 | 280 | 0,00 | 280 | 0,00 | 280 |
| MR. JOSÉ MARÍA ABRIL PÉREZ | 300 | -0.66 | 302 | 0.67 | 300 | 0,00 | 300 | 0,00 | 300 |
| MR. JOSÉ JAVIER ECHENIQUE LANDIRÍBAR | 516 | 4.24 | 495 | -0.60 | 498 | 20,00 | 415 | 14,64 | 362 |
| MR. JUAN IGNACIO CIRAC SASTURAIN | 274 | 68.10 | 163 | 14.79 | 142 | 1,43 | 140 | -0.71 | 141 |
| MR. PETER ERSKINE | 333 | 4.06 | 320 | 13.07 | 283 | 4,43 | 271 | 1,88 | 266 |
| MS. CARMEN GARCÍA DE ANDRÉS | 186 | 14.11 | 163 | -1.81 | 166 | 3,11 | 161 | 1,90 | 158 |
| MS. MARÍA LUISA GARCÍA BLANCO | 285 | 31.94 | 216 | 31.71 | 164 | 3,80 | 158 | 54,90 | 102 |
| MR. PETER LÖSCHER | 376 | 7.12 | 351 | 33.46 | 263 | 56,55 | 168 | 7,01 | 157 |
| MS. VERÓNICA PASCUAL BOÉ | 198 | 40.43 | 141 | 0.71 | 140 | 0,00 | 0 | 0,00 | 0 |
| MR. FRANCISCO JAVIER DE PAZ MANCHO | 604 | 5.59 | 572 | 1.78 | 562 | -3.93 | 585 | 8,33 | 540 |
| MR. FRANCISCO JOSÉ RIBERAS MERA | 120 | 0.00 | 120 | 0.00 | 120 | 0,00 | 120 | 0,00 | 120 |
| MS. MARÍA ROTONDO URCOLA | 162 | 362.86 | 35 | 0.00 | 0 | 0,00 | 0 | 0,00 | 0 |
| MS. CLAUDIA SENDER RAMÍREZ | 288 | 45.45 | 198 | 40.43 | 141 | 0,00 | 0 | 0,00 | 0 |
| CONSOLIDATED RESULTS OF THE COMPANY | 2,960 | -76 | 12,095 | 368.25 | 2,583 | -4.97 | 2,718 | -51.21 | 5,571 |
| AVERAGE EMPLOYEE REMUNERATION | 54 | -12.90 | 62 | 31.91 | 47 | -30.88 | 68 | 33.33 | 51 |
OBSERVATIONS:
* Mr. José María Álvarez-Pallete López: (i) The year-on-year variation in remuneration in 2022 compared to 2021 is due to the extraordinary remuneration paid in 2021.It should be noted that the variable remuneration accrued in 2022 by the Executive Chairman represents 63.6% of the total target variable remuneration initially granted. The fixed remuneration is the same as that received since 2013, which was set in his capacity as CEO, having remained unchanged after his appointment as Chairman in 2016.
(ii) The year-on-year variation in remuneration in 2021 compared to 2020 considering ordinary remuneration, as detailed in point (i) above, is 16%, derived from the YoY performance variation associated with the Director's variable remuneration. The consolidated result of the company increased by 368% in 2021 compared to 2020.
(iii) The 2021/2020 variation reflected in the table is determined by the Executive Chairman's proposed waiver of the first cycle of the 2018-2023 Long-Term Incentive Plan, which the Board of Directors agreed not to pay in 2020 as a gesture of responsibility following the effects of COVID-19, and the extraordinary variable remuneration received by the Executive Chairman in 2021.
• Mr. Ángel Vila Boix:
(i) The year-on-year change in remuneration in 2022 compared to 2021 is due to the extraordinary remuneration received in 2021. It should be noted that the variable remuneration accrued in 2022 by the Chief Operating Officer represents 61.5% of the total target variable remuneration initially granted. Fixed remuneration remains unchanged from 2017.
(ii) The year-on-year change in remuneration in 2021 compared to 2020 considering the ordinary remuneration, as detailed in point (i) above, is 15%, derived from the YoY performance variation associated with the Director's variable remuneration.
(iii) The 2021/2020 variation reflected in the table is determined by the proposed waiver by the Chief Operating Officer of the first cycle of the 2018-2023 Long-Term Incentive Plan, which the Board of Directors agreed not to pay in 2020 as a gesture of responsibility following the effects of COVID-19, and the extraordinary variable remuneration received by the Chief Operating Officer in 2021.
• Mr. Juan Ignacio Cirac Sasturain (% variation 2022/2021): On 15 December 2021 he joined the Regulation and Institutional Affairs Committee as a member, receiving the corresponding remuneration from 2022. The increase in remuneration is also due to the fact that in 2022 he received the corresponding remuneration for his membership of the Advisory Boards of Telefónica Tech and Telefónica de Ingeniería de Seguridad.
• Ms. Carmen García de Andrés (% variation 2022/2021): On 15 December 2021, she joined the Regulation and Institutional Affairs Committee as a member, receiving the corresponding remuneration from 2022.
• Ms. María Luisa García Blanco (% variation 2022/2021): On 15 December 2021, she was appointed Chairwoman of the Sustainability and Quality Committee, receiving the corresponding remuneration as from 2022.
• Ms. Verónica Pascual Boé (% variation 2022/2021): The increase in remuneration is mainly due to the fact that in 2022 she received the corresponding remuneration for her membership of the Telefónica Tech Advisory Board.
• Ms. María Rotondo Urcola (% variation 2022/2021): With regard to the variation between the two financial years, it should be considered that Ms María Rotondo joined the Board of Directors as a member and as a member of the Sustainability and Quality Committee in September 2021 and, therefore, received the corresponding remuneration for these items from September to December 2021, as opposed to 2022, which was received during the full financial year. Likewise, Ms María Rotondo joined the Audit and Control Committee as a member on 15 December 2021, receiving the corresponding remuneration from 2022 onwards.
• Ms. Claudia Sender Ramírez (% variation 2022/2021): With regard to the variation between the two financial years, it should be considered that Ms Claudia Sender joined the Advisory Board of Telefónica Hispanoamérica in June 2021 and, therefore, only received remuneration for this item from June to December 2021, compared to 2022, which was received during the full financial year. In addition, in 2022, Ms Claudia Sender received the corresponding remuneration for her membership of the Telefónica Tech Advisory Board.
• Average employee remuneration of Telefónica, S.A. and all of its subsidiaries: In financial year 2019, the average employee remuneration has been calculated on the basis of the personnel expenses included in the consolidated annual accounts for that year, where the cost of the Individual Suspension Plan is included. In this regard, on September 27, 2019, Telefónica España signed the 2nd Collective Bargaining Agreement for Related Companies (CEV). The present value of the Plan's payment flows, together with the updating of the estimates of the previous plan and the provision associated with the training plan, resulted in a pre-tax expense of EUR 1,732 million. In 2021 and 2022, the average remuneration has been calculated on the basis of the personnel expenses included in the consolidated financial statements for that year. In 2021 this includes the cost of the Telefónica España Voluntary Redundancy Plan. The impact of this Plan on personnel expenses amounts to 1,382 million euros before tax.
This annual remuneration report has been approved by the Board of Directors of the company on February 22, 2023.
State whether any director has voted against or abstained from approving this report: No
During 2022, Telefónica obtained financing (excluding the refinancing of euro commercial paper and short-term banking loans) totaling approximately 15,009 million euros of which 8,849 million euros was at the group level, 1,740 million euros were obtained by VMO2 (the joint venture in the UK with Liberty Global plc), 599 million euros were obtained by Cornerstone Telecommunications Infrastructure Limited (a joint venture of Vantage Towers AG and VMO2), 61 million euros were obtained by FiBrasil (the joint venture in Brazil with CDPQ) and 3,760 million euros were obtained by MediaNexfibre, the joint venture formed by Liberty Global (25%), T. Infra (25%) and Infravia (50%)). Telefónica's financing activity was focused on maintaining a solid liquidity position, as well as refinancing and maintaining long debt maturities.
The main financing transactions carried out in the bond market in 2022 are as follows:
| Item | Date | Maturity Date | Currency of issuance | Coupon | Nominal (millions) | Euros |
|---|---|---|---|---|---|---|
| Telefónica Emisiones, S.A.U. | ||||||
| EMTN Bond | 04/05/2022 | 07/13/2040 | EUR | 1.864% | 100 | 100 |
| EMTN Bond (1) | 05/25/2022 | 05/25/2031 | EUR | 2.592% | 1,000 | 1,000 |
| Telefónica Brasil, S.A. | ||||||
| Debentures (1) | 07/14/2022 | 07/12/2027 | BRL | 1.35% | 2,000 | 359 |
| Debentures (1) | 07/14/2022 | 07/12/2025 | BRL | 1.12% | 1,500 | 269 |
| CDI (1) Debentures and sustainable bonds (See Note 29. d). |
The main financing transaction carried out in the bank market in 2022 is as follows:
As of December 31, 2022, Telefónica’s liquidity, amounting to 21,413 million euros, includes: undrawn committed credit facilities arranged with banks for an amount of 11,737 million euros (of which 11,434 million euros maturing in more than 12 months); and cash equivalents and certain current financial assets.
Contractual commitments Note 26 to the consolidated financial statements provides information on firm commitments giving rise to future cash outflows and associated with purchases and services received in relation to the Company’s principal activity, and any low value assets and short-term leases related to the Company’s activity, primarily.
Credit risk management
The Telefónica Group considers customer credit risk management as a key element to achieve its business and customer base growth targets in a sustainable way. This management approach relies on the active evaluation of the risk-reward balance within the commercial operations and on the adequate separation between the risk ownership and risk management functions. 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. These procedures include:
The customer credit risk management strategy is embedded in the day-to-day operational processes guiding both the product and services available for the different customer profile and the management practices all through the customer life-cycle.
Credit rating
At December 31, 2022, Telefónica, S.A.’s long-term issuer default rating is "BBB stable outlook" from Fitch, “BBB- stable outlook" from Standard & Poor's and “Baa3 stable outlook" from Moody's. During 2021, there have not been changes in the long-term credit ratings by any of the three agencies. Last changes in the credit ratings took place in 2020 when Standard and Poor’s revised the outlook to “negative“ from “stable” on April 1, 2020 and later, on November 20, 2020 downgraded the rating to “BBB - stable” from “BBB negative”. On November 7, 2016 Moody's downgraded the rating to “Baa3 stable” from “Baa2 negative” and on September 5, 2016 Fitch downgraded the rating to “BBB stable” from “BBB+ stable”.
In 2022, measures taken to protect the credit rating included an active portfolio management through the closing of the sale of the entire share capital of Telefónica Móviles El Salvador. Telefónica also closed various strategic deals to reinforce its business profile, such as the agreement reached between Telefónica Colombia and a Colombian company controlled by KKR, for the sale of fiber assets and for the provision of connectivity services and deployment of fiber network. And in December, the agreement with Vauban Infrastructure Partners and Crédit Agricole Assurances for the deployment and commercialization of a fiber FTTH network mainly in rural areas in Spain. Additionally, Telefonica maintains a solid liquidity position and conservative approach to debt refinancing, as the Group took advantage of the historical low refinancing rates to extend average debt life and smooth its maturity profile in coming years.
Dividend policy
Telefónica, S.A.’s dividend policy is revised yearly based on the Group’s earnings, cash generation, solvency, liquidity, flexibility to make strategic investments. On March 2017 the Board of Directors of Telefónica, S.A. decided to define the corresponding payment periods of the dividends. Therefore, from there on, the dividend payment in the second quarter will take place in June, and the dividend payment in the fourth quarter will take place in December, in both cases on or before the third Friday of the corresponding month.
In February 2020, Telefónica announced the dividend policy for the year 2020: 0.40 euros per share payable in December 2020 (0.20 euros per share) and in June 2021 (0.20 euros per share). In May 2020, after the corresponding analyses, it was concluded that the Company had a sufficiently healthy
cash position to maintain the previously announced dividends payment. However, for reasons of financial prudence in the context of the COVID-19 health crisis and in order to grant greater flexibility in regard to cash outflows and different alternatives for the shareholders, it was deemed appropriate to propose for approval of the Annual General Shareholders Meeting held on June 12, 2020 the implementation of the payment of sums to be made during this fiscal year 2020 through separate scrip dividends (the “Telefónica Flexible Dividend”), which as is known, provides all shareholders with the choice of receiving the relevant compensation in shares or in cash, at the shareholder’s discretion. The Annual General Shareholders Meeting held on June 12, 2020 approved the Proposals of the scrip dividend, which were executed in June and December 2020.
In February 2021, Telefónica announced the dividend policy for the year 2021, which consists of an amount of 0.30 euros per share, payable in December 2021 (0.15 euros per share) and in June 2022 (0.15 euros per share). The Annual General Shareholders Meeting held on April 23, 2021 approved the Proposals of the scrip dividend, which were executed in June and December, 2021.
In February 2022, Telefónica announced the dividend policy for the year 2022, which consists of an amount of 0.30 euros per share in cash, payable in December 2022 (0.15 euros per share) and in June 2023 (0.15 euros per share). The Annual General Shareholders Meeting held on April 8, 2022 approved the Proposals of the scrip dividend executed in June 2021, and the cash dividend paid in December, 2022. For the payment in June 2023, the adoption of the corresponding corporate resolutions will be proposed to the Annual General Meeting to be held in 2023.
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:
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. For more information see Note 17.h) "Treasury share instruments" of the Consolidated Annual Accounts for the year ended December 31, 2022.
Information concerning events after the reporting period is provided in Note 31 of the Consolidated Annual Accounts for the year ended December 31, 2022.
Information concerning average payment period of the Spanish companies is provided in Note 22, "Information on average payment period to suppliers.# Third additional provision, “Information requirement” of Law 15/2010 of July 5."
Below are definitions of certain technical terms used in this Annual Report:
"5G" is a technology succeeding the mobile technology called 4G. The aim is to make the navigation experience and Internet downloads more agile.
"Access" refers to a connection to any of the telecommunications services offered by Telefónica. A single fixed customer may contract for multiple services, and Telefónica believes that it is more useful to count the number of accesses a customer has contracted for, rather than to merely count the number of its customers. For example, a customer that has fixed line telephony service and broadband service is counted as two accesses rather than as one customer.
"ARPU" is total mobile service revenues during the relevant period divided by the average number of retail accesses (based on the beginning and the month-end number of retail accesses during such period), divided by the number of months in such period.
"Artificial Intelligence" is intelligent tasks carried out by machines.
"AWS" or Amazon Web Services refers to Amazon's service platform offering data base storage, content delivery and other functionalities that can help a business to grow. It is also more secure than a physical server.
"B2B" or business to business is the business segment.
"B2C" or business to customer is the residential segment.
"Bundle" refers to a combination of products that combine fixed services (wirelines, broadband and television) and mobile services.
"CATV" or community antenna television is a system of delivering television programming to consumers via radio frequency (RF) signals transmitted through coaxial cables, or in more recent systems, via light pulses through fiber-optic cables.
"Churn" is the percentage of disconnections over the average customer base in a given period, divided by the number of months in such period.
"Cloud computing" is a service whereby shared resources, software and information are provided to computers and other devices as a utility over a network (typically, the Internet).
"Cloud Phone" is an application that allows the transfer of files between two smartphones in a simple way.
"Commercial activity" includes the addition of new lines, replacement of handsets, migrations and disconnections.
"Connected car" is a vehicle equipped with Internet access and generally through a local wireless network or satellite.
"Convergent" refers to the offer of a fixed service together with a mobile service.
"Data ARPU" is data revenues during the relevant period divided by the average number of retail accesses (based on the beginning and the month-end number of retail accesses during such period), divided by the number of months in such period.
"Data revenues" include revenues from mobile data services such as mobile connectivity and mobile Internet, premium messaging, downloading ringtones and logos, mobile mail and SMS/MMS.
"Data traffic" includes all traffic from Internet access, messaging (SMS, MMS) and connectivity services over Telefónica's network.
"DTH (Direct-To-Home)" is a technology used for the provision of TV services.
"Fixed telephony accesses" includes public switched telephone network (PSTN) lines (including public use telephony), integrated services digital network (ISDN) lines and circuits, "fixed wireless" and Voice over IP accesses.
"FTRs" or Fixed termination rates is an established fixed network tariff that applies when a customer makes a call to someone in a network operated by another operator.
"FTTH" or Fiber to Home is a telecommunications technology that consists of the use of fiber optic cabling and optical distribution systems for the provision of Internet services, Telephony IP and Television (IPTV) to homes, businesses and companies.
"FTTx" is a generic term for any broadband network architecture that uses optical fiber to replace all or part of the metal local loop.
"Gbps" means Gigabytes per second.
"GHz" means gigahertz.
"ICT" or information communication technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications.
"Interconnection revenues" means revenues received from other operators which use Telefónica's networks to connect to or finish their calls and SMS or to connect to their customers.
"Internet and data accesses", "Fixed broadband accesses" or "FBB accesses" include broadband accesses (including retail asymmetrical digital subscriber line (ADSL), very high bit-rate digital subscriber line (VDSL), satellite, fiber optic and circuits over 2 Mbps), narrowband accesses (Internet service through the PSTN lines) and the remaining non-broadband final customer circuits. Internet and data accesses also include "Naked ADSL", which allows customers to subscribe for a broadband connection without a monthly fixed line fee.
“IoT” or Internet of Things refers to technologies that allow both mobile and wired systems to communicate with other devices with the same capability.
"IPTV" or Internet Protocol Television refers to distribution systems for television subscription signals or video using broadband connections over the IP protocol.
"ISDN" or Integrated Services Digital Network is a format commonly used for transmitting information through a digital high speed connection.
"Local loop" means the physical circuit connecting the network termination point at the subscriber's premises to the main distribution frame or equivalent facility in the fixed public telephone network.
"LTE" or Long-Term Evolution is a 4G mobile access technology.
"Market share" is the percentage ratio of the number of final accesses over the existing total market in an operating area.
"Mb" means Megabytes.
"MHz" means megahertz.
"MMS" or Multimedia Messaging Service is a standard messaging system allowing mobile phones to send and receive multimedia content, including sound, video and photos.
"Mobile accesses" include accesses to the mobile network for voice and/or data services (including connectivity). Mobile accesses are categorized into contract, prepay and IoT accesses.
"Mobile broadband" includes Mobile Internet (Internet access from devices also used to make voice calls such as smartphones), and Mobile Connectivity (Internet access from devices that complement fixed broadband, such as PC Cards/dongles, which enable large amounts of data to be downloaded on the move).
"MTR" or mobile termination rate is an established mobile network tariff that applies when a customer makes a call to someone in a network operated by another operator.
"MVNO" or mobile virtual network operator is a mobile operator that provides mobile services through another mobile operator. An MVNO pays a determined tariff to such mobile network operator for using the infrastructure to facilitate coverage to its customers.
"Net adds/Net loss" is the difference between the customer base as of the end of a certain period compared to December 31 of the prior year.
"OTT services" or over the top services means services provided through the Internet (such as television and video streaming).
"Pay TV" includes cable TV, direct to home satellite TV (DTH) and IPTV.
"p.p." means percentage points.
"PSTN" is Public Switched Telephone Network.
"Revenues" means net sales and revenues from rendering of services.
"Service revenues" are total revenues minus mobile handset sales. Service revenues are mainly related to telecommunication services, especially voice- and data revenues (SMS and data traffic download and upload revenues) consumed by Telefónica's customers.
"SIM" means subscriber identity module, a removable intelligent card used in mobile handsets, USB modems, etc. to identify the user in the network.
"Smart Wi-Fi" is an application in which users can control their Wi-Fi network and the devices connected to it from their mobile.
"SMS" means short messaging service.
"STB (Set-top box)" is a device that converts a digital television signal to analogue for viewing on a conventional set, or that enables cable or satellite television to be viewed.
"Tbps" means terabytes per second.
"Tracker" is a special server which contains the information needed for users to connect with other users.
"UBB" or Ultra Broadband is the fiber-to-the-premise broadband which is capable of giving a minimum download speed of 100 Mbps and a minimum upload speed of 50 Mbps.
"Voice traffic" means voice minutes used by Telefónica's customers over a given period, both outbound and inbound.
"VoIP" means voice over Internet protocol.
"VPN" or Virtual Private Network extends a private network across a public network and enables users to send and receive data across shared or public network.
"Wholesale accesses" means accesses Telefónica provides to other companies, who then sell services over such accesses to their residential and corporate clients.
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