Telefonica S.A. - Annual Report 2025

Individual Annual Report 2025

Telefónica S.A.

INDIVIDUAL ANNUAL

REPORT

2025

Telefónica S.A.

ANNUAL

FINANCIAL

STATEMENTS

AND

MANAGEMENT

REPORT

for the year ended

2025



	Individual Annual Report 2025	Telefónica, S. A.	2



Financial statements 2025	Index

Index



Balance sheet at December 31 ...............................................................................................................................	3
Income statements for the years ended December 31 ...................................................................................	5
Statements of changes in equity for the years ended December 31 ..........................................................	6
Cash flow statements for the years ended December 31 ..............................................................................	7
Note 1. Introduction and general information ............................................................................................................	9
Note 2. Basis of presentation .......................................................................................................................................	10
Note 3. Proposed appropriation of net results ...........................................................................................................	12
Note 4. Recognition and measurement accounting policies ...................................................................................	13
Note 5. Intangible assets ..............................................................................................................................................	16
Note 6. Property, plant and equipment ......................................................................................................................	17
Note 7. Investment properties ......................................................................................................................................	18
Note 8. Investments in group companies and associates ........................................................................................	19
Note 9. Financial investments ......................................................................................................................................	27
Note 10. Trade and other receivables .........................................................................................................................	30
Note 11. Equity .................................................................................................................................................................	31
Note 12. Financial liabilities ...........................................................................................................................................	36
Note 13. Bonds and other marketable debt securities ..............................................................................................	38
Note 14. Interest-bearing debt and derivatives .........................................................................................................	39
Note 15. Payable to group companies and associates .............................................................................................	42
Note 16. Derivative financial instruments and risk management policies ..............................................................	44
Note 17. Income tax ........................................................................................................................................................	54
Note 18. Trade, other payables and provisions ..........................................................................................................	60
Note 19. Revenue and expenses ..................................................................................................................................	62
Note 20. Other information ..........................................................................................................................................	69
Note 21. Cash flow analysis ..........................................................................................................................................	79
Note 22. Events after the reporting period .................................................................................................................	82
Note 23. Additional note for English translation ........................................................................................................	84
Appendix I: Details of subsidiaries and associates at December 31, 2025 .............................................................	85
Appendix II: Board and Senior Management Compensation ..................................................................................	88
Management report 2025 ............................................................................................................................................	96
Business Model .........................................................................................................................................................	96
Economic results of Telefónica, S.A. ......................................................................................................................	97
Investment activity ....................................................................................................................................................	98
Share price performance .........................................................................................................................................	98
Contribution and innovation ....................................................................................................................................	99
Environment, human resources and managing diversity ....................................................................................	101
Liquidity and capital resources ...............................................................................................................................	108
Risks factors associated with the issuer ................................................................................................................	110
Events after the reporting period ............................................................................................................................	124
Annual Corporate Governance Report for Listed Companies ...........................................................................	124
Annual Report on the Remuneration of Directors ................................................................................................	124



	Individual Annual Report 2025	Telefónica, S. A.	3



Financial statements 2025	Index

Telefónica, S.A.

Balance sheet at December 31



Millions of euros
ASSETS	Notes	2025	2024 (*)
NON-CURRENT ASSETS		57,542	56,319
Intangible assets	5	11	12
Software		7	9
Other intangible assets		4	3
Property, plant and equipment	6	130	137
Land and buildings		75	81
Plant and other property, plant and equipment items		54	54
Property, plant and equipment under construction and prepayments		1	2
Investment property	7	283	288
Land		100	100
Buildings		183	188
Non-current investments in Group companies and associates	8	53,088	51,115
Equity instruments (*)		52,453	50,665
Loans to Group companies and associates		627	442
Other financial assets		8	8
Financial investments	9	2,684	3,007
Equity instruments	9	—	417
Loans to third parties	9	490	—
Derivatives	16	1,852	2,474
Other financial assets	9	342	116
Deferred tax assets	17	1,312	1,725
Non current account receivables		34	35
CURRENT ASSETS		5,670	8,149
Trade and other receivables	10	264	265
Current investments in Group companies and associates	8	828	1,917
Loans to Group companies and associates		787	1,865
Derivatives	16	1	6
Other financial assets		40	46
Investments	9	450	941
Loans to companies		1	531
Derivatives	16	276	368
Other financial assets		173	42
Current deferred expenses		3	11
Cash and cash equivalents		4,125	5,015
TOTAL ASSETS		63,212	64,468

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

(*) The figures in the 2024 column have been adjusted to include the impact of the Query 1 in the BOICAC 142



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Financial statements 2025	Index



Millions of euros
EQUITY AND LIABILITIES	Notes	2025	2024 (*)
EQUITY		16,679	19,480
CAPITAL AND RESERVES		16,325	19,170
Share capital	11	5,670	5,670
Share premium	11	3,522	3,522
Reserves	11	8,351	9,340
Legal & Statutory		1,196	1,199
Other reserves (*)		7,155	8,141
Treasury shares and own equity instruments	11	(158)	(107)
Profit (Loss) for the year	3	(1,060)	745
UNREALIZED GAINS (LOSSES) RESERVE	11	354	310
Financial assets at fair value with changes though equity		—	144
Hedging instruments		354	166
NON-CURRENT LIABILITIES		35,760	39,096
Non-current provisions	18	778	1,387
Non-current borrowings	12	3,293	3,206
Bank borrowings	14	1,034	828
Derivatives	16	1,932	1,702
Other debts		327	676
Non-current borrowings from Group companies and associates	15	31,500	33,893
Deferred tax liabilities	17	161	576
Long term deferred revenues		28	34
CURRENT LIABILITIES		10,773	5,892
Current provisions	18	94	31
Current borrowings	12	351	302
Bonds and other marketable debt securities	13	57	35
Bank borrowings	14	18	87
Derivatives	16	256	179
Other financial liabilities	14	20	1
Current borrowings from Group companies and associates	15	10,033	5,260
Trade and other payables	18	269	287
Current deferred revenues		26	12
TOTAL EQUITY AND LIABILITIES		63,212	64,468

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

(*) The figures in the 2024 column have been adjusted to include the impact of the Query 1 in the BOICAC 142



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Financial statements 2025	Index

Telefónica, S.A.

Income statements for the years ended December 31



Millions of euros	Notes	2025	2024 (*)
Revenue	19	890	6,429
Rendering of services to Group companies and associates		424	509
Rendering of services to non-group companies		45	11
Dividends from Group companies and associates		385	5,879
Interest income on loans to Group companies and associates		36	30
Impairment and gains (losses) on disposal of financial instruments	8	(839)	(4,298)
Impairment losses and other losses (*)		(758)	(4,223)
Gains (losses) on disposal and other gains and losses		(81)	(75)
Other operating income	19	159	399
Non-core and other current operating revenue - Group companies and associates		82	30
Non-core and other current operating revenue - non-group companies		77	369
Personnel expenses	19	(403)	(196)
Wages, salaries and others		(379)	(161)
Social security costs		(24)	(35)
Other operational expense		(370)	(338)
External services - Group companies and associates	19	(77)	(93)
External services - non-group companies	19	(263)	(234)
Taxes other than income tax		(30)	(11)
Depreciation and amortization	5, 6 and 7	(26)	(25)
OPERATING PROFIT (LOSS)		(589)	1,971
Finance revenue	19	375	540
Finance costs	19	(1,583)	(1,892)
Change in fair value of financial instruments		335	53
Net result on sales of financial assets at fair value with changes through equity	9 and 11	335	53
Exchange rate gains (losses)	19	22	22
NET FINANCIAL EXPENSE		(851)	(1,277)
PROFIT (LOSS) BEFORE TAX	21	(1,440)	694
Income tax	17	380	51
PROFIT (LOSS) FOR THE YEAR		(1,060)	745

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

(*) The figures in the 2024 column have been adjusted to include the impact of the Query 1 in the BOICAC 142



	Individual Annual Report 2025	Telefónica, S. A.	6



Financial statements 2025	Index

Telefónica, S.A.

Statements of changes in equity for the years ended December 31



A) Statement of recognized income and expense for the years ended December 31
Millions of euros	Notes	2025	2024 (*)
Profit (Loss) for the period (*)		(1,060)	745
Total income and expense recognized directly in equity	11	(125)	417
From valuation of financial assets at fair value with impact in equity		191	96
From cash flow hedges		(422)	428
Income tax impact		106	(107)
Total amounts transferred to income statement	11	169	(477)
From valuation of financial assets at fair value with changes through equity		(335)	(53)
From cash flow hedges		672	(565)
Income tax impact		(168)	141
TOTAL RECOGNIZED INCOME AND EXPENSE		(1,016)	685

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

(*) The figures in the 2024 column have been adjusted to include the impact of the Query 1 in the BOICAC 142



B) Statements of total changes in equity for the years ended December 31
Millions of euros	Share capital	Share premium and Reserves	Treasury shares	Profit (Loss) for the year	Net unrealized gains (losses) reserve	Total
Balance at December 31, 2023	5,750	12,234	(430)	2,153	370	20,077
Adjustments in accordance with BOICAC 142, Query 1	—	451	—	—	—	451
Balance at January 1, 2024	5,750	12,685	(430)	2,153	370	20,528
Total recognized income and expense (*)	—	—	—	745	(60)	685
Transactions with shareholders and owners	(80)	(1,978)	323	—	—	(1,735)
Capital decreases (Note 11)	(80)	(230)	310	—	—	0
Dividend distributions (Note 11)	—	(1,693)	—	—	—	(1,693)
Other transactions with shareholders and owners	—	(55)	13	—	—	(42)
Other movements (*)	—	2	—	—	—	2
Appropriation of prior year profit (loss)	—	2,153	—	(2,153)	—	—
Balance at December 31, 2024	5,670	12,862	(107)	745	310	19,480
Total recognized income and expense	—	—	—	(1,060)	44	(1,016)
Transactions with shareholders and owners	—	(1,734)	(51)	—	—	(1,785)
Dividend distributions (Note 11)	—	(1,690)	—	—	—	(1,690)
Other transactions with shareholders and owners (Nota 11)	—	(44)	(51)	—	—	(95)
Appropriation of prior year profit (loss)	—	745	—	(745)	—	—
Balance at December 31, 2025	5,670	11,873	(158)	(1,060)	354	16,679

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

(*) Figures of 2024 have been adjusted to include the impact of the Query 1 in the BOICAC 142



	Individual Annual Report 2025	Telefónica, S. A.	7



Financial statements 2025	Index

Telefónica, S.A.

Cash flow statements for the years ended December 31



Millions of euros	Notes	2025	2024 (*)
A) CASH FLOWS FROM OPERATING ACTIVITIES		533	4,547
Profit (Loss) before tax (*)		(1,440)	694
Adjustments to net results:		1,211	(490)
Depreciation and amortization	5, 6 and 7	26	25
Impairment of investments in Group companies and associates (*)	8	758	4,223
Change in long term provisions		(84)	(5)
Losses on the sale of financial assets		81	75
Financial assets registered as other operating income		—	(358)
Dividends from Group companies and associates	19	(385)	(5,879)
Interest income on loans to Group companies and associates	19	(36)	(30)
Net financial expense		851	1,277
Change in working capital		80	(48)
Trade and other receivables		22	26
Other current assets		(43)	(44)
Trade and other payables		101	(30)
Other cash flows from operating activities	21	682	4,573
Net interest paid		(1,291)	(1,365)
Dividends received and other		1,654	5,703
Income tax receipts		319	235
B) CASH FLOWS (USED IN) / FROM INVESTING ACTIVITIES		(3,338)	(397)
Payments on investments	21	(6,653)	(3,829)
Proceeds from disposals	21	3,315	3,432
C) CASH FLOWS USED IN FINANCING ACTIVITIES		1,864	(3,762)
Proceeds from equity instruments	11	4	87
(Payments) / Proceeds from financial liabilities	21	3,643	(1,984)
Debt issues		5,860	3,758
Repayment and redemption of debt		(2,217)	(5,742)
Acquisition of treasury shares		(86)	(145)
Dividends paid	21	(1,697)	(1,720)
D) NET FOREIGN EXCHANGE DIFFERENCE		50	(41)
E) NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS		(891)	347
Cash and cash equivalents at January 1		5,016	4,668
Cash and cash equivalents at December 31		4,125	5,015

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

(*) The figures in the 2024 column have been adjusted to include the impact of the Query 1 in the BOICAC 142



	Individual Annual Report 2025	Telefónica, S. A.	8



Financial statements 2025	Index

Telefónica, S.A.

Annual financial statements

for the year ended December 31,

2025



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Financial statements 2025	Index

Note 1. Introduction and

general information

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

public limited company incorporated for an indefinite

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

Compañía Telefónica Nacional de España, S.A. It

adopted its present name in April 1998.

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

Madrid (Spain) and its Employer Identification Number

(CIF) is A-28/015865.

Telefónica’s basic corporate purpose, pursuant to Article

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

private telecommunications services, including ancillary

or complementary telecommunications services or

related services. All the business activities that

constitute this stated corporate purpose may be

performed either in Spain or abroad and wholly or

partially by the Company, either through shareholdings

or equity interests in other companies or legal entities

with an identical or a similar corporate purpose.

In keeping with the above, Telefónica is currently the

parent company of a group that offers both fix and

mobile telecommunications with the aim to turn the

challenges of the new digital business into reality and

being one of the most important players. The objective

of the Telefónica Group is positioning as a Company

with an active role in the digital business taking

advantage of the opportunities of its size and industrial

and strategic alliances.

The Company is taxed under the general tax regime

established by the Spanish State, the Spanish

Autonomous Communities and local governments, and

files consolidated tax returns with most of the Spanish

subsidiaries of its Group under the consolidated tax

regime applicable to corporate groups.



	Individual Annual Report 2025	Telefónica, S. A.	10



Financial statements 2025	Index

Note 2. Basis of presentation

a) True and fair view

These financial statements have been prepared from

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

Directors in accordance with the accounting principles

and standards contained in the Spanish GAAP in force

approved by Royal Decree 1514/2007, on November 16

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

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

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

legislation at the date of these financial statements, to

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

financial position, income statements and of the cash

flows obtained and applied in 2025.

The accompanying financial statements for the year

ended December 31, 2025 were prepared by the

Company’s Board of Directors at its meeting on

February 23, 2026 for submission for approval at the

General Shareholders’ Meeting, which is expected to

occur without modification.

The figures in these financial statements are expressed

in millions of euros, unless indicated otherwise, and

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

functional currency.

b) Comparison of information

2025 Financial statements include the comparative

figures for the financial year 2024, which have been

restated to reflect the change in accounting policy

resulting from Query 1 of BOICAC 142/2025, issued by

the Institute of Accounting and Auditing (ICAC), and

described in Note 4.f. As a result of this change, the

Company has retrospectively applied a new valuation

criterion applicable to certain transactions carried out by

group companies, adjusting the opening equity for the

financial year 2024 and modifying the comparative

figures for that year.

Except for the impacts of the above mentioned change,

accounting policies applied in 2025 are consistent with

those applied in 2024. 2024 figures are included in these

financial statements for comparison purposes.

c) Materiality

These financial statements do not include any

information or disclosures that, not requiring

presentation due to their qualitative significance, have

been determined as immaterial or of no relevance

pursuant to the concepts of materiality or relevance

defined in the PGC 2007 conceptual framework.

d) Use of estimates

The financial statements have been prepared using

estimates based on historical experience and other

factors considered reasonable under the circumstances.

The carrying value of assets and liabilities, which is not

readily apparent from other sources, was established

based on these estimates. The Company periodically

reviews these estimates.

A significant change in the facts and circumstances on

which these estimates are based could have an impact

on the Company’s results and financial position.

Key assumptions concerning the future and other key

sources of estimation uncertainty at the reporting date

that have a significant risk of causing a material

adjustment to the financial statements of the following

year are discussed below.

Provisions for impairment of investments in

Group companies and associates

Investments in group companies, joint ventures and

associates are tested for impairment at each year end to

determine whether an impairment loss must be

recognized in the income statement or a previously

recognized impairment loss be reversed. The decision to

recognize an impairment loss (or a reversal) involves

estimates of the reasons for the potential impairment (or

recovery), as well as the timing and amount. The

impairment of these investments is assessed in note 8.2.

There is a significant element of judgment involved in

the estimates required to determine recoverable

amount and the assumptions regarding the

performance of these investments, since the timing and

scope of future changes in the business are difficult to

predict.

Deferred taxes

The Company assesses the recoverability of deferred

tax assets based on estimates of future earnings, and of

all the options available to achieve an outcome, it

considers the most efficient one in terms of tax within

the legal framework the Company is subject to. The

ability to recover these taxes depends ultimately on the

Company’s ability to generate taxable earnings over the

period for which the deferred tax assets remain



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Financial statements 2025	Index

deductible. This analysis is based on the estimated

schedule for reversing deferred tax liabilities, the

expected outcome from pending lawsuits affecting the

estimations as well as estimates of taxable earnings,

which are sourced from internal projections and are

continuously updated to reflect the latest trends.

The appropriate valuation of tax assets and liabilities

depends on a series of factors, including estimates as to

the timing and realization of deferred tax assets and the

projected tax payment schedule. Actual income tax

receipts and payments could differ from the estimates

made by the Company as a result of changes in tax

legislation, the outcome of ongoing tax proceedings or

unforeseen future transactions that could affect tax

balances. The information about deferred tax assets and

unused tax credits for loss carryforwards, whose effect

has been registered when necessary in balance, is

included in note 17.



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Financial statements 2025	Index

Note 3. Proposed appropriation

of net results

Telefónica, S.A. obtained a loss of 1,060 million euros in

2025.

Accordingly, the Company’s Board of Directors will

submit the following proposed appropriation of 2025 net

results for approval at the General Shareholders’

Meeting:



Millions of euros
Proposed appropriation:
Profit for the year	(1,060)
Distribution to:
Legal reserve	—
Unrestricted reserves	(1,060)



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Financial statements 2025	Index

Note 4. Recognition and

measurement accounting

policies

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

have been prepared in accordance with the accounting

principles and standards contained in the Código de

Comercio, which are further developed in the Plan

General de Contabilidad currently in force (PGC 2007),

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

commercial regulation in force at the reporting date.

Accordingly, only the most significant accounting

policies used in preparing the accompanying financial

statements are set out below, in light of the nature of

the Company’s activities as a holding.

a) Intangible assets

Intangible assets are stated at acquisition or production

cost, less any accumulated amortization or any

accumulated impairment losses.

Intangible assets are amortized on a straight-line basis

over their useful lives. The most significant items

included in this caption are computer software, which

are generally amortized on a straight-line basis over

three years.

b) Property, plant and equipment

and investment property

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

accumulated depreciation and any accumulated

impairment in value.

The Company depreciates its property, plant and

equipment once the assets are in full working conditions

using the straight-line method based on the assets’

estimated useful lives, calculated in accordance with

technical studies which are revised periodically based

on technological advances and the rate of dismantling,

as follows:



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

Investment property is measured and depreciated using

the same criteria described for land and buildings for

own use.

c) Impairment of non-current assets

Non-current assets are assessed at each reporting date

for indicators of impairment. If such indicators exist, or if

an asset's nature requires an annual impairment test, the

Company estimates the asset’s recoverable amount as

the higher of its fair value less costs of disposal and the

present value of expected future cash flows.

For investments in equity instruments, cash flows may

be estimated on the basis of expected dividends and the

investment's disposal value, or based on the share of

cash flows generated by the investee. In the absence of

better evidence of the recoverable amount, the

investee's net equity, adjusted for after-tax existing

unrealised gains, is considered. If the investee holds

investments in other entities, the consolidated net

equity under Spanish accounting standards is used as a

reference.

Impairment is recognised as an expense in the income

statement and, in the event of reversal, it is recorded as

income, without exceeding the carrying amount that the

investment would have had if it had never been

impaired.

d) Financial assets and liabilities

The main future assumptions as well as other

uncertainties related to estimations at year end which

could cause a significant effect in the financial

statements are disclosed below.



	Individual Annual Report 2025	Telefónica, S. A.	14



Financial statements 2025	Index

Financial investments

"Investments in Group companies, joint ventures and

associates” are classified into a category of the same

name and are shown at cost less any impairment loss

(see note 4.c). Associates are companies in which there

is significant influence, but not control or joint control

with third parties. Telefónica assesses the existence of

significant influence not only in terms of percentage

ownership but also in qualitative terms such as

presence on the board of directors, involvement in

decision-making, the exchange of management

personnel, and access to technical information.

Financial investments which the Company intends to

hold for an unspecified period of time and could be sold

at any time to meet specific liquidity requirements or in

response to interest rate movements and which have

not been included in the other categories of financial

assets defined in the RD 1/2021, which amends PGC

2007, are classified as financial assets at fair value

through equity. These investments are recorded under

“Non-current assets,” unless it is probable and feasible

that they will be sold within 12 months.

Derivative financial instruments and hedge

accounting

When Telefónica chooses not to apply hedge

accounting criteria but economic hedging, gains or

losses resulting from changes in the fair value of

derivatives are taken directly to the income statement.

e) Revenue and expenses

Revenue and expenses are recognized on the income

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

goods or services represented by them take place,

regardless of when actual payment or collection occurs.

A distribution of unrestricted reserves is considered as

dividend distribution, and therefore, is registered as

dividend revenue in the accounting of the receiving

Company whenever the distributing company and/or

any of its group's subsidiaries have gathered profits

above the amount of equity distributed.

When the Company receives free-allotment rights,

known as scrip dividends, that can be used to acquire

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

distributing company, it accounts for the concept as

dividend revenue with a counterpart of account

receivable on the distribution date.

The income obtained by the Company in dividends

received from Group companies and associates, and

from the interest accrued on loans and credits given to

them, are included in revenue in compliance with the

provisions of consultation No. 2 of BOICAC 79, published

on September 30, 2009.

f) Related party transactions

Until year-ended 2024, business merger or spin-off

transactions involving the parent company and its direct

or indirect subsidiary, as well as non-monetary

contributions of businesses between Group companies

and in-kind dividend distributions, the assets and

liabilities were valued in accordance with the Standards

on Preparing Consolidated Financial Statements

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

amount in the consolidated financial statements of the

group or subgroup with a Spanish parent company.

In June 2025, the Institute of Accounting and Auditing

(ICAC) issued BOICAC 142/2025, in whose Query 1 a

new interpretation is established in relation to spin-off

operations between group companies, which can be

applicable by analogy to other transactions involving

businesses between Group companies, such as mergers

and in-kind contributions. This interpretation determines

that when the consolidated NOFCAC value is lower

than the previous individual book value, the contributing

company must maintain the investment at the higher of

the two amounts, avoiding the recognition of reductions

in equity when prior to the transaction its recoverable

amount was higher than its carrying value .

The adoption of this new interpretation constitutes a

change in accounting policy, and therefore it has been

applied retrospectively. Consequently, the Company

has adjusted the comparative figures for 2024. The

Company has restated the opening balance of the

unrestricted reserves as of January 1, 2024, reversing the

reductions in reserves recorded under the previous

policy. Likewise, the comparative figures for the 2024

financial year have been restated to reflect the new

policy and ensure comparability of the figures in the

financial statements (see notes 8 and 11).

g) Financial guarantees

The Company has provided guarantees to a number of

subsidiaries to secure their transactions with third

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

provided have a counter-guarantee on the Company’s

balance sheet, the value of the counter-guarantee is

estimated to be equal to the guarantee given, with no

additional liability recognized as a result.

Guarantees provided for which there is no item on the

Company’s balance sheet acting as a counter-

guarantee are initially measured at fair value which,

unless there is evidence to the contrary, is the same as

the premium received plus the present value of any

premiums receivable. After initial recognition, these are

subsequently measured at the higher of:

i) The amount resulting from the application of the rules

for measuring provisions and contingencies.



	Individual Annual Report 2025	Telefónica, S. A.	15



Financial statements 2025	Index

ii) The amount initially recognized less, when applicable,

any amounts take to the income statement

corresponding to accrued income.

h) Consolidated data

As required under prevailing legislation, the Company

has prepared separate consolidated annual financial

statements, drawn up in accordance with International

Financial Reporting Standards (IFRS) as adopted by the

European Union. The balances of the main headings of

the Telefónica Group’s consolidated financial

statements for 2025 and 2024 are as follows:



Millions of euros
Item	2025	2024
Total assets	92,017	100,502
Equity:	17,808	22,749
Attributable to equity holders of the parent	14,258	19,347
Attributable to minority interests	3,550	3,402
Revenue from operations	35,120	35,671
Profit for the year:	(4,152)	209
Attributable to equity holders of the parent	(4,318)	(49)
Attributable to minority interests	166	258



	Individual Annual Report 2025	Telefónica, S. A.	16



Financial statements 2025	Index

Note 5. Intangible assets

The movements in the items composing intangible

assets and the related accumulated amortization in

2025 and 2024 are as follows:



2025
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
INTANGIBLE ASSETS, GROSS	225	6	—	—	231
Software	185	3	—	1	189
Other intangible assets	40	3	—	(1)	42
ACCUMULATED AMORTIZATION	(213)	(7)	—	—	(220)
Software	(176)	(6)	—	—	(182)
Other intangible assets	(37)	(1)	—	—	(38)
DEPRECIATION ACCRUAL	—	—	—	—	—
NET CARRYING AMOUNT	12	(1)	—	—	11



2024
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
INTANGIBLE ASSETS, GROSS	285	6	(64)	(2)	225
Software	180	4	—	1	185
Other intangible assets	105	2	(64)	(3)	40
ACCUMULATED AMORTIZATION	(262)	(7)	56	—	(213)
Software	(170)	(6)	—	—	(176)
Other intangible assets	(92)	(1)	56	—	(37)
DEPRECIATION ACCRUAL	(8)	—	—	—	—
NET CARRYING AMOUNT	15	(1)	—	—	12

As of December 31, 2025 and 2024 commitments to

acquire intangible assets amount to 0.5 and 0.4 million

euros, respectively.

As of December 31, 2025 and 2024, the Company had

209 and 204 million euros, respectively, of fully

amortized intangible assets in use.



	Individual Annual Report 2025	Telefónica, S. A.	17



Financial statements 2025	Index

Note 6. Property, plant and

equipment

The movements in the items composing property, plant

and equipment (PP&E) and the related accumulated

depreciation in 2025 and 2024 are as follows:



2025
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
PROPERTY, PLANT AND EQUIPMENT, GROSS	590	7	—	(3)	594
Land and buildings	214	—	—	(2)	212
Plant and other PP&E items	374	6	—	1	381
PP&E under construction and prepayments	2	1	—	(2)	1
ACCUMULATED DEPRECIATION	(453)	(11)	—	—	(464)
Buildings	(133)	(4)	—	—	(137)
Plant and other PP&E items	(320)	(7)	—	—	(327)
NET CARRYING AMOUNT	137	(4)	—	(3)	130



2024
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
PROPERTY, PLANT AND EQUIPMENT, GROSS	573	12	—	5	590
Land and buildings	207	3	—	4	214
Plant and other PP&E items	364	8	—	2	374
PP&E under construction and prepayments	2	1	—	(1)	2
ACCUMULATED DEPRECIATION	(444)	(10)	—	1	(453)
Buildings	(131)	(3)	—	1	(133)
Plant and other PP&E items	(313)	(7)	—	—	(320)
NET CARRYING AMOUNT	129	2	—	6	137

Firm commitments to acquire property, plant and

equipment at December 31, 2025 amount under 100

thousand euros (0.4 million euros 2024).

At December 31, 2025 and 2024, the Company had 361

and 359 million euros, respectively, of fully depreciated

items of property, plant and equipment.

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

appropriate limits to cover the potential risks which

could affect its property, plant and equipment.

“Property, plant and equipment” includes the net

carrying amount of the land and buildings occupied by

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

amounting to 57 and 60 million euros at 2025 and 2024

year-ends, respectively. It also includes the net carrying

amount of the remaining assets in this site (mainly

property, plant and equipment items) of 23 and 22

million euros at December 31, 2025 and 2024,

respectively.



	Individual Annual Report 2025	Telefónica, S. A.	18



Financial statements 2025	Index

Note 7. Investment properties

The movements in the items composing investment

properties in 2025 and 2024 and the related

accumulated depreciation are as follows:



2025
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
INVESTMENT PROPERTIES, GROSS	435	—	—	3	438
Land	100	—	—	—	100
Buildings	335	—	—	3	338
ACCUMULATED DEPRECIATION	(147)	(8)	—	—	(155)
Buildings	(147)	(8)	—	—	(155)
NET CARRYING AMOUNT	288	(8)	—	3	283



2024
Millions of euros	Opening balance	Additions and allowances	Disposals	Transfers	Closing balance
INVESTMENT PROPERTIES, GROSS	437	—	—	(2)	435
Land	100	—	—	—	100
Buildings	337	—	—	(2)	335
ACCUMULATED DEPRECIATION	(138)	(8)	—	(1)	(147)
Buildings	(138)	(8)	—	(1)	(147)
NET CARRYING AMOUNT	299	(8)	—	(3)	288

“Investment properties” mainly includes in both 2025

and 2024 the value of land and buildings leased by

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

Telefónica, the operational headquarters in Madrid.

In 2025 the Company has buildings with a total area of

262,781 square meters (263,320 square meters in 2024)

leased to several Telefónica Group companies,

equivalent to an occupancy rate of 74.68% of the

buildings it has earmarked for lease (73.65% in 2024).

Total income from leased buildings in 2025 and 2024

(see note 19.1.a) amounted to 34 million euros for both

years.

Future minimum rentals receivable under non-

cancellable leases are as follows:



	2025	2024
Millions of euros	Future minimum recoveries	Future minimum recoveries
Up to one year	29	30
Between two and five years	—	—
Total	29	30

The most significant lease contracts held with

subsidiaries occupying Distrito Telefónica have been

renewed in 2025 for a non-cancellable period of 12

months.

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

as lessee are described in note 19.5.



	Individual Annual Report 2025	Telefónica, S. A.	19



Financial statements 2025	Index

Note 8. Investments in group

companies and associates

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



2025
Millions of euros	Opening balance	Additions	Disposals	Transfers	FX impacts	Dividends	Net investment hedges	Closing balance	Fair value
Equity instruments (Net) (1)	50,665	2,402	(225)	(540)	—	—	152	52,453	75,938
Equity instruments (Cost)	93,159	3,160	(397)	—	—	—	152	96,074
Impairment losses	(42,494)	(758)	172	(540)	—	—	—	(43,621)
Loans to Group companies and associates	442	268	(29)	(50)	(4)	—	—	627	638
Other financial assets	8	17	—	(17)	—	—	—	8	8
Total non-current investment in Group companies and associates	51,115	2,687	(254)	(607)	(4)	—	152	53,088	76,584
Loans to Group companies and associates	1,865	809	(1,937)	50	—	—	—	787	787
Derivatives	6	—	(5)	—	—	—	—	1	1
Other financial assets	46	2	(24)	16	—	—	—	40	40
Total current investments in Group companies and associates	1,917	812	(1,966)	66	—	—	—	828	828

(1) Fair value at December 31, 2025 of Group companies and associates quoted in an active market (Telefônica Brasil, S.A.) was calculated taking the listing of the

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



	Individual Annual Report 2025	Telefónica, S. A.	20



Financial statements 2025	Index



2024
Millions of euros	Opening balance	Impact of BOICAC 142	Adjusted Opening balance	Additions (*)	Disposals (*)	Transfers	FX impac t	Dividends	Net investment hedges	Closing balance	Fair value
Equity instruments (Net) (1)	52,966	451	53,417	(1,568)	(1,438)	743	—	(87)	(402)	50,665	78,630
Equity instruments (Cost) (*)	91,449	1,101	92,550	2,655	(1,557)	—	—	(87)	(402)	93,159	—
Impairment losses (*)	(38,483)	(650)	(39,133)	(4,223)	119	743	—	—	—	(42,494)	—
Loans to Group companies and associates	432	—	432	4	—	—	6	—	—	442	447
Other financial assets	9	—	9	16	—	(17)	—	—	—	8	8
Total non-current investment in Group companies and associates	53,407	451	53,858	(1,548)	(1,438)	726	6	(87)	(402)	51,115	78,069
Loans to Group companies and associates	1,625	—	1,625	1,946	(1,699)	—	(7)	—	—	1,865	1,865
Derivatives	3	—	3	3	—	—	—	—	—	6	6
Other financial assets	66	—	66	43	(80)	17	—	—	—	46	46
Total current investments in Group companies and associates	1,694	—	1,694	1,992	(1,779)	17	(7)	—	—	1,917	1,917

(1) Fair value at December 31, 2024 of Group companies and associates quoted in an active market (Telefônica Brasil, S.A.) was calculated taking the listing of the

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

(*) The chart is showing the restated figures after retrospectively accounting for BOICAC 142, Query 1.

a) Most significant transactions

The most significant transactions occurred in 2025 and

2024 as well as their accounting impacts are described

below:

2025

As explained in note 4.f, following the publication of

BOICAC 142, Telefónica, S.A. has reassessed the

accounting treatment of certain transactions carried out

in past years. The retrospective application of BOICAC

142 implies the adjustment of the 2024 comparative

figures, affecting the net book value of some

investments as well as the opening balance of the

unrestricted reserves of such period.

The effects of the retrospective application of the

current criterion are shown as an adjustment to the

opening balance column in the chart of movements at

the beginning of this note.

The transactions affected by the reviewed policy are:

a. Reverse merger of Pontel, S.A with Telxius Telecom,

S.A. executed in 2023 with an adjustment as of

January 1, 2024 by 344 million euros, affecting the

cost of this investment.

b. In-kind contribution of the investment in Telefónica

Cybersecurity & Cloud Tech, S.L to Telefónica Tech,

S.L. carried out in 2022 with a net impact of 107

million euros as of January 1, 2024 (317 million euros

of cost and 210 million euros of impairment accrual).

c. Liquidation of Sao Paulo Telecomunicaçoes, S.L.

(carried out in 2022) with attribution to its

shareholders of the direct investment in Telefónica

Brasil, S.A., among other assets, means an increase

in the cost of Telefónica Brasil, S.A. by 440 million

euros with the same increase in the headline

impairment as of January 1, 2024 (no impact in equity

as of January 1, 2024).

Moreover, during 2024, in application of Query 1 of

BOICAC 142:

• an impairment reversal for Telefónica Tech, S.L. by 182

million euros has been recorded, which is shown in

the Additions figure of the 2024 chart of movements.

• the in-kind contribution of the shares of Telefónica

Deutschland, A.G. to Telefónica Local Services, GmbH

is increased by 382 million euros , which is shown in

the 2024 chart of movements under the Additions

caption in the cost of investment.

The initial impact of the change in accounting policy as

of January 1, 2024 results in an increase in the value of

the investments of 451 million euros with a credit to

unrestricted reserves. Moreover, the accumulated

impact in equity as of December 31, 2024 amounts to

1,015 million euros (see note 11).



	Individual Annual Report 2025	Telefónica, S. A.	21



Financial statements 2025	Index

2024

On November 7, 2023, Telefónica, through its subsidiary

Telefónica Local Services GmbH, launched a partial

voluntary public tender offer for shares of Telefónica

Deutschland Holding AG (“Telefónica Deutschland”).

The Offer acceptance period began on December 5,

2023 and ended on January 17, 2024 (both inclusive).

When the acceptance period was over, on January 23,

2024, with the aim of funding the payment to the

shareholders' who agreed to the offer, Telefónica Local

Services, GmbH launched a capital increase fully

subscribed and disbursed by Telefónica, S.A. amounting

to 550 million euros.

On March 20, 2024, Telefónica launched a public

delisting offer with the objective of acquiring the shares

of Telefónica Deutschland that were not directly or

indirectly owned by Telefónica at that time (the

“Delisting Offer”). The offer closed on April 18, 2024.

Needing to raise funding for the additional payment to

shareholders, Telefónica Local Services, GmbH (TLS) on

April 23, 2024 completed an additional capital increase

of 111 million euros fully subscribed and paid by

Telefónica, S.A.

Simultaneously, during 2024 Telefónica, S.A. continued

acquiring in the stock market shares of Telefónica

Deutschland totaling 256 million euros. Additionally, the

Company executed an equity swap purchasing

additional shares with a total cost of 92 million euros.

Once the delisting process of the affiliate was finalized,

Telefónica decided to transfer its direct stake in

Telefónica Deutschland, to its subsidiary TLS. As a

consequence, on May 23, 2024 Telefónica, S.A. carried

out an in-kind contribution of its investment in

Telefónica Deutschland to TLS. In accordance with the

accounting principles , the disposal was registered at

the net carrying value (amounting to 1,255 million euros),

and shown as Disposal in 2024 chart of movements. On

the other hand, the impact in TLS investment was

shown as Addition at its previous individual net book

value as adjusted to Spanish standards, 1,255 million

euros in 2024 chart of movements.

All the aforementioned transactions in 2025 and 2024

have been valued in accordance with the accounting

principles applicable at year end.

b) Acquisitions of investments and capital

increases (Additions)



Millions of euros
Companies	2025	2024
Telefónica Hispanoamérica, S.A.	2,245	220
Telefónica España Filiales, S.A.U.	425	—
Telefónica Infra, S.L.	419	133
TLH Holdco, S.L.	38	—
TIS Hispanoamérica, S.L.	16	10
Telefónica Local Services, GmbH (*)	—	1,918
Telefónica Deutschland Holding, A.G.	—	348
Other companies	17	26
Total group and associated companies	3,160	2,655

(*) The chart is showing the restated figures after retrospectively accounting for BOICAC

142, Query 1.

2025

On March 18, 2025 Telefónica Hispanoamérica, S.A.

completed a capital increase by 2,245 million euros

totally subscribed and paid by Telefónica, S.A.

On February 27, 2025 the Company carried out a capital

contribution to Telefónica España Filiales, S.A.U.

amounting to 425 million euros. No new shares have

been issued in the transaction as it is a contribution to

the reserves of the subsidiary.

On February 27, 2025 Telefónica, S.A. agreed to a total

capital contribution of 419 million euros to Telefónica

Infra, S.L The said amount has been fully paid in

February (404 million euros) and March (15 million

euros) 2025. The transaction meant no issuance of new

shares as it was a contribution to the reserves of the

subsidiary.

2024

On March 18, 2024 Telefónica Hispanoamérica, S.A.

completed a capital increase by 220 million euros, fully

subscribed and paid by Telefónica, S.A.

In 2024 the Company carried out several contributions

to the reserves of Telefónica Infra, S.L. in March, June,

September and December totaling 133 million euros.

These contributions to distributable reserves meant no

issuance of new shares.

The amounts regarding TLS and Telefónica

Deutschland Holding, A.G. have been disclosed at the

beginning of this note.



	Individual Annual Report 2025	Telefónica, S. A.	22



Financial statements 2025	Index

c) Disposals of investments and capital

decreases



Millions of euros
Companies	2025	2024
Telefónica Deutschland Holding, A.G.	—	1,255
Telefônica de Brasil, S.A. (*)	384	301
Telefónica Móviles Argentina, S.A.	13	—
Other companies	—	1
Total group and associated companies	397	1,557

(*) The chart is showing the restated figures after retrospectively accounting for BOICAC

142, Query 1.

2025

Pursuant to the agreement of the General Shareholders'

Meeting held on December 18, 2024, on February 17,

2025, Telefônica de Brasil, S.A. carried out a reduction of

its share capital with a return of contributions to the

shareholders' by 2,000 million Brazilian Reais of which

Telefónica, S.A. was entitled, based on its percentage of

ownership, to 782 million Brazilian Reais, equivalent to

131 million euros. In accordance with the accounting

principles, the transaction has been reflected as

Disposal both in the cost of the investment by 384

million euros and in the impairment accrual by 172

million euros within the 2025 chart of movements.

Moreover, a negative impact of 81 million euros has been

expensed under the caption "Losses on disposals and

other" of the income statement.

2024

Pursuant to the agreement of the General Shareholders'

Meeting held on November 8, 2023, on March 25, 2024

Telefônica de Brasil, S.A. carried out a reduction of its

share capital with a return of contributions to the

shareholders' by 1,500 million Brazilian Reais of which

Telefónica, S.A. was entitled, based on its percentage of

ownership, to 576 million Brazilian Reais, equivalent to

107 million euros. In accordance with the accounting

principles and following the effect of BOICAC 142, the

transaction was reflected as Disposal both in the cost of

the investment by 301 million euros and in the

impairment accrual by 119 million euros within the 2024

chart of movements. Moreover, a negative impact of 75

million euros was expensed under the caption "Losses

on disposals and other" of the income statement.

The amount shown for Telefónica Deutschland Holding,

A.G. refers to the in-kind contribution carried out by

Telefónica, S.A. to TLS as explained in the beginning of

this note.

d) Other movements

In December 2025, the negative net book value of

Telefónica Hispanoamérica, S.A., amounting to 165

million euros (a negative net book value of 743 million

euros in 2024), was reclassified to the provision caption

(see Note 18). Following the capital increase detailed at

the beginning of this note, the negative book value of

the subsidiary as of December 2024 was rebalanced,

and this effect was reversed in 2025, as shown in the

Transfers column by the net figure. Likewise, in 2025

there are other investments with a negative book value

amounting to 38 million euros that have been also

reclassified to the provision caption.

On December 10, 2024 Telefónica Local Services,

GmbH distributed a 145 million dividend. After

completing an accounting assesment, 83 million euros

were registered as investment reimbursement and

shown as Dividends in 2024 chart of movements. The

remaining amount was registered as dividend revenue

(see note 19). During financial year 2025 no dividends

have been registered as investment reimbursements.

8.2. Assessment of impairment of

investments in group companies,

joint ventures and associates

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

cash flows derived from its investments in Group

companies and associates. The estimation is calculated

based on the subsidiaries' business plans approved by

the Board of Telefónica, S.A. In addition, other assets

and liabilities whose cash flows are not included in the

aforementioned business plans are considered.

The business plans of the subsidiaries covers a five-year

period.

In the specific case of the indirect investment in the JV

in the United Kingdom, the future cash flows used in the

calculation of the value in use carried out by the JV are

based on the three-year business plan and the 2026

budget approved by the Board of Directors of VMED O2

UK Limited (VMO2) and have been projected and

sensitized over a 10-year horizon, considering that in

such period the operating parameters are achieved in

perpetuity. This time horizon was used to adequately

reflect projects requiring higher capital investment in

their initial stages, such as the fiber deployment or the

5G plans . This approach is consistent with previous

years.

The estimated value is based on the business plans of

each subsidiary expressed in its functional currency,

discounted using the appropriate rate, net of the

liabilities associated with each investment (mainly net

debt), considering the percentage of ownership in each

subsidiary and translated to euros at the official closing

rate of each currency at December 31. The main



	Individual Annual Report 2025	Telefónica, S. A.	23



Financial statements 2025	Index

assessments used to determine the discounted cash

flows are the revenue growth, the long term EBITDA

margin, the long term investment ratio, the weighted

average cost of capital (WACC) and the perpetual

growth rate, indicators employed by the Group in its

investments valuation.

Moreover, and only for the companies where

discounted cash flow analysis is not available due to the

specific nature of their businesses, the impairment is

calculated by comparing their equity as of the end of the

period and the net book value of those investments.

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

investment hedge, in 2025 an impairment provision of

758 million euros has been recognized (4,223 million

euros in 2024). This amount derives mainly from the

following companies:

a. an impairment of 2,337 million euros for Telefónica

O2 Holdings, Ltd. (reversal of 931 million euros, net of

hedges, was registered in 2024) due to the outcome

of the impairment test carried out at year-end as well

as the negative evolution of the pound sterling

exchange rate in 2025 (see note 19.8).

b. an impairment reversal for Telefónica España Filiales,

S.A.U. amounting to 531 million euros (79 million

euros in December 2024).

c. an impairment reversal, net of hedges, of 1,138 million

euros for Telefônica Brasil, S.A. (604 million euros of

write down in 2024, net of hedges).

d. an impairment of 1,667 million euros for Telefónica

Hispanoamérica, S.A. (2,481 million euros in 2024)

mainly due to the valuation of the investments in

Peru, Chile, Ecuador, Uruguay and Colombia.

The aforementioned impairment has set the carrying

value of the investment in Telefónica

Hispanoamérica, S.A. in a negative amount of 165

million euros as of December 31, 2025 (743 million

euros in 2024). Therefore, this amount has been

reclassified as a non current provision (note 18) and

shown as Transfers in the 2025 chart of movements

included at the beginning of this note.

e. an impairment reversal of 993 million euros for

Telefónica Latinoamérica Holding, S.L. (impairment

of 1,772 million euros in 2024) mainly due to the

valuation of its investment in Brazil.

f. an impairment reversal of 667 million euros for O2

Europe, Ltd. (impairment of 667 million in 2024).

Main assumptions used for the calculation of the

discounted cash flows of investments

United Kingdom

In 2025, the British economy showed a mixed

performance, with moderate growth (+1.4%, slightly

above initial expectations) but accompanied by

significant imbalances. Inflation remained high (3.4%),

exceeding the initial forecasts (2.7%), reflecting price

and wage rigidities. Meanwhile, the labor market

continued its cooling trend, with an unemployment rate

of 5.1%, higher than anticipated. In this context, fiscal

policy is intended to stimulate growth in the short term,

albeit with a complex balance that does not reduce

sensitivity to shocks to growth, inflation, and interest

rates. In 2026, the outlook will remain weak and

dependent on monetary support, in an environment of

greater labor market fragility. During 2025, the pound

sterling depreciated by 5.01% against the euro, which

had a significant impact on the valuation of the

investment in VMO2.

The growth projections and operating ratios

contemplated in the valuation of VMO2 are aligned with

the analyst ranges for comparable companies in the

region. In terms of revenue, despite the challenges of

the competitive environment, the strategic plan includes

a growth trend in long-term projections, in line with the

estimated evolution for the sector in the United

Kingdom. In relation to EBITDA margins two years

ahead, analyst estimates for comparable companies in

Europe are in a range of between 34% and 43%, while,

regarding long-term investment needs, the capex to

revenue ratio is in a range between 12% and 15%. The

discount rate applied in the impairment test as of

December 31, 2025 was 7.5% after taxes (8.1% pre-tax),

compared to 7.7% the previous year (8.3% pre-tax). The

terminal growth rate considered continues to be 1%.

Brazil

The Brazilian economy showed solid performance in

2025, with GDP growth once again surprising on the

upside (+0.3 percentage points above expectations at

the beginning of the year), driven by the strong

dynamism of the agricultural sector and the resilience of

the components less sensitive to interest rates. The

reduction of the inflation rate process continued, closing

at 4.3% in December 2025, with downside risks skewed

towards 2026. The labor market remained robust, with

unemployment rates below 6%, supporting private

consumption. On the fiscal front, success in meeting the

primary deficit target in 2025 and the implementation of

the new fiscal framework helped stabilize expectations

in the short term, despite the projected impairment in

the near future. By 2026, the macroeconomic scenario is

constructive, with growth close to 1.7%, progressively

more accommodative monetary conditions (an interest



	Individual Annual Report 2025	Telefónica, S. A.	24



Financial statements 2025	Index

rate drop of 275 bps is expected) and an external

position supported by foreign investment inflows

associated with Brazil's strategic role in global

commodity chains —including critical minerals and rare

earths—, which reinforces the country's macroeconomic

resilience.

As far as the relevant variables considered in the

calculation of the value in use are concerned, the long-

term EBITDA margin two-year estimates of Telefónica

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

within 42% to 47%. Regarding investments, the operator

will invest in the horizon of the projected plan a

percentage that is aligned with the investment needs

planned for the development of its business, which is

located in a range between 14% and 16%. The WACC

after tax rate used is 11.6% both in 2025 and 2024. On

the other hand, the perpetuity growth rate has remained

stable in 4% since 2024.

Moreover, the evolution of Brazilian real against euro in

2025 has implied a minor effect on the valuation as it

was 0.5% of appreciation against euro (see note 19.8).

Germany

After several years of very weak growth, the German

economy began to show signs of stabilization in 2025,

with a gradual improvement in activity toward the end of

the year. Inflation continued to moderate, settling at

around 2%, which helped improve household

purchasing power and normalize real financing

conditions. Private consumption began a gradual

recovery, supported by a resilient labor market and real

wage growth. On the fiscal front, the shift toward a more

expansionary policy—with a significant increase in

spending on infrastructure, energy transition, and

defense—strengthens the medium-term growth outlook,

albeit with a gradual impact. The economy is projected

to grow by around 1% in 2026, with a constructive

macroeconomic environment underpinned by fiscal

stimulus and a gradual improvement in the industrial

and investment climate.

The long-term EBITDA margins two-year estimates of

Telefónica Group's analysts are within a range of 29% to

32% for Germany.

In relation to the long‑term Capex over revenues ratio,

the range estimated by Telefónica Group analysts is

between 11% and 14% for Germany, incorporating

analysts’ assessments of investment requirements over

a two‑year horizon into the valuations applied in the

impairment test.

The WACC after tax rate used is 5.8% both in 2025 (5.5

in 2024). On the other hand, the perpetuity growth rate

has remained stable in 1% since 2024.

8.3. Detail of subsidiaries and

associates

The detail of subsidiaries and associates is shown in

Appendix I.

8.4. Transactions protected for tax

purposes

Transactions carried out in 2025 that qualify for special

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

applicable, of Chapter VII of Title VII of Legislative Royal

Decree 27/2014 of November 27 approving the Spanish

Corporate Income Tax Law, are detailed in the following

paragraphs. Transactions qualified for special tax regime

carried out in prior years are disclosed in the financial

statements for those years.

On December 19, 2024 following the instructions by the

General Shareholders' Meeting, the representatives of

the sole shareholder of Telefónica IoT & Big Data Perú,

S.A.C.,agreed to the merger by absorption of Telefónica

IoT & Big Data Perú, S.A.C with Telefónica Tech Perú,

S.A.C. with dissolution without liquidation of the

absorbed company (Telefónica IoT & Big Data Perú,

S.A.C. ) and the transfer in full of its equity to Telefónica

Tech Perú, S.A.C., which acquires by universal

succession the rights and obligations of the absorbed

entity. The effective date for accounting and tax

purposes of the merger is January, 1, 2025.

On July 1, 2025 the merger between Telefónica IoT, Big

Data e Tecnología do Brasil, S.A. (absorbed company)

and Telefônica Cloud e Tecnología do Brasil, S.A.

(absorbing company) was approved. The absorbed

company was liquidated and the full transfer of all its

rights and obligations to the absorbing company was

carried out.

On November 1, 2025 the merger between IPNet

Serviços em Nuvem e Desenvolvimento de Sistemas,

Ltda (absorbed company) con Telefônica Cloud e

Tecnologia do Brasil S.A. (absorbing company) was

approved. The absorbed company was liquidated and

the full transfer of all its rights and obligations to the

absorbing company was carried out.

8.5. Maturity of loans to Group

companies and associates

The breakdown and maturity of loans to Group

companies and associates in 2025 and 2024 are as

follows:



	Individual Annual Report 2025	Telefónica, S. A.	25



Financial statements 2025	Index



2025
Millions of euros
Company	2026	2027	2028	2029	2030	2031 and subsequent years	Final balance, current and non- current
Telefónica Móviles Chile, S.A.	2	—	—	—	274	—	276
Telefónica Cybersecurity & Cloud Tech, S.L.	4	86	—	—	—	—	90
Telefónica Móviles España, S.A.U.	142	—	—	—	—	—	142
Telefónica de España, S.A.U.	105	—	—	—	—	—	105
Telxius Telecom, S.A.	50	3	—	—	235	—	288
Telefônica Brasil, S.A.	155	—	—	—	—	—	155
Telefónica Finanzas, S.A.U.	170	—	—	—	—	—	170
Other companies	159	7	—	—	22	—	188
Total	787	96	—	—	531	—	1,414



2024
Millions of euros
Company	2025	2026	2027	2028	2029	2030 and subsequent years	Final balance, current and non- current
Telefónica Móviles España, S.A.U.	677	—	—	—	—	—	677
Telefónica Cybersecurity & Cloud Tech, S.L.	1	—	121	—	—	—	122
Telefónica de España, S.A.U.	827	—	—	—	—	—	827
Telxius Telecom, S.A.	2	50	—	—	235	—	287
Telefônica Brasil, S.A.	115	—	—	—	—	—	115
Telefónica Finanzas, S.A.U.	159	—	—	—	—	—	159
Other companies	84	—	—	—	—	36	120
Total	1,865	50	121	—	235	36	2,307

The main loans granted to Group and associated

companies are described below:

• In June 2025, Telefónica, S.A. granted Telefónica

Móviles Chile, S.A. a total credit line of 371,000 million

Chilean pesos, which was drawn down from June to

December 2025, reaching a total of 291,710 million

Chilean pesos (equivalent to 274 million euros) as of

December 31. Additionally, at the end of the year,

there were accrued interests of 2 million euros

outstanding.

• The outstanding balance with Telefónica Móviles

España, S.A.U. in 2024 included dividends distributed

in December 2024, amounting to 522 million euros

and uncollected at year end 2024. The amount has

been collected in 2025 and no further dividends have

been distributed by this subsidiary in 2025.

In addition, in 2025 there are 142 million euros of tax

balances receivable from this subsidiary for its tax

expense declared in the consolidated tax return (155

million euros in 2024).

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

its subsidiary Telefónica Cybersecurity & Cloud Tech,

S.L. of 140 million pounds sterling and maturity date on

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

cancelled and the outstanding amount, 100 million

pounds sterling, extended its maturity date until 2027.

In December 2025 an amount of 25 million pounds

sterling has been cancelled, without further extension

of the remaining credit facility. The equivalent amount

of this credit at year end amounts to 86 million euros

(121 million euros in 2024). Moreover, there are

uncollected interests accounted as current amounting

to 1 million euros both in 2025 and 2024.

In 2025 there are tax balances receivable from this

subsidiary for its tax expense declared in the

consolidated tax return totalling 3 million euros (there

was no amount outstanding for the concept in 2024).

• The balance of Telefónica de España, S.A.U. in 2024

included an amount of 815 million euros of dividends

distributed in December 2024 and uncollected at year

end. The amount has been received in 2025 and no



	Individual Annual Report 2025	Telefónica, S. A.	26



Financial statements 2025	Index

additional dividends have been distributed by the

subsidiary in 2025.

In 2025 there are 105 million euros corresponding to

tax receivables from the subsidiary for its tax expense

declared in the consolidated tax return (12 million

euros in 2024).

• In 2024 the installment by 50 million euros granted in

2016 to Telxius Telecom, S.A. was cancelled according

to its maturity date. As far as the credits granted to the

subsidiary in 2016 are concerned, the only outstanding

amount is 50 million euros with a maturity date in

2026. The amount has been transferred from long-

term to current assets and it is shown as Transfers in

the chart of movements at the beginning of this note.

In December 2023 a new loan was granted with a total

figure of 235 million euros and a variable interest rate.

It was disbursed in two tranches by 153 and 82 million

euros, respectively. The maturity date of the loan was

originally December 2028, with an additional one-year

extension at grantee request. This option was

exercised in 2024 and the maturity was extended until

December 2029. In October 2025 the maturity date

has been extended again until December 2030.

• The balance totaling 155 million euros shown in 2025

with Telefônica Brasil, S.A. entirely corresponds to

dividends agreed by the subsidiary and unpaid at year

end (115 million euros in December 2024).

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

December 2025 includes dividends distributed and

uncollected at year end amounting to 136 million

euros (115 million euros in 2024).

Moreover, in 2025 there are uncollected balances of

34 million euros of tax balances receivable from this

subsidiary for its tax expense declared in the

consolidated tax return (44 million euros in 2024).

In the 2025 chart of movements, additions of current

loans to group companies and associates comprise 438

million euros (292 million euros in 2024) of loans in

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

head of the tax group pursuant to the consolidated tax

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

most significant amounts have already been disclosed

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

term.

Disposals of current loans to group companies and

associates includes the cancellation of balances

receivable from subsidiaries on account of their

membership of Telefónica, S.A.’s tax group totaling 292

million euros (161 million euros in 2024).

Total accrued interest receivable at December 31, 2025

and 2024 included under the caption Current loans to

group companies and associates amount to 4.6 and 2.4

million euros, respectively.

8.6. Other financial assets with

Group companies and associates

This includes rights to collect amounts from other Group

companies related to share-based payment plans

involving Telefónica, S.A. shares offered by subsidiaries

to their employees.

Invoices of share plans that were already vested and are

outstanding at year end are shown as other current

financial assets. Amounts derived from the new share

plans launched in 2025 and 2024 with a maturity date

longer than 2025 are included as other non-current

financial assets (see note 19.3).



	Individual Annual Report 2025	Telefónica, S. A.	27



Financial statements 2025	Index

Note 9. Financial investments

9.1. The breakdown of “Financial investments” at December 31, 2025 and 2024 is as follows:



2025
	Assets at fair value							Assets at amortized cost
					Measurement hierarchy
Millions of euros	Financial Assets at fair value with changes through equity	Financial assets at fair value with changes through income statement	Hedges with changes through equity	Subtotal assets at fair value	Level 1: quoted prices	Level 2: Estimates based on other directly observable market inputs	Level 3: Estimates not based on observable market data	Financial assets at amortized cost	Other financial assets at amortized cost	Subtotal financial assets at amortized cost	Fair value	Total carrying amount	Total fair value
Non-current financial investments	—	498	1,354	1,852	—	1,852	—	830	2	832	342	2,684	2,194
Equity instruments	—	—	—	—	—	—	—	—	—	—	—	—	—
Derivatives (Note 16)	—	498	1,354	1,852	—	1,852	—	—	—	—	—	1,852	1,852
Loans to third parties and other financial assets	—	—	—	—	—	—	—	830	2	832	342	832	342
Current financial investments	—	106	170	276	—	276	—	1	173	174	174	450	450
Loans to third parties and other financial assets	—	—	—	—	—	—	—	1	173	174	174	174	174
Derivatives (Note 16)	—	106	170	276	—	276	—	—	—	—	—	276	276
Total financial investments	—	604	1,524	2,128	—	2,128	—	831	175	1,006	516	3,134	2,644



	Individual Annual Report 2025	Telefónica, S. A.	28



Financial statements 2025	Index



2024
	Assets at fair value							Assets at amortized cost
					Measurement hierarchy
Millions of euros	Financial Assets at fair value with changes though equity	Financial assets at fair value with changes through income statement	Hedges with changes through equity	Subtotal assets at fair value	Level 1: quoted prices	Level 2: Estimates based on other directly observable market inputs	Level 3: Estimates not based on observable market data	Financial assets at amortized cost	Other financial assets at amortized cost	Subtotal assets at amortized cost	Fair value	Total carrying amount	Total fair value
Non-current financial investments	417	752	1,722	2,891	417	2,474	—	116	—	116	116	3,007	3,007
Equity instruments	417	—	—	417	417	—	—	—	—	—	—	417	417
Derivatives (Note 16)	—	752	1,722	2,474	—	2,474	—	—	—	—	—	2,474	2,474
Loans to third parties and other financial assets	—	—	—	—	—	—	—	116	—	116	116	116	116
Current financial investments	—	91	277	368	—	368	—	531	42	573	573	941	941
Loans to third parties and other financial assets	—	—	—	—	—	—	—	531	42	573	573	573	573
Derivatives (Note 16)	—	91	277	368	—	368	—	—	—	—	—	368	368
Total financial investments	417	843	1,999	3,259	417	2,842	—	647	42	689	689	3,948	3,948

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

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

market.

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

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

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

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

or deterioration of the credit quality of the counterparty and Telefónica.



	Individual Annual Report 2025	Telefónica, S. A.	28



Financial statements 2025	Index

9.2 Financial assets at fair value with

changes though income statement

and hedges with changes through

equity

These two asset categories include the fair value of

outstanding derivative financial instruments at

December 31, 2025 and 2024 (see note 16).

9.3 Financial assets at fair value with

changes through equity

This category mainly includes the fair value of

investments in listed companies (equity instruments)

over which the Company does not have significant

influence nor control. The movement of items

composing this category at December 31, 2025 and

2024 are as follows:



December 31, 2025
Millions of euros	Opening balance	Disposals	Fair value adjustments	Closing balance
Banco Bilbao Vizcaya Argentaria, S.A.	417	(845)	428	—
Total	417	(845)	428	—



December 31, 2024
Millions of euros	Opening balance	Disposals	Fair value adjustments	Closing balance
Banco Bilbao Vizcaya Argentaria, S.A.	363	—	54	417
China Unicom (Hong Kong), Ltd	103	(144)	41	—
Total	466	(144)	95	417

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

During 2025, the investment in BBVA was completely

sold, and at year‑end the Company no longer holds

financial assets at fair value with changes through

equity on its balance sheet. The sale of said investment,

together with the settlement of the related derivative

financial instruments, has resulted in a net positive

effect in the income statement amounting to 335 million

euros and it is included under the caption ‘Net result on

sales of financial assets at fair value with changes

through equity’.

China Unicom (Hong Kong), Ltd.

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

million shares) in 2024 represented 0.593% of that

company's share capital.The shares were quoted in the

Hong Kong stock exchange.

During the second half of 2024 the Company sold in the

market the total amount of its shares in this investment

achieving an aggregate profit of 53 million euros

included under the caption "Net result on sales of

financial assets at fair value with changes through

equity" of the income statement.

The impacts shown in the column Fair value

adjustments on both years include the fair value

adjustments in the quotation of these investments.

These impacts are registered in the equity of the

Company (note 11.2).



	Individual Annual Report 2025	Telefónica, S. A.	29



Financial statements 2025	Index

9.4 Financial assets at amortized

cost

The breakdown of investments included in this category

at December 31, 2025 and 2024 is as follows:



Millions of euros	2025	2024
Financial assets at amortized cost, non- current:
Deposits related to real state properties	6	6
Collateral guarantees	309	108
Loans to third parties	490	—
Marketable debt securities	2	2
Other receivables	25	—
Financial assets at amortized cost, current:
Loans to third parties	1	526
Collateral guarantees	144	39
Other current financial assets	29	8
Total amount	1,006	689

Collateral guarantees are comprised in both years under

the caption Financial assets at amortized cost and

classified in accordance with the maturity of the

underlying derivative instruments which they relate to.

In relation with collateral contracts, there is an additional

guarantee of 60,328 bonds issued by Telefónica

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

owned by Telefónica, S.A. with a notional of 51 million

euros as of December 31, 2025 (there were 59,808

bonds with a notional of 58 million euros as of

December 31, 2024).

As detailed in note 20 b) of these financial statements,

on November 12, 2024, Telefónica obtained a favorable

award regarding the investment dispute submitted to

the International Centre for Settlement of Investment

Disputes (“ICSID”) against the Republic of Colombia.

The Court has stated that the Republic of Colombia

failed to comply with its obligation to grant fair and

equitable treatment to Telefónica's investments under

Article 2(3) of the APPRI, and has ordered it to pay the

amount of 380 million U.S. dollars (equivalent to 365

million euros converted at 2024 year-end exchange

rates) plus compound interest at a rate of 5% as

compensation for the damages caused. Total

accumulated accrued interest as of December 31, 2024

amounted to 164 million US dollars (equivalent to 158

million euros).

Moreover, the Company is entitled to be reimbursed for

the legal costs suffered during the proceeding. As of

December 31, 2025 this concept amounts to 5 million

euros.

Once the decision was received and following the legal

analysis carried out, Telefónica's management considers

that the decision represents a firm right of collection

and therefore, it has been recorded in the financial

statements as of December 31, 2024 under the heading

loans to third parties in the 2024 column of the attached

table. This consideration remains unchanged in 2025.

As indicated in note 20 b), the appeal to annul the

award remains unresolved as of December 31, 2025. As

a consequence of the delays in the constitution of the

Tribunal and the resulting effect on the prolongation of

the proceedings before the ICSID Committee, as well as

the fact that the hearing on the annulment will take

place in June 2026, management has considered that

the most appropriate classification is non-current, and

therefore the receivable has been reclassified to a non-

current caption.

As of December 31, 2025, the accumulated amount for

the concept totals 571 million US dollars (equivalent to

485 million euros).

As indicated in note 20.b, in July 2025 the Company

entered into an agreement with Millicom International

Cellular to settle the lawsuit concerning breach of

contract related to the sale of the Group's subsidiary in

Costa Rica. The outstanding amount will be received in

July 2026 (30 million US dollars) and July 2027 (32

million US dollars). The present value of these amounts

is shown, according to their maturity, in the "Other long-

term receivables" and "Other current financial assets"

lines of the detailed schedule accompanying this note,

totaling 25 million euros for both long-term and short-

term receivables.

Other current financial assets include in 2025 (in

addition to the receivable from Millicom described

above) and 2024 the uncollected revenues from bank

accounts.



	Individual Annual Report 2025	Telefónica, S. A.	30



Financial statements 2025	Index

Note 10. Trade and other

receivables

The breakdown of “Trade and other receivables” at

December 31, 2025 and 2024 is as follows:



Millions of euros	2025	2024
Trade receivables	8	30
Trade receivables from Group companies and associates	208	211
Employee benefits receivable	1	1
Tax receivables (Note 17)	47	23
Total	264	265

“Trade receivables from Group companies and

associates” mainly includes amounts receivable from

subsidiaries for the impact of the rights to use the

Telefónica brand and the monthly office rental fees (see

note 7).

Trade receivables and Trade receivables from Group

companies and associates in 2025 and 2024 include

balances in foreign currency equivalent to 58 and 104

million euros, respectively.

In 2025 and 2024 these amounts relate to receivables in

US dollars and pounds sterling.

These balances give rise to positive exchange rate

differences in the income statement by 1.5 million euros

in 2025 and 5 million euros of negative exchange rate

differences in 2024.



	Individual Annual Report 2025	Telefónica, S. A.	31



Financial statements 2025	Index

Note 11. Equity

11.1 Capital and reserves

a) Share capital

2025

At December 31, 2025, Telefónica, S.A.´s share capital

amounted to 5,670,161,554 euros and is divided into

5,670,161,554 common shares, of a single series and with

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

of the Company have the same characteristics and carry

the same rights and obligations.

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 Stock Exchange

and the Lima Stock Exchange (in those latter two

through American Depositary Shares (ADSs), with each

ADS representing one share of the Company). In

December 2025, Telefónica, S.A. announced its

intention to initiate the procedure for the voluntary

delisting of its ADSs from the New York Stock Exchange,

a process that became effective in January 2026 (see

Note 22). The Company also intends to request the

voluntary delisting of its ADSs from the Lima Stock

Exchange.

2024

At December 31, 2024, Telefónica, S.A.´s share capital

amounted to 5,670,161,554 euros and is divided into

5,670,161,554 common shares, of a single series and with

a par value of one 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 12, 2024, 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 the same day.

The share capital of Telefónica, S.A. was reduced in the

amount of 80,296,591 euros, through the cancellation of

80,296,591 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 5,670,161,554 euros corresponding to

5,670,161,554 shares with a nominal value of one euro

each. Related to the capital reduction the share

premium was reduced by 230 million euros.

The reduction did not entail the return of contributions

to the shareholders since the Company was 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 80,296,591 euros). This

reserve for cancelled share capital can only be used if

the same requirements as those applicable to the

reduction of share capital are met. Therefore, in

accordance with the Section 335.c) of the Corporate

Enterprises Act, the creditors of the Company cannot

claim the opposition right disclosed in article 334 of the

Corporate Enterprise Act.

On May 13, 2024, the deed relating to the share capital

reduction was registered in the Commercial Registry of

Madrid.

Authorizations by Shareholders’ Meeting

As regards the authorizations conferred in respect of the

share capital, the shareholders acting at the Ordinary

General Shareholders’ Meeting held on April 10, 2025

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 2.835.080.777 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

2025, the Board would be authorized to increase the

share capital by the maximum nominal amount of

2,835,080,777 euros.



	Individual Annual Report 2025	Telefónica, S. A.	32



Financial statements 2025	Index

Furthermore, the shareholders acting at the Ordinary

General Shareholders’ Meeting of Telefónica, S.A. held

on April 10, 2025 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 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. 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 March 31, 2023, shareholders voted to

authorize the acquisition by the Board of Directors of

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

pursuant to the terms and conditions established at the

Shareholders’ Meeting, within a maximum five-year

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

circumstances could the par value of the shares

acquired, added to that of the treasury shares already

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

subsidiaries, exceed the maximum legal percentage at

any time.

On December 31, 2025 and 2024, Telefónica, S.A. held

the following treasury shares:



		Euros per share
	Number of shares	Acquisition price	Trading price	Market value (*)	%
Treasury shares at Dec 31 2024	26,874,751	3.97	3.94	106	0.474%
Treasury shares at Dec 31 2025	39,762,042	3.96	3.49	139	0.701%

(*) Millions of euros



	Individual Annual Report 2025	Telefónica, S. A.	33



Financial statements 2025	Index

The evolution in treasury share figures of Telefónica,

S.A. during the years 2025 and 2024 is as follows:



	Number of shares
Treasury shares at 12/31/23	111,099,480
Acquisitions	36,525,204
Disposals	(20,543,444)
Share capital reduction	(80,296,591)
Employee share option plan (See Note 19.3)	(19,909,898)
Treasury shares at 12/31/24	26,874,751
Acquisitions	21,846,574
Disposals	(548,815)
Employee share option plan (See Note 19.3)	(8,410,468)
Treasury shares at 12/31/25	39,762,042

Acquisitions

In 2025 and 2024 acquisition of treasury shares

amounting to 86 and 145 million euros respectively, have

been registered (see note 21).

Share redemption

On May 13, 2024, following the agreement of the

General Shareholders' Meeting held on April 12, 2024,

the share capital reduction was carried out through the

cancellation of 80,296,591 own shares with an impact of

310 million euros.

There has been no share redemption transactions

during 2025.

Disposals

The amount recorded for sales of treasury shares in

2025 and 2024 amounts to 2 and 81 million euros,

respectively. The difference with the proceeds from the

sale has been recorded under the unrestricted reserves

caption in both years.

Employee share option plan

Treasury shares related to share plans redemptions in

2025 and 2024 amount to 33 and 78 million euros,

respectively.

Other instruments

The Company also has different derivative instruments,

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

146 million of Telefónica shares, mainly contracted

through Banco Bilbao Vizcaya Argentaria, S.A., recorded

in the balance sheet at December 31, 2025 and in 2024

in accordance with their maturity date and fair value (173

million euros at December 31, 2024)

b) Legal reserve

According to the text of the Corporate Enterprises Act,

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

legal reserve until this reserve reaches at least 20% of

the 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. The General Shareholders'

meeting of April 12, 2024 approved an increase of 91

million euros in the legal reserve as a result of the 2023

profit distribution. On December 31, 2025 and 2024, this

reserve amounted to 1,150 million euros, representing

20.28% of the share capital at both year ends.

c) Other reserves

The concepts included under this caption are:

• The Revaluation reserve which arose as a result of the

revaluation made pursuant to Royal Decree-Law

7/1996 dated June 7. The revaluation reserve may be

used, free of tax, to offset any losses incurred in the

future and to increase capital. From January 1, 2007, it

may be allocated to unrestricted reserves, provided

that the capital gain has been realized. The capital

gain will be deemed to have been realized in respect

of the portion on which the depreciation has been

recorded for accounting purposes or when the

revalued assets have been transferred or

derecognized. In this respect, at the end of 2025 and

2024, an amount of 3 and 2 million euros,

corresponding to revaluation reserves subsequently

considered unrestricted has been reclassified to Other

reserves. The balance of this reserve at December 31,

2025 and 2024 was 46 and 49 million euros,

respectively.

• Reserve for cancelled share capital: In accordance

with Section 335.c) of the Corporate Enterprises Act

and to render null and void the right of opposition

provided for in Section 334 of the same Act, whenever

the Company carries out a share capital reduction, it

records a reserve for cancelled share capital for an

amount equal to the par value of the cancelled shares,

which can only be used if the same requirements as

those applicable to the reduction of share capital are

met. The cumulative amount of the reserve for

cancelled share capital at December 31, 2025 and

2024 totals 1,059 million euros in both years.

• In addition to the restricted reserves explained above,

Other reserves includes unrestricted reserves from

gains obtained by the Company in prior years.

In addition, this caption includes the equity impacts of

the corporate transactions described in note 8. In this



	Individual Annual Report 2025	Telefónica, S. A.	34



Financial statements 2025	Index

regard, in 2025, with the publication of BOICAC 142,

Telefónica, S.A. has reassessed as of January 1, 2024

the impacts of corporate transactions affected by this

ruling (see Note 4.f). The retrospective application of

BOICAC 142 criterion has affected the unrestricted

reserves line by 451 million euros as of January 1, 2024,

with a debit of 1,101 million euros in the cost of

investments and 650 million euros of impairment

losses (see note 8).

Additionally, during 2024, as a consequence of the

new standard, a reversal of impairment loss in

Telefónica Tech, S.L. has been recorded by 182 million

euros. Also the negative equity impact recorded in

2024 in application of the previous standard derived

from the in-kind contribution of shares of Telefónica

Deutschland Holding, A.G. to Telefónica Local

Services GmbH, amounting to 382 million euros

(which was reflected in the "Other movements" line of

the equity table), has been eliminated.

Thus, the cumulative effect in the equity of the

Company of the change in the standard amounts to

1,015 million euros as of December 31, 2024.

d) Dividends

Dividend distribution in 2025

Approval was given at the General Shareholders’

Meeting of April 10, 2025 to pay a dividend in cash

charge to unrestricted reserves amounting to 0.30

euros per share payable in two tranches.

On June 19, 2025, 0.15 euros per share was paid, for a

total amount of 846 million euros, and on December 18,

2025, a second payment of 0.15 euros amounting to 844

million euros.

Dividend distribution in 2024

Approval was given at the General Shareholders’

Meeting of April 12, 2024 to pay a dividend in cash

charge to unrestricted reserves amounting to 0.30

euros per share payable in two tranches.

On June 20, 2024,0.15 euros per share was paid, for a

total amount of 846 million euros, and on December 19,

2024, a second payment of 0.15 euros amounting to 847

million euros.



	Individual Annual Report 2025	Telefónica, S. A.	35



Financial statements 2025	Index

11.2 Unrealized gains (losses)

reserve

The movements in the items composing “Unrealized

gains (losses) reserve” in 2025 and 2024 are as follows:



2025
Millions of euros	Opening balance	Valuation at market value	Tax effect of additions	Amounts transferred to income statement	Tax effect of transfers	Closing balance
Financial assets at fair value with changes through equity (Note 9.3)	144	191	—	(335)	—	—
Cash flow hedges	166	(422)	106	672	(168)	354
Total	310	(231)	106	337	(168)	354



2024
Millions of euros	Opening balance	Valuation at market value	Tax effect of additions	Amounts transferred to income statement	Tax effect of transfers	Closing balance
Financial assets at fair value with changes through equity (Note 9.3)	101	96	—	(53)	—	144
Cash flow hedges	269	428	(107)	(565)	141	166
Total	370	524	(107)	(618)	141	310.25

Since 2018, the Company includes the fair value hedges,

whose impacts are generated and transferred to the

income statement in the same period, in the statement

of recognized income and expense in equity, and

transfers the amounts to the income statement of the

same period. The impacts are shown in the column

Valuation at market value and with the opposite sign in

the column Amounts transferred to income statement of

the tables above.



	Individual Annual Report 2025	Telefónica, S. A.	36



Financial statements 2025	Index

Note 12. Financial liabilities

The breakdown of “Financial liabilities” at December 31, 2025 and 2024 is as follows:



2025
	LIABILITIES AT FAIR VALUE						LIABILITIES AT AMORTIZED COST
				MEASUREMENT HIERARCHY
Millions of euros	Financial liabilities with changes through income statement	Hedges with changes through equity	Subtotal financial liabilities at fair value	Level 1: quoted prices	Level 2: Estimates based on other directly observable market inputs	Level 3: Estimates not based on other directly observable market data	Financial liabilities at amortized cost	Fair value of financial liabilities	TOTAL CARRYING AMOUNT	TOTAL FAIR VALUE
Non-current financial liabilities	547	1,385	1,932	—	1,932	—	32,861	34,484	34,793	34,484
Payable to Group companies and associates	—	—	—	—	—	—	31,500	31,164	31,500	31,164
Bank borrowings	—	—	—	—	—	—	1,034	1,061	1,034	1,061
Derivatives (Note 16)	547	1,385	1,932	—	1,932	—	—	1,932	1,932	1,932
Other financial liabilities	—	—	—	—	—	—	327	327	327	327
Current financial liabilities	240	16	256	—	256	—	10,128	10,393	10,384	10,393
Payable to Group companies and associates	—	—	—	—	—	—	10,033	10,042	10,033	10,042
Bank borrowings	—	—	—	—	—	—	18	18	18	18
Bonds and other marketable debt securities	—	—	—	—	—	—	57	57	57	57
Derivatives (Note 16)	240	16	256	—	256	—	—	256	256	256
Other financial liabilities	—	—	—	—	—	—	20	20	20	20
Total financial liabilities	787	1,401	2,188	—	2,188	—	42,989	44,877	45,177	44,877



	Individual Annual Report 2025	Telefónica, S. A.	37



Financial statements 2025	Index



2024	LIABILITIES AT FAIR VALUE						LIABILITIES AT AMORTIZED COST
				MEASUREMENT HIERARCHY
Millions of euros	Financial liabilities with changes through income statement	Hedges with changes through equity	Subtotal financial liabilities at fair value	Level 1: quoted prices	Level 2: Estimates based on other directly observable market inputs	Level 3: Estimates not based on other directly observable market data	Financial liabilities at amortized cost	Fair value of financial liabilities	TOTAL CARRYING AMOUNT	TOTAL FAIR VALUE
Non-current financial liabilities	599	1,103	1,702	—	1,702	—	35,397	36,724	37,099	36,724
Payable to Group companies and associates	—	—	—	—	—	—	33,893	33,508	33,893	33,508
Loans with financial entities	—	—	—	—	—	—	828	838	828	838
Derivatives (Note 16)	599	1,103	1,702	—	1,702	—	—	1,702	1,702	1,702
Other financial liabilities	—	—	—	—	—	—	676	676	676	676
Current financial liabilities	160	19	179	—	179	—	5,383	5,514	5,562	5,514
Payable to Group companies and associates	—	—	—	—	—	—	5,260	5,212	5,260	5,212
Loans with financial entities	—	—	—	—	—	—	87	87	87	87
Bonds and other marketable debt securities	—	—	—	—	—	—	35	35	35	35
Derivatives (Note 16)	160	19	179	—	179	—	—	179	179	179
Other financial liabilities	—	—	—	—	—	—	1	1	1	1
Total financial liabilities	759	1,122	1,881	—	1,881	—	40,780	42,238	42,661	42,238

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

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

market.

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

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

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

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

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

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

estimate for each currency of a credit spread curve using the prices of the Company’s

bonds and credit derivatives.



	Individual Annual Report 2025	Telefónica, S. A.	38



Financial statements 2025	Index

Note 13. Bonds and other

marketable debt securities

This caption, at December 31, 2025 and 2024, fully refers

to promissory notes program.

The features of the 2025 and 2024 programs are the

same and the detail is as follows:



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

The balances and movements of the financial

instruments included under this caption at December 31,

2025 and 2024 are as follows:



	2025	2024
Millions of euros	Other marketable debt securities (Promissory notes)	Other marketable debt securities (Promissory notes)
Opening balance	35	—
Additions	85	63
Disposals	(64)	(28)
Revaluation and other movements	1	—
Closing balance	57	35
Details of maturities:
Non-current	—	—
Current	57	35

The average interest rate for promissory notes in 2025

has been 2.540% (3.646% in 2024).



	Individual Annual Report 2025	Telefónica, S. A.	39



Financial statements 2025	Index

Note 14. Interest-bearing debt

and derivatives

14.1 Detail of debt balances

The balances at December 31, 2025 and 2024 are as

follows:



December 31, 2025
Millions of euros	Current	Non-current	Total
Loans with financial entities (Note 12)	18	1,034	1,052
Derivatives (Note 16)	256	1,932	2,188
Total	274	2,966	3,240



December 31, 2024
Millions of euros	Current	Non-current	Total
Loans with financial entities (Note 12)	87	828	915
Derivatives (Note 16)	179	1,702	1,881
Total	266	2,530	2,796

14.2 Disclosure of nominal amount of debts

The nominal values of the main interest-bearing debts

at December 31, 2025 and 2024 is as follows:



2025
Description	Value Date	Maturity Date	Currency	Limit 12/31/2025 (*) (millions of local currency)	Balance (millions of euros)
Bilateral Loan	21/11/2024	12/16/2031	EUR	—	100
Bilateral Loan	10/09/2024	10/31/2031	EUR	—	140
Bilateral Loan	03/27/2024	07/31/2034	EUR	—	150
Bilateral Loan	02/14/2023	09/29/2033	EUR	—	150
Bilateral Loan	12/23/2022	06/15/2033	EUR	—	125
Bilateral Loan	09/26/2022	12/15/2032	EUR	—	150
Bilateral Loan	01/15/2025	01/15/2035	EUR	—	125
Bilateral Loan	11/19/2025	11/19/2032	EUR	—	100

(*) Undrawn limit at December 31, 2025.



	Individual Annual Report 2025	Telefónica, S. A.	40



Financial statements 2025	Index



2024
Description	Value Date	Maturity Date	Currency	Limit 12/31/2024 (*) (millions of local currency)	Balance (millions of euros)
Bilateral loan	21/11/2024	12/16/2031	EUR	—	100
Bilateral loan	10/09/2024	10/31/2031	EUR	—	140
Bilateral loan	03/27/2024	07/31/2034	EUR	—	150
Bilateral loan	02/14/2023	09/29/2033	EUR	—	150
Bilateral loan	12/23/2022	06/15/2033	EUR	—	125
Bilateral loan	09/26/2022	12/15/2032	EUR	—	150

(*) Undrawn limit at December 31, 2024.

14.3 Maturities of balances

The maturity of balances at December 31, 2025 and 2024 are as follows:



December 31, 2025	Maturity
Millions of euros	2026	2027	2028	2029	2030	Subsequent years	Closing balance
Loans with financial entities	18	(1)	—	—	(5)	1,040	1,052
Derivatives (Note 16)	256	676	234	295	127	600	2,188
Total	274	675	234	295	122	1,640	3,240



December 31, 2024	Maturity
Millions of euros	2025	2026	2027	2028	2029	Subsequent years	Closing balance
Loans with financial entities	87	15	(2)	—	—	815	915
Derivatives (Note 16)	179	45	531	353	265	508	1,881
Total	266	60	529	353	265	1,323	2,796

14.4 Interest-bearing debt arranged or repaid in 2025

The most significant transactions in 2025 mainly

includes the following:



Description	Limit 12/31/2025 (*) (millions)	Currency	Outstanding balance Dec 31 2025 (million euros)	Arrangement date	Maturity date	Drawdown 2025 (million euros)	Repayment 2025 (million euros)
Telefónica, S.A.
Green Syndicated (1)	5,500	EUR	—	03/15/2018	01/13/2030	—	—
Bilateral loan	—	EUR	125	01/15/2025	01/15/2035	125	—
Bilateral loan	—	EUR	100	11/19/2025	11/19/2032	100	—

(1) On January 13, 2025 Telefónica, S.A. signed an extension option with a maximum amount of the 5,500 million euros green syndicated facility to an additional

year (extended date being January 13, 2030). In addition, two more extension options have been signed for another additional year in both cases, with a final

maturity at January 13, 2032.

(*) Undrawn limit.



	Individual Annual Report 2025	Telefónica, S. A.	41



Financial statements 2025	Index

14.5 Average interest on loans and

borrowings

The average interest rate in 2025 on loans and

borrowings denominated in euros was 3.122% (4.223% in

2024) and 2.4% for foreign-currency loans and

borrowings in both years in 2025 and 2024.

14.6 Unused credit facilities

The balances of loans and borrowings only relate to

drawn down amounts.

At December 31, 2025 and 2024, Telefónica had

undrawn credit facilities amounting to 9,377 million

euros and 9,524 million euros, respectively.

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

2025 and 2024 is not subject to compliance with

financial ratios (covenants).



	Individual Annual Report 2025	Telefónica, S. A.	42



Financial statements 2025	Index

Note 15. Payable to group

companies and associates

15.1 Detail of group debts

The breakdown of payable to group companies and

associates at the 2025 and 2024 year ends is as follows:



December 31, 2025
Millions of euros	Non-current	Current	Total
Loans	31,490	9,612	41,102
Trade payables to Group companies and associates	7	82	89
Derivatives (Note 16)	—	5	5
Tax Group payables to subsidiaries	3	334	337
Total	31,500	10,033	41,533



December 31, 2024
Millions of euros	Non-current	Current	Total
Loans	33,882	5,048	38,930
Trade payables to Group companies and associates	11	111	122
Derivatives (Note 16)	—	5	5
Tax Group payables to subsidiaries	—	96	96
Total	33,893	5,260	39,153

The maturity of these loans at the 2025 and 2024 year

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



December 31, 2025
Company	2026	2027	2028	2029	2030	2031 and subsequent years	Final balance, current and non-current
Telefónica Emisiones, S.A.U.	2,225	3,309	1,942	2,523	1,012	14,513	25,524
Telefónica Europe, B.V.	2,402	999	1,495	997	2,046	2,654	10,593
Telfisa Global, B.V.	4,985	—	—	—	—	—	4,985
Total	9,612	4,308	3,437	3,520	3,058	17,167	41,102



	Individual Annual Report 2025	Telefónica, S. A.	43



Financial statements 2025	Index



December 31, 2024
Company	2025	2026	2027	2028	2029	2030 and subsequent years	Final balance, current and non-current
Telefónica Emisiones, S.A.U.	2,375	1,881	3,445	1,940	2,528	14,630	26,799
Telefónica Europe, B.V.	1,388	998	998	1,493	997	4,852	10,726
Telfisa Global, B.V.	1,285	—	—	—	—	—	1,285
Telefónica de Argentina, S.A.	—	—	—	—	120	—	120
Total	5,048	2,879	4,443	3,433	3,645	19,482	38,930

Financing raised by Telefónica, S.A. through its

subsidiary Telefónica Europe, B.V. at December 31, 2025

amounts to 10,593 million euros (10,726 million euros in

2024). This financing entails a number of loans paying

market interest rates calculated on a Euribor plus spread

basis, with average interest rates at December 31, 2025

of 5.08% (5.23% in 2024). The main source of this

financing was the funds obtained through the issuance

of undated deeply subordinated securities amounting to

7,550 million euros (7,578 million euros in 2024), bonds

and debentures amounting to 1,608 million euros (1,656

million euros in 2024) and commercial paper amounting

to 1,188 million euros (1.165 million euros in 2024).

Financing raised by Telefónica, S.A. through Telefónica

Emisiones, S.A.U. at December 31, 2025 was 25,524

million euros (26,799 million euros in 2024). This

financing is arranged as loans between these

companies on the similar terms and conditions as those

of the notes issued under the debt issuance programs of

Telefónica Emisiones, S.A.U. The average interest rate in

2025 was 3.41% (3.33% in 2024). The financing arranged

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

to the income statement for the period corresponding to

the financing based on the corresponding effective

interest rates. Telefónica Emisiones, S.A.U. raised

financing in 2025 by tapping the European capital

markets, issuing bonds totaling 1,750 million euros and

130 million Swiss francs (1,750 million euros in 2024).

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

Telefónica Emisiones, S.A.U. and to Telefónica Europe,

B.V. includes adjustments to amortized cost at

December 31, 2025 and 2024 as a result of fair value

interest rate and exchange rate hedges.

In January 2024 Telefónica Móviles Argentina, S.A.

granted a 117 million US dollars loan to Telefónica, S.A. at

a variable interest rate and maturity date in January

2029. The payment of interests was originally

established to be biannual but in July 2024 the contract

was amended so that the interests would be paid at

maturity. On February 24, 2025 Telefónica Móviles

Argentina, S.A. assigned the collection rights of the

notional and outstanding interests at the date to its

holding company, TLH Holdco, S.L. The total assigned

amount (126 million US dollars equivalent to 111 million

euros) has been repaid by Telefónica, S.A. in 2025 (See

note 21).

Telfisa Global, B.V. centralizes and handles cash

management and flows for the Telefónica Group in Latin

America, the United States, Europe and Spain. The

balance payable to this subsidiary is formalized through

several deposit agreements accruing interest at market

rates and amounting to 4,985 million euros in 2025

(1,285 million euros in 2024).

15.2 Tax liabilities

The balance of “Payable to subsidiaries due to taxation

on a consolidated basis” was 337 and 96 million euros at

December 31, 2025 and 2024, respectively. This

basically includes payables to Group companies for their

contribution of taxable income (tax loss carryforwards)

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

The current or non-current classification is based on the

Company’s projection of maturities.

The most significant balances in 2025 correspond to

Telefónica de España, S.A.U. amounting to 87 million

euros, Telefónica Hispanoamérica, S.L. amounting to 84

million euros, Telefónica Latinoamérica Holding, S.L.

amounting to 54 million euros and Telefónica Móviles

España, S.A.U. amounting to 34 million euros.

The most significant balances in 2024 corresponded to

Telefónica Hispanoamérica, S.L. amounting to 40 million

euros and 24 million euros for Telefónica Latinoamérica

Holding, S.L.



	Individual Annual Report 2025	Telefónica, S. A.	44



Financial statements 2025	Index

Note 16. Derivative financial

instruments and risk

management policies

a) Derivative financial instruments

During 2025, the Group continued to use derivatives to

limit interest and exchange rate risk on otherwise

unhedged positions, and to adapt its debt structure to

market conditions.

At December 31, 2025, the total outstanding balance of

derivatives transactions was 70,307 million euros

(68,590 million euros in 2024), of which 52,457 million

euros are related to interest rate risk and 17,850 million

euros to foreign currency risk. In 2024 there were,

50,369 million euros related to interest rate risk and

18,221 million euros to foreign currency risk.

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

several levels of derivatives applied to the nominal value

of a single underlying liability. For example, a foreign

currency loan can be hedged into floating rate, and then

each interest rate period can be fixed using a fixed rate

hedge, or FRA (Forward Rate Agreement). The high

volume is also due to the fact that when a derivative

transaction is cancelled, the Company may either

cancel the derivative or take the opposite position,

which cancels out the variability thereof. The second

option is usually chosen in order to cut costs. Even using

such techniques to reduce the position, it is still

necessary to take extreme care in the use of derivatives

to avoid potential problems arising through error or a

failure to understand the real position and its associated

risks.

It should be noted that on December 31, 2025,

Telefónica, S.A. had transactions with financial

institutions to hedge exchange rate risk for other

Telefónica Group companies amounting to 641 million

euros (774 million euros in 2024). At year-end 2025 and

2024, the Company had no transactions to hedge

interest rate risk for other Group companies. These

external trades are matched by intragroup hedges with

identical terms and maturities between Telefónica, S.A.

and Group companies, and therefore involve no risk for

the Company. External derivatives not backed by

identical intragroup transactions consist of hedges on

net investment and future acquisitions that, by their

nature, cannot be transferred to Group companies

andor transactions to hedge financing raised by

Telefónica, S.A. as parent company of the Telefónica

Group, which are transferred to Group subsidiaries in

the form of financing rather than via derivative

transactions.



	Individual Annual Report 2025	Telefónica, S. A.	45



Financial statements 2025	Index

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

exchange rate derivatives at December 31, 2025, their

notional amounts at year end and the expected maturity

schedule is as follows:



2025
Millions of euros		Telefónica receives		Telefónica pays
Type of risk	Value in Euros	Carrying	Currency	Carrying	Currency
Euro interest rate swaps	41,485
Fixed to floating	17,680	17,680	EUR	17,680	EUR
Floating to fixed	13,632	13,632	EUR	13,632	EUR
Floating to floating	10,173	10,173	EUR	10,173	EUR
Foreign currency interest rate swaps	10,972
GBPGBP	458	400	GBP	400	GBP
USDUSD	10,514	12,360	USD	12,360	USD
Exchange rate swaps	14,916
Fixed to fixed
GBPEUR	582	500	GBP	582	EUR
Fixed to floating
JPYEUR	95	15,000	JPY	95	EUR
CHFEUR	138	130	CHF	138	EUR
USDEUR	1,318	1,526	USD	1,318	EUR
Floating to floating
EURUSD	230	230	EUR	270	USD
GBPEUR	448	400	GBP	448	EUR
USDEUR	12,105	13,360	USD	12,105	EUR
Forwards	2,558
BRLEUR	4	24	BRL	4	EUR
CZKEUR	97	2,340	CZK	97	EUR
EURBRL	765	765	EUR	4,948	BRL
EURCLP	281	281	EUR	300,185	CLP
EURGBP	219	219	EUR	191	GBP
EURMXN	1	1	EUR	26	MXN
EURUSD	678	678	EUR	796	USD
GBPEUR	44	38	GBP	44	EUR
USDBRL	20	24	USD	130	BRL
USDCLP	4	4	USD	4,101	CLP
USDCOP	3	4	USD	15,365	COP
USDEUR	440	517	USD	440	EUR
USDPEN	1	1	USD	3	PEN
CLPUSD	1	810	CLP	1	USD
Total	69,931



	Individual Annual Report 2025	Telefónica, S. A.	46



Financial statements 2025	Index



Millions of euros
Options Structure Notional	Value in euros	Notional	Currency
Exchange Rate Options	376
EURBRL	376	2,434	BRL
Subtotal	376
Total	70,307

The breakdown by average maturity is as follows:



Millions of euros
Hedged underlying item	Notional	Up to 1 year	From 1 to 3 years	From 3 to 5 years	Over 5 years
Pension Plans	5,131	1,692	1,690	954	795
Loans	939	494	—	—	445
In national currency	350	—	—	—	350
In foreign currencies	589	494	—	—	95
Debentures and bonds MtM	55,052	9,718	7,699	5,148	32,487
In national currency	19,500	5,225	275	1,900	12,100
In foreign currencies	35,552	4,493	7,424	3,248	20,387
Other underlying (*)	9,185	7,185	—	—	2,000
Currency options	376	376	—	—	—
Forward	2,309	2,309	—	—	—
IRS	6,500	4,500	—	—	2,000
Total	70,307	19,089	9,389	6,102	35,727

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



	Individual Annual Report 2025	Telefónica, S. A.	47



Financial statements 2025	Index

The breakdown of Telefónica, S.A.'s derivatives in 2024,

their notional amounts at year end and the expected

maturity schedule is as follows:



2024
Millions of euros		Telefónica receives		Telefónica pays
Type of risk	Value in Euros	Carrying	Currency	Carrying	Currency
Euro interest rate swaps	36,286
Fixed to floating	12,928	12,928	EUR	12,928	EUR
Floating to fixed	13,860	13,860	EUR	13,860	EUR
Floating to floating	7,598	7,598	EUR	7,598	EUR
Foreign currency interest rate swaps	14,083
Fixed to floating
GBPGBP	482	400	GBP	400	GBP
USDUSD	13,601	14,138	USD	14,138	USD
Exchange rate swaps	13,090
Fixed to fixed
GBPEUR	582	500	GBP	582	EUR
Fixed to floating
JPYEUR	95	15,000	JPY	95	EUR
Floating to floating
GBPEUR	448	400	GBP	448	EUR
USDEUR	11,705	12,938	USD	11,705	EUR
Forwards	5,131
BRLEUR	16	101	BRL	16	EUR
EURPEN	160	160	EUR	627	PEN
CZKEUR	92	2,340	CZK	92	EUR
EURBRL	2,804	2,804	EUR	18,047	BRL
EURCLP	1	1	EUR	1,075	CLP
EURGBP	221	221	EUR	183	GBP
EURMXN	1	1	EUR	11	MXN
EURUSD	1,079	1,079	EUR	1,122	USD
GBPEUR	23	19	GBP	23	EUR
USDBRL	20	22	USD	128	BRL
USDCLP	3	4	USD	3,281	CLP
USDCOP	3	3	USD	12,682	COP
USDEUR	698	740	USD	698	EUR
USDPEN	2	2	USD	9	PEN
CLPUSD	1	756	CLP	1	USD
BRLUSD	7	44	BRL	8	USD
PENUSD	—	2	PEN	—	USD
Subtotal	68,590



	Individual Annual Report 2025	Telefónica, S. A.	48



Financial statements 2025	Index

The breakdown by average maturity is as follows:



Millions of euros
Hedged underlying item	Notional	Up to 1 year	From 1 to 3 years	From 3 to 5 years	Over 5 years
Pension plans	5,966	935	2,507	1,367	1,157
Loans	719	96	278	—	345
In national currency	250	—	—	—	250
In foreign currencies	469	96	278	—	95
Debentures and bonds MtM	48,074	4,992	12,120	1,105	29,857
In national currency	13,288	4,175	100	175	8,838
In foreign currencies	34,786	817	12,020	930	21,019
Other underlying (*)	13,831	9,852	279	—	3,700
Forward	5,131	4,852	279	—	—
IRS	8,700	5,000	—	—	3,700
Total	68,590	15,875	15,184	2,472	35,059

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

The debentures and bonds hedged relate to intragroup

loans on the same terms as the issues of Telefónica

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

b) Risk management policy

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

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

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

in companies, and (iv) other financial instruments

related to the above commitments.

The main market risks affecting Telefónica are as

follows:

Exchange rate risk

Foreign currency risk primarily arises in connection with:

(i) Telefónica’s international presence, through its

investments and businesses in countries that use

currencies other than euro (primarily in Latin America

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

currencies other than that of the country where the

business is conducted or the home country of the

company incurring such debt and (iii) due to those

accounts payable or receivable referred to the entity

that has registered the transaction.

Interest rate risk

Interest rate risk arises primarily in connection with

changes in interest rates affecting (i) financial expenses

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

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

interest rates and (iii) financial expenses and principal

payments of inflation-linked financial instruments,

considering interest rate risk as the impact of changes in

inflation rates.

Share price risk

Share price risk arises primarily from changes in the

value of the equity investments (that may be bought,

sold or otherwise involved in transactions), from

changes in the value of derivatives associated with such

investments, from changes in the value of treasury

shares and from derivatives on treasury shares.

Other risks

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

mismatch arises between its financing needs (operating

and financial expense, investment, debt redemptions

and dividend commitments) and its sources of finance

(revenues, divestments, credit lines from financial

institutions and capital market operations). The cost of

finance could also be affected by changes in the credit

spreads (over benchmark rates) demanded by lenders.

Credit risk appears when a counterparty fails to meet or

delays its payment obligations in accordance with the

agreed terms, driving an impairment in an asset due to:

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

Finally, Telefónica is exposed to country risk (which

overlaps with market and liquidity risks). This refers to

the possible decline in the value of assets, cash flows

generated, or cash flows returned to the parent

company as a result of political, economic or social

instability in the countries where Telefónica, S.A.

operates, especially in Latin America.

Risk management

Telefónica, S.A. actively manages these risks through

the use of derivatives (primarily on exchange rates,

interest rates, credit and share prices) and by incurring

debt in local currencies, where appropriate, with a view



	Individual Annual Report 2025	Telefónica, S. A.	49



Financial statements 2025	Index

to optimize the financial cost and to stabilizing cash

flows, the income statement and investments. In this

way, Telefónica attempts to protect its solvency,

facilitate financial planning and take advantage of

investment opportunities.

Telefónica manages its exchange rate risk and interest

rate risk in terms of net debt and net financial debt

internally calculated. Telefónica believes that these

parameters are more appropriate to understand its debt

position. Net debt and net financial debt take into

account the impact of the Group’s cash and cash

equivalents balances including derivative positions with

a positive value linked to liabilities. Neither net debt nor

net financial debt as calculated by Telefónica should be

considered an alternative to gross financial debt (the

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

Exchange rate risk

The fundamental objective of the exchange rate risk

management policy is that, in case of depreciation in

foreign currencies relative to the euro, any potential

losses is hedged in the value of the business investment

in foreign currency. The degree of exchange rate

hedging employed varies depending on the type of

investment. For transactions of purchase or sale of a

business in currencies other than euro, additional

hedges can be made based on the estimate prices of

the transactions or on estimated cash flows.

Telefónica occasionally takes out dollar-denominated

debt to hedge the euro-dollar intermediate component

in the relation euro-Latin American currencies, either in

Spain (where such debt is associated with an

investment as long as it is considered to be an effective

hedge) or in the country itself, where the market for

local currency financing or hedges may be inadequate

or non-existent.

At December 31, 2025, net financial debt in pounds

sterling was equivalent to 287 million euros of asset

position (46 million euros at December 31, 2024). The

synthetic debt target denominated in pounds sterling

will be directly related to the flows that are expected to

be repatriated from VMED O2 UK.

Telefónica also manages its exchange rate risk seeking

to significantly reduce the negative impact of any

currency exposure on the income statement, both from

transactions recognized on the balance sheet and those

classified as highly probable, regardless of whether or

not open positions are held. Such open position

exposure can arise for any of three reasons: (i) a thin

market for local derivatives or difficulty in obtaining

funding in the local currency, making it impossible to

arrange a low-cost hedge (as in Argentina and

Venezuela); (ii) financing through intra-group loans,

where the accounting treatment of exchange rate risk is

different from that for funding through capital

contributions, and (iii) as the result of a deliberate policy

decision, to avoid the high cost of hedges that are not

warranted by expectations or high depreciation risks.

The main transactions that generate or may generate

exchange rate risk (regardless of whether or not they

have an impact on the income statement) are, among

others: bond issuances in currencies other than the

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

highly probable transactions in other currencies, future

cash inflows in other currencies, investments and

divestments, provisions for collections or payments and

collections in foreign currency, the actual value of the

investments (subsidiaries) in currencies other than the

euro.

Interest rate risk

Telefónica´s financial expenses are exposed to changes

in interest rates. In 2025 the euro, Brazilian real, pounds

sterling and the US dollar were the short term rates that

accounted for most of the exposure. Telefónica

manages its interest rate risk by entering into derivative

financial instruments, primarily swaps and interest rate

options.

Telefónica analyzes its exposure to changes in interest

rates at the Telefónica Group level. The table illustrates

the sensitivity of finance costs and the balance sheet to

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

level.



	Impact on Consolidated P/L	Impact on Telefónica, S.A. P/L	Impact on Consolidated Equity	Impact on Telefónica, S.A. Equity
+100bp	(107)	(76)	414	275
-100bp	107	76	(414)	(275)

To calculate the sensitivity of the income statement, a

100 basis point rise in interest rates in all currencies in

which there are financial positions at December 31, 2025

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

in all currencies in order to avoid negative rates.

The constant position equivalent to that prevailing at the

end of the year has also been assumed.

To calculate the sensitivity of equity to variability in

interest rates, a 100 basis point increase in interest rates

in all currencies and terms in which there are financial

positions at December 31, 2025 was assumed, as well as

a 100 basis point decrease in all currencies and terms.



	Individual Annual Report 2025	Telefónica, S. A.	50



Financial statements 2025	Index

Cash flow hedge positions were also considered as they

are the only positions where changes in market value

due to interest-rate fluctuations are recognized in

equity.

In both cases, only transactions with external

counterparties have been considered.

Share price risk

The Telefónica Group is exposed to changes in the

value of equity investments, of derivatives associated

with such investments, of share-based payments plans,

of treasury shares and of equity derivatives over treasury

shares.

According to the share-based payments plans (see note

19) the shares to be delivered to employees under such

plan may be either 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 2021, the General Shareholder’s Meeting approved a

long-term incentive plan consisting of the delivery of

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

managers of the Telefónica Group.

Additionally, the 2022 Shareholder’s Meeting approved

a share plan for the incentivized purchase of shares for

employees of the Telefónica Group, which was

implemented in June 2022.

Finally, in 2024 the General Shareholders' Meeting

approved a long-term incentive plan consisting of the

delivery of shares of Telefónica, S.A. allocated to

executives and managers of the Telefónica Group.

The characteristics of these above mentioned plans are

described in note 19.

To reduce the risk associated with variations in share

price under these plans, Telefónica could acquire

instruments that hedge the risk profile of some of these

plans.

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

held at December 31, 2025 might be used to hedge the

shares deliverable under the new plans. The fair value of

the treasury shares at liquidation moment could

increase or decrease depending on the variations in

Telefónica, S.A.’s share quotation.

Liquidity risk

Telefónica seeks to match the schedule for its debt

maturity payments to its capacity to generate cash flows

to meet these maturities, while allowing for some

flexibility. In practice, this has been translated into two

key principles:

Telefónica’s average maturity of net financial debt is

intended to stay above 6 years, or be restored above

that threshold in a reasonable period of time if it

eventually falls below it. This principle is considered

as a guideline when managing debt and access to

credit markets, but not a rigid requirement. When

calculating the average maturity for the net financial

debt and part of the undrawn credit lines can be

considered as offsetting the shorter debt maturities,

and extension options on some financing facilities

may be considered as exercised, for calculation

purposes.

Telefónica must be able to pay all commitments over

the next 12 months without accessing new

borrowing or tapping the capital markets by drawing

upon firm credit lines arranged with banks (see note

14.6), assuming budget projections are met.

At year-end, Telefónica reported negative working

capital of 5,103 million euros. This position does not pose

a liquidity risk to the Company for several reasons: its

main short-term liability is with Telfisa Global, B.V. (a

wholly-owned subsidiary), amounting to 4,985 million

euros (see note 15.1); it has the ability to request the

distribution of reserves from its subsidiaries; and it also

has undrawn credit lines with banks for 9,377 million

euros (see note 14.6) as of December 31, 2025.

Country risk

Telefónica managed or mitigated country risk by

pursuing two lines of action (in addition to its normal

business practices):

Partly matching assets to liabilities (those not

guaranteed by the parent company) in the Latin

American companies so that any potential asset

impairment would be accompanied by a reduction in

liabilities; and,

Repatriating funds generated in Latin America that

are not required for the pursuit of new, profitable

business development opportunities in the region.

Credit risk

The Telefónica Group trades in derivatives with

creditworthy counterparties. Therefore, Telefónica, S.A.



	Individual Annual Report 2025	Telefónica, S. A.	51



Financial statements 2025	Index

generally trades with credit entities whose “senior debt”

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

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

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

held, there are netting agreements with financial

institutions, with debtor or creditor positions offset in

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

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

counterparties with which Telefónica, S.A. operates is

monitored at all times in order to assess the maximum

allowable CDS for operating at any given time.

Transactions are generally only carried out with

counterparties whose CDS is below the threshold.

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

is the method used to measure credit risk for both

counterparties and Telefónica in order to determine the

fair value of the derivatives portfolio. This adjustment

reflects the probability of default or the deterioration of

the credit quality of both Telefónica and its

counterparties. The simplified formula to calculate CVA

is Expected Exposure times Probability of Default times

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

variables standard market practices are used.

When managing credit risk, Telefónica considers the

use of CDS, novations, derivatives with break clauses

and signing CSAs under certain conditions as well as

derivatives with early termination 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); the

counterparty-related CDS compared with the banks

which Telefónica S.A. operates with (likewise as to the

derivatives) and the instruments in which the surpluses

may be invested (money-market instruments).

Formal delegation of authority procedures and

management practices are implemented in the different

Group companies, taking into account benchmark risk

management techniques but adapted to the local

characteristics of each market. Commercial debtors that

may cause a relevant impact on the individual financial

statements and increased risk profile products - due to

customer target, term, channels or other commercial

characteristics - are subject to specific management

practices in order to mitigate the exposure to credit risk.

This customer credit risk management model is

embedded in the day-to-day operational processes of

the different companies, where the credit risk

assessment guides both the product and services

available for the different customers and the collection

strategy.

Telefónica’s maximum exposure to credit risk is initially

represented by the carrying amounts of the assets (see

notes 8 and 9) and the guarantees given by Telefónica

(see note 20).

Capital management

Telefónica’s corporate finance department takes into

consideration several factors for the evaluation of the

capital structure of the Company, with the aim of

maintaining the solvency and creating value to the

shareholders.

The corporate finance department estimates the cost of

capital on a continuous basis through the monitoring of

the financial markets and the application of standard

industry approaches for calculating weighted average

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

valuation of businesses in course and in the evaluation

of investment projects. Telefónica also uses as

reference a certain level of net financial debt (excluding

items of a non-recurring or exceptional nature) that

allows a comfortable investment grade credit rating as

assigned by credit rating agencies, aiming at protecting

credit solvency and making it compatible with

alternative uses of cash flow that could arise at any time.

These general principles are refined by other

considerations and the application of specific variables,

such as country risk in the broadest sense, or the

volatility in cash flow generation that are considered,

when evaluating the financial structure of the Telefónica

Group and its different business units.

Derivatives Policy

Telefónica’s derivatives policy emphasizes the following

points:

• Derivatives based on a clearly identified underlying.

• Matching of the underlying to one side of the

derivative.

• Matching the company contracting the derivative and

the company that owns the underlying.

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

valuation systems available to the Telefónica Group.



	Individual Annual Report 2025	Telefónica, S. A.	52



Financial statements 2025	Index

• Sale of options only when there is an underlying

exposure.

Hedge accounting

Hedges can be of three types:

• Fair value hedges.

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

value of the risk to be hedged (interest rates,

exchange rates, etc.) or for a defined range (interest

rates between 2% and 4%, above 4%, etc.). In this last

case, the hedging instruments used are options and

only the intrinsic value of the option is recognized as

an effective hedge. The changes in the temporal value

of the option are registered in the income statement.

• Net investment hedges in consolidated foreign

subsidiaries. Generally, such hedges are arranged by

the parent company. Wherever possible, these

hedges are implemented through real debt in foreign

currency. However, this is not always possible as

many Latin American currencies are non-convertible,

making it impossible for non-resident companies to

issue local currency debt. It might also occur that the

local debt market is not deep enough to

accommodate the required hedge, or that an

acquisition is made in cash with no need for market

financing. In these circumstances, derivatives, either

forwards or cross-currency swaps, are mainly used to

hedge the net investment.

Hedges can comprise a combination of different

derivatives.

There is no reason to suppose management of

accounting hedges will be static, with an unchanging

hedging relationship lasting right through maturity.

Hedging relationships may change to allow appropriate

management that serves our stated principles of

stabilizing cash flows, stabilizing net financial income/

expense and protecting our equity. The designation of

hedges may therefore be cancelled, before maturity,

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

perceived risk on the underlying or a change in market

view. The hedges must meet the effectiveness test and

be well documented. To gauge the efficiency of

transactions defined as accounting hedges, Telefónica

analyzes the extent to which the changes in the fair

value or in the cash flows attributable to the hedging

instrument would offset the changes in fair value or

cash flows attributable to the hedged risk using a linear

regression model for both forward- and backward-

looking analysis.

The possible sources of ineffectiveness that might arise

when designing a hedging relationship and that will be

considered when establishing the hedging rationale are:

• The hedging instrument and the hedged item have

different maturity dates, initial dates, contract dates,

repricing dates, etc.

• The hedging instrument starts with initial value and a

financing effect is produced.

• When the underlying items have different sensitivity

and are not homogeneous, for example EURIBOR 3M

versus EURIBOR 6M.

The main guiding principles for risk management are laid

down by Telefónica’s finance department (who are

responsible for balancing the interests of the companies

in a standalone basis and those of the Telefónica

Group). The Corporate finance department may allow

exceptions to this policy where these can be justified,

normally when the market is too thin for the volume of

transactions required or on clearly limited and small

risks.

In 2025 the Company recognized a loss of 3.6 million

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

of 0.6 million euros in 2024).

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

parties amounted to a negative MtM (accounts payable)

of 60 million euros in 2025 (961 million euros accounts

receivable in 2024).

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

amounted to a negative MtM of 4 million euros in 2025

(positive MtM minor than 1 million euros in 2024).

The breakdown of the Company’s derivatives with third

party counterparties at December 31, 2025 and 2024 by

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

expected maturity schedule of the notional amounts is

as follows:



	Individual Annual Report 2025	Telefónica, S. A.	53



Financial statements 2025	Index



2025
Millions of euros		Notional amount maturities (*)
Derivatives	Fair value (**)	2026	2027	2028	Subsequent years	Total
Interest rate hedges	(151)	—	325	(175)	(9,728)	(9,577)
Cash flow hedges	(75)	—	—	—	3,127	3,127
Fair value hedges	(76)	—	325	(175)	(12,855)	(12,704)
Exchange rate hedges	(56)	(1,183)	714	—	6,465	5,996
Cash flow hedges	(56)	(1,183)	714	—	6,465	5,996
Interest and exchange rate hedges	92	9	472	—	417	898
Cash flow hedges	92	9	472	—	417	898
Net investment Hedges	(8)	(477)	—	—	—	(477)
Other derivatives	182	53	(247)	(875)	(714)	(1,783)
Interest rate	(3)	(738)	(325)	(875)	(1,339)	(3,277)
Exchange rate	18	193	—	—	625	818
Other	167	597	78	—	—	676

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

versus foreign currency.

(**) Positive amounts indicate payables.



2024
Millions of euros		Notional amount maturities (*)
Derivatives	Fair value (**)	2025	2026	2027	Subsequent years	Total
Interest rate hedges	(224)	(1,802)	—	381	(4,565)	(5,986)
Cash flow hedges	23	(2,327)	—	—	3,627	1,300
Fair value hedges	(247)	525	—	381	(8,192)	(7,286)
Exchange rate hedges	(578)	—	582	714	4,699	5,996
Cash flow hedges	(578)	—	582	714	4,699	5,996
Interest and exchange rate hedges	(5)	46	9	472	279	806
Cash flow hedges	(5)	46	9	472	279	806
Net investment Hedges	(69)	(2,595)	—	—	—	(2,595)
Other derivatives	(84)	(553)	895	(325)	(1,628)	(1,612)
Interest rate	163	(348)	(738)	(325)	(2,253)	(3,664)
Exchange rate	(347)	(588)	1,240	—	625	1,277
Other	100	382	393	—	—	775

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

versus foreign currency.

(**) Positive amounts indicate payables.



	Individual Annual Report 2025	Telefónica, S. A.	54



Financial statements 2025	Index

Note 17. Income tax

Pursuant to a Ministerial Order dated December 27,

1989, Telefónica, S.A. has filed consolidated tax returns

with certain Group companies. The consolidated tax

group in 2025 and 2024 comprised 46 and 47

companies, respectively.

This tax consolidation regime applies indefinitely

providing the companies continue to meet the

requirements set down in prevailing legislation, and that

application of the regime is not expressly waived.

Tax balances as of December 31, 2025 and 2024 are as

follows:



Millions of euros	2025	2024
Tax receivables:	1,359	1,748
Deferred tax assets:	1,312	1,725
Deferred income tax (income)	542	518
Long-term tax credits for loss carryforwards	536	823
Unused tax deductions	234	384
Current tax receivables (Note 10):	47	23
Withholdings	4	5
Corporate income tax receivable	38	11
VAT and Canary Islands general indirect tax refundable	5	7
Tax payable:	281	696
Deferred tax liabilities:	161	576
Current payables to public administrations (Note 18):	120	120
Personnel income tax withholdings	11	5
Withholding on investment income, VAT and other	107	113
Social security	2	2

Telefónica, S.A., considers that unused tax loss

carryforwards in Spain, taking into account tax litigation

in which the Group is involved, amount to 2,145 million

euros at December 31, 2025.



Dec 31 2025	Total carry- forwards	Less than 1 year	More than 1 year	Total recognized
Tax Group tax credits for loss carryforwards	2,145	—	2,145	2,145
Prior to Tax Group loss carryforwards (*)	—	—	—	—

(*) Off- balance tax credits for loss carryforwards

Total tax credits based on the taxable income

recognized in the balance sheet at December 31, 2025

amounts to 536 million euros (823 million euros in 2024).

During 2025, Telefónica, S.A., as head of the Telefónica

tax group, made payments on account of income tax for

41 million euros (no payments on account of income tax

in 2024).



	Individual Annual Report 2025	Telefónica, S. A.	55



Financial statements 2025	Index

17.1 Movement in deferred tax

assets and liabilities

The balances and movements in deferred tax assets and

liabilities for Telefónica, S.A. at December 31, 2025 and

2024 are as follows:



2025
Millions of euros	Tax credits	Temporary differences, assets	Deductions	Total deferred tax assets	Deferred tax liabilities
Opening balance	823	518	384	1,725	576
Additions	282	276	233	791	604
Disposals	(569)	(251)	(413)	(1,233)	(1,019)
Transfers to the tax Group’s net position	—	—	30	30	—
Closing balance	536	542	234	1,312	161



2024
Millions of euros	Tax credits	Temporary differences, assets	Deductions	Total deferred tax assets	Deferred tax liabilities
Opening balance	658	371	195	1,224	95
Additions	178	193	176	546	515
Disposals	(13)	(45)	(20)	(78)	(34)
Transfers to the tax Group’s net position	—	(—)	33	33	—
Closing balance	823	518	384	1,725	576

The company assesses the recoverability of deferred tax

assets based on the future activities carried out by the

different companies that conform the Tax Group, on the

Spanish tax regulation and on the strategic decisions

affecting the companies. On December 31, 2025 the

estimate of the recoverability of deferred tax assets has

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

Group companies result, (ii) the regulatory changes

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

limit to the compensation of loss within subsidiaries

within Consolidated Tax Groups, (iii) the impacts of RD

3/2016 (see Sentence of the Constitutional Court over

the Royal Decree 3/2016 at the end of this note) and (iv)

the impact of Law 7/2024.

The aforementioned Law 7/2024 of December 20, also

restores the obligation of reversal for impairment losses

on investments that had been tax deductible prior to

2013 and that were pending of reversal as of January 1,

2024 (see section Constitutional Court Ruling on Royal

Decree Law 3/2016 in this note). The reversal must be

carried out, at a minimum, in equal parts for each of the

first three fiscal years beginning after January 1, 2024,

which has entailed the reversal of a deferred tax liability

of 488 million euros for the outstanding balance at the

beginning of fiscal year 2025 (activation of 515 million

euros in 2024).

In addition, in its analysis of the recoverability of

deferred tax assets at the end of 2024, the Company

has taken into account the amount of impairment losses

deducted before 2013 that are pending of reversal,

quantifying the effects on the following years.

Pursuant to this analysis, in 2025 a reversal of deferred

tax assets for loss carryforwards amounting to 78 million

euros (activation of 174 million euros in 2024) and

reversal of deductions of 56 million euros (activation of

147 million euros in 2024) have been recorded with a

balancing entry to the deferred income tax caption by a

total of 134 million euros.

In addition, deferred tax assets were recorded

corresponding to deducible temporary differences

amounting to 169 million euros, under the same Law,

which also establishes the extension to the years 2024

and 2025 of the 50% limitation on the use of standalone

tax loss carryforwards for the year, which must be

reversed in equal parts during each of the ten years

following its application.

As a result of the closure of the tax audit proceedings for

the fiscal years 2018 to 2021, and the execution of the

judgment in favor of Telefónica in the Administrative

Litigation proceedings before the National Court, dated

May 22, regarding Royal Decree 3/2016, tax assets for

loss carryforwards amounting to 282 million euros and



	Individual Annual Report 2025	Telefónica, S. A.	56



Financial statements 2025	Index

deductions amounting to 221 million euros have been

activated in relation to the fiscal years 2016 and 2017,

along with the corresponding deferred tax liability for

impairment losses amounting to 506 million euros,

without impact on the income statement. Additionally,

tax assets for loss carryforwards and deductions

amounting to 199 million euros and 357 million euros,

respectively, and 515 million euros of deferred tax

liabilities have been reversed against deferred tax

expenses.

In the 2024 tax return, tax assets for loss carryforwards

amounting to 287 million euros were used, including 62

million euros corresponding to negative tax bases prior

to the Telefónica, S.A. Tax Group.

Furthermore, in 2025 there has been an activation in the

deferred tax liabilities caption caused by the accounting

of the tax effect in the valuation of financial derivative

instruments with changes through equity amounting to

87 million euros (a reversal of 29 million euros in 2024).

17.2 Reconciliation of accounting

profit (loss) to taxable income and

income tax expense to income tax

payable

The calculation of the income tax expense and income

tax payable for 2025 and 2024 is as follows.



Millions of euros	2025	2024 (*)
Accounting profit (loss) before tax (*)	(1,439)	694
Permanent differences (*)	(252)	(1,981)
Temporary differences:	100	(34)
Arising in the year	29	39
Arising in prior years	71	(73)
Tax result	(1,591)	(1,321)
Gross tax payable	(398)	(330)
Corporate income tax refundable	(398)	(330)
Activation/Reversal of loss carryforwards and/or deductions	681	(335)
Temporary differences for tax valuation	(25)	9
Other effects	(669)	572
Corporate income tax accrued in Spain	(411)	(84)
Foreign taxes	31	31
Minimum complementary tax	—	2
Income tax	(380)	(51)
Current income tax	(231)	(155)
Deferred income tax	(149)	102
(*) The chart is showing the restated figures after retrospectively accounting for BOICAC 142, Query 1.

The permanent differences mainly correspond to the

impairment of the investments in Group companies, to

the non-taxable dividends received and to the financial

goodwill.

The heading Activation/Reversal of loss carryforwards

and/or deductions mainly includes the reversal of loss

carryforwards by 277 million euros as described at the

beginning of this note (activation of loss carryforwards

by174 million euros in 2024) and the reversal of

deductions by 413 million euros in 2025 (147 million

euros of deduction reversals in 2024).

The “Other impacts” caption mainly includes the effects

of the reversal by the deferred tax liability of 515 million

euros registered in 2024, and the activation of 108 of

impairment losses deducted before 2013 and the

inclusion of the years 2016 to 2021. Additionally, the

provision for goodwill of Vivo and O2 UK amounting to

203 million euros.



	Individual Annual Report 2025	Telefónica, S. A.	57



Financial statements 2025	Index

The caption "minimum complementary tax" arises from

Law 7/2024, which implements the European regulation

Pillar Two in Spain, establishing, with a retroactive effect

for fiscal years starting on January 1, 2024, a

complementary tax ensuring that large multinational

groups are taxed at a minimum effective rate of 15%

wherever they operate. The impact of this tax, which is

no relevant in both 2025 and 2024, is shown in the chart

above.

17.3 Tax inspections and tax-related

lawsuits

Once the tax inspections relating to corporate income

tax for the years 2014 to 2017 were completed in 2022

and the settlement agreement had been notified, the

Group filed claims for the adjustments with which it did

not agree. These were mainly related to 'interest on own

capital' from Brazil and its tax treatment in Spain. On 22

May 2025, the Administrative Chamber of the National

Court ruled in favor of the Company. This ruling has

been partially enforced in relation to RD 3/2016 and

other minor issues. However, with regard to interest on

own capital, the State Attorney's Office has appealed

against the ruling and it is currently pending admission

to cassation in the Supreme Court.

In July 2023, new inspection proceedings were initiated

against several companies belonging to Tax Group

24/90, of which Telefónica, S.A. is the parent company.

The review covered corporate income tax for the years

2018 to 2021 and value added tax for the period from

May to December 2019, as well as for the years 2020

and 2021.

In October 2025, following a file completion procedure,

minutes were signed with agreement and in

compliance, mainly for adjustments in transfer pricing

related to the Group's financial activity, and in

disagreement in relation to the consideration of income

exempt from interest on equity, for transfer pricing

adjustments related to the Group's purchasing activity

and for the tax amortization of the goodwill of VIVO and

O2 UK (see section Tax deductibility of financial goodwill

in Spain of this note), resulting in an impact on profit of

108 million euros without associated cash outflow, as

the Group had sufficient tax credits to offset the amount

of the adjustments.

The inspection procedure concluded in December 2025

with the notification of the settlement agreements. The

Company has challenged these agreements through

economic-administrative channels, and they are still

awaiting resolution at the approval date of these

financial statements.

Constitutional Court Ruling on Royal Decree

Law 3/2016

On 18 January 2024, the Constitutional Court (TC)

unanimously ruled that certain measures introduced by

Royal Decree-Law 3/2016 of December 2, on Corporate

Income Tax, were unconstitutional. These measures

included the introduction of stricter limits for offsetting

negative tax bases, a new limit on applying double

taxation deductions and an obligation to automatically

include any shareholding impairments that had been

deducted in previous years in the tax base. Following

previous rulings by the Constitutional Court, this ruling

states that the effects of the declaration of

unconstitutionality are limited due to the requirements

of the principle of legal certainty.

Telefónica submitted written requests for rectification

for the 2016 financial year onwards. These were for the

consolidated self-assessments of corporate income tax

(form 220) for tax group 24/90, as well as for the

individual self-assessments of corporate income tax

(form 200) for the group companies affected by the

measures. Therefore, it would not be affected by the

limitation of the effects of the declaration of

unconstitutionality.

In addition, Law 7/2024 of December 20 was published

in the Official State Gazette (BOE) on December 21,

2024. In addition to regulating the Supplementary Tax,

which guarantees a minimum level of overall taxation for

multinational groups (transposing Directive 2022/2523

of the European Council of December 15, 2022), the law

introduces other changes to corporate income tax in

order to reverse the effects of the partial annulment of

the tax measures introduced by Royal Decree-Law

3/2016 of December 2.

For tax periods beginning on or after January 1, 2024 and

not yet ended by the time Law 7/2024 comes into force,

the mandatory reversal regime for tax-deductible

impairment losses on securities representing capital or

equity prior to 2013 has been reinstated.

Consequently, the total amount of impairment losses

that were tax deductible prior to 2013 and were still

awaiting reversal on January 1, 2024 must be included in

the tax base.

The reversal must be carried out in equal parts in each

of the first three fiscal years beginning on or after

January 1, 2024. It will be permitted to offset positive

income derived from this mandatory reversal against tax

losses generated in fiscal years prior to 2021 without

applying the 25% and 50% limits mentioned above,

although the general limit of 70% will apply.

Therefore, the corporate income tax returns of the Tax

Group in Spain for the years 2016 to 2021, which were

affected by the aforementioned ruling due to the status



	Individual Annual Report 2025	Telefónica, S. A.	58



Financial statements 2025	Index

of the contentious-administrative appeal relating to the

2016–2017 corporate income tax before the National

Court, and the completion of the inspection procedure

for the years 2018 to 2021 (due to be completed in

2025), would likely be modified in the corresponding

enforcement agreements closing the inspection

procedure in 2025.

Consequently, with the support of its external advisors

and in accordance with the applicable financial

reporting framework, the Company recorded the effects

of the unconstitutionality of RD 3/2016 and Law 7/2024

at the end of 2024. The main effects were the reversal of

tax-deductible portfolio impairments in tax periods

beginning before January 1, 2013 and their inclusion in

the tax base in accordance with the provisions of Article

12. The Company took these effects into account in its

analysis of the recoverability of deferred tax assets, as

well as in its analysis of the impact of the new Law

7/2024 on the tax base.

Finally, on May 22, 2025, the Tax Agency partially

enforced the ruling in favor of Telefónica in the

administrative appeal before the National Court, with

regard to RD 3/2016. This had no significant impact on

the income statement compared to that recorded in the

2024 fiscal year.

As a result of this partial execution, a refund of 39.5

million euros has been received.

Tax deductibility of financial goodwill in Spain

The corporate income tax regulations in Spain

introduced Article 12.5, which came into force on

January 1, 2002. This article regulated the tax

deductibility of the amortization of financial goodwill

generated in the acquisition of non-resident companies,

which could be amortized for tax purposes over 20

years at a rate of 5% per annum.

Following the introduction of Laws 9/2011 of August 19,

2011 and 16/2013 of October 29, 2013, the amount of tax-

deductible goodwill amortization under Article 12.5 of

the Corporate Income Tax Law (LIS) was reduced from

5% to 1% for the 2011–2015 fiscal years. This measure

was temporary, however, as the 4% not amortized over

five years (20% in total) would be recovered by

extending the deduction period from 20 to 25 years.

In accordance with this regulation, for tax purposes, the

Telefónica Group has been amortizing the financial

goodwill arising from its direct and indirect investments

in O2, BellSouth and Colombia Telecomunicaciones

(prior to December 21, 2007) and Vivo (acquired in

2010). The cumulative positive impact on the

corresponding corporate income tax settlements from

2004 to December 31, 2025 is 2,526 million euros.

In relation to this tax incentive, the European

Commission opened three cases against the Spanish

state, on the basis that this tax benefit could constitute

state aid. While the Commission recognised the validity

of the incentive for investors in European companies

prior to December 21, 2007 and May 21, 2011 in the first

and second decisions respectively, the applicability of

the principle of legitimate expectations in the use of the

incentive for indirect acquisitions was called into

question in the third case, which was closed on October

15, 2014, regardless of the acquisition date.

Similarly, the Spanish courts have doubts about

classifying the incentive as a deduction and maintaining

it in the event of a subsequent transfer.

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

Union ruled that the European Commission had

correctly classified the Spanish tax regime for the

amortization of goodwill as state aid incompatible with

the internal market in relation to the first and second

decisions.

Regarding the recognition of legitimate expectations

under the first and second decisions, the court

confirmed their applicability.

The proceedings initiated on the third decision were

suspended until the first and second Decisions had

been resolved. They resumed on October 19, 2021, and

the Court of Justice finally ruled on June 26, 2025. The

court ultimately annulled the Commission's third

decision (EU) 2015/314, which took effect on the date of

publication.

In the opinion of the Company and its advisers, the

enforcement of this ruling could give Telefónica access

to 334 million euros in tax credits for negative tax bases

and deductions, among others.

In compliance with the obligation established in

European Commission Decision (EU) 2015/314, the Tax

Agency recovered the aid for the amortization of

goodwill for the indirect acquisition of shares in non-

resident companies for the years 2005 to 2015, 2016 to

2018 and 2019 to 2020 in March 2019, February 2021

and July 2023, respectively. The outcome of the

settlement did not result in any cash outflow for the

Group, as the Group's pending tax credits (tax loss

carryforwards and deductions) were offset, and the

latest judgments were enforced (partial enforcement of

the National Court's judgment of May 22, 2025),

resulting in the refund of the overpaid amounts. All

settlements have been appealed by the Company in the

Spanish courts and are pending judgment in the

National Court.

In 2025, as a consequence of the closure of the tax audit

procedure for the years 2018 to 2021, while the

Company acknowledges the principle of legitimate



	Individual Annual Report 2025	Telefónica, S. A.	59



Financial statements 2025	Index

expectations, the closure of the inspection procedure

for the years 2018 to 2021 raises questions about this

principle in relation to the amortization of goodwill for

tax purposes following the purchase of VIVO, as well as

the amortization of part of O2 UK's goodwill following

the 2021 transaction with VMED O2. Pending a court

resolution, the Group has made a provision of 362

million euros for these items as of December 31, 2025

(480 million euros as of December 31, 2024).

Minimum complementary tax (Pillar Two)

On 21 December 2024, Law 7/2024 of 20 December was

published in the Official State Gazette. This law

establishes a complementary tax to ensure a minimum

overall level of taxation for multinational and large

domestic groups. It also introduces a tax on the interest

margin and commissions of certain financial institutions

and a tax on liquids for electronic cigarettes and other

tobacco-related products. Additionally, it amends other

tax regulations (hereinafter referred to as 'Law 7/2024').

Law 7/2024 implements Pillar Two in Spain. With effect

for fiscal years beginning on or after 1 January 2024, it

establishes a Complementary Tax to ensure that large

multinational groups are taxed at a minimum effective

rate of 15% wherever they operate. Other jurisdictions in

which the Pillar Two rules are already in force include

the United Kingdom, Brazil and most European Union

member states.

The Telefónica Group, as a large multinational group, is

subject to this Complementary Tax.

In this regard, Telefónica, S.A., as the ultimate parent

company, and its subsidiaries in jurisdictions where a

qualified domestic tax has been approved, have

analysed the potential impact of this tax in the 2025

fiscal year. This analysis considers the application of the

transitional safe harbours provided for in the fourth

transitional provision of Law 7/2024, as well as the full

calculation in accordance with Spanish regulations and

similar regulations applicable in countries where the

group operates and which have approved the minimum

domestic tax.

The purpose of these transitional safe harbours is to

facilitate adaptation to the Pillar Two regulations by

establishing that the complementary tax will be zero

when any of the three regulated tests are met.

In accordance with the application of Pillar Two

legislation, the supplementary tax expense in the 2025

individual accounts in relation to jurisdictions that do not

comply with any of the safe harbor tests has no

significant impact.

However, the exception applies to the recognition and

disclosure of information on deferred tax assets and

liabilities arising from the implementation of Law 7/2024,

in accordance with the provisions of the Eighth

Transitional Provision of Royal Decree 1514/2007 of

November 16, which approves the General Accounting

Plan and was introduced by Law 7/2024.



	Individual Annual Report 2025	Telefónica, S. A.	60



Financial statements 2025	Index

Note 18. Trade, other payables

and provisions

A) Trade and other payables

The breakdown of “Trade and other payables” is as

follows:



Millions of euros	2025	2024
Suppliers	93	121
Accounts payable to personnel	49	39
Other payables	7	7
Other payables to public administrations (Note 17)	120	120
Total	269	287

Information on deferred payments to third

parties. Third additional provision,

“Information requirement” of Law 15/2010 of

July, 5, amended by Law 28/2022 of

September, 28

In accordance with the aforementioned Law, the

following information corresponding to the Company is

disclosed:



	2025	2024
	Number of days	Number of days
Weighted average maturity period	23	22
Ratio of payments	22	23
Ratio of outstanding invoices	32	11
	Millions of euros	Millions of euros
Total Payments	292	274
Outstanding invoices	28	27

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

payment schedules to the provisions of Law 15/2010

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

amending Law 3/2004, establishing measures against

late payment in commercial transactions. Engagement

conditions with commercial suppliers, as contractually

agreed with them, in 2025 included payment periods of

60 or shorter than 60 days.

For reasons of efficiency and in line with general

practice in the business, the Company has set payment

schedules, whereby payments are made on set days.

Invoices falling due between two payment days are

settled on the following payment date in the schedule.

Payments to Spanish suppliers in 2025 surpassing the

legal limit were due to circumstances or incidents

beyond the payment policies, mainly the delay in the

billing process (a legal obligation for the supplier), the

closing of agreements with suppliers over the delivery of

goods or the rendering of services, or occasional

processing issues.

Additional information required by Law 18/2022,

amending the third additional provision of Law 15/2020

is disclosed below:



	2024	2024
Monetary volume of invoices paid in a period less than the maximum established in the regulations (millions of euros)	261	242
Percentage over total payments	89%	89%
Number of invoices paid in a period less than the maximum established in the regulations	6,346	4,818
Percentage over the total number of invoices paid	67%	63%

B) Provisions

In 2025 and 2024 the concepts and amounts under the

provisions caption are the following:



2025
Millions of euros	Non-current	Current	Total
Tax Provisions	363	—	363
Negative net book value of investments (Note 8)	203	—	203
Termination plans (Note 19)	102	94	196
Other provisions	110	—	110
Total	778	94	872



	Individual Annual Report 2025	Telefónica, S. A.	61



Financial statements 2025	Index



2024
Millions of euros	Non-current	Current	Total
Tax Provisions	481	—	481
Negative net book value of investments (Note 8)	743	—	743
Termination plans (Note 19)	59	31	90
Other provisions	104	—	104
Total	1,387	31	1,418

Movements in the provisions during 2025 and 2024 are

disclosed below:



Millions of euros	2025	2024
Opening balance:	1,418	645
Additions	253	69
Amortization and reversals	(265)	(39)
Transfers (note 8)	(540)	743
Fair value adjustments and others	6	—
Closing balance:	872	1,418
Non-current	778	609
Current	94	36

In 2025 and 2024 the caption “Additions” included 85

and 62 million euros, respectively, of the provision for

taxes under article 12.5 of the Corporate Income Tax

Law related to the acquisition of Vivo and O2 UK.

Additionally, due to the tax audit procedures for the

years 2018 to 2021, the provision for goodwill of these

companies amounting to 203 million euros was applied

in 2025 (see note 17). No further changes to this

provision for taxes were recorded in 2024 and 2025.

During the 2025 fiscal year, the Company has

negotiated and signed a workforce adjustment layoff

plan (ERE) with the legal representatives of the

employees.

The terms of the ERE vary depending on each of the

following groups:

i. executive personnel,

ii. personnel eligible for early retirement, and

iii. personnel not eligible for early retirement –

severance pay plan.

The information period was established for potentially

affected employees, with informative sessions for each

group, as well as a voluntary subscribing period.

Voluntary subscription is the priority criterion used in

selection of the affected employees within the

framework of the collective redundancy.

As a general condition, employees must be actively

employed by the Company as of January 1, 2026.

The implementation of these procedures will be carried

out in accordance with current labor regulations and

with continuous reporting to the competent labor

authority, as required by the applicable regulations.

Based on estimated subscription figures in the

aforementioned collective dismissal procedure layoff,

Telefónica, S.A. has recorded an expenditure of 127

million euros as of December 31, 2025. Additionally,

during 2025, the dismissal of some employees has been

accrued with an impact of 33 million euros and there has

been an additional expense by 42 million euros for non-

accrued leavers (see note 19).

In 2024, a provision for employee termination was

recorded in the amount of 7 million euros corresponding

to one-off departures that were duly communicated to

the affected employees (see note 19).

Moreover, in 2025 and 2024 amortization of 54 and 34

million euros, respectively, related to the different

programs launched in the previous years have been

registered.



	Individual Annual Report 2025	Telefónica, S. A.	62

Note 19. Revenue and expenses

19.1 Revenue

a) Rendering of services

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

Telefónica brand with Group companies which use the

license. The amount each subsidiary must recognize as a

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

a percentage of income obtained by the licensor. In

2025 and 2024, “Rendering of services to Group

companies and associates” included 323 and 398 million

euros, respectively, for this item. Following the sale of

some of the Latin American operations during 2025, the

Company has signed contracts with the buyers to

temporarily allow the use of the Group's brands, which

have resulted in an additional 30 million euros registered

under the heading "Rendering of services to non-group

companies".

Telefónica, S.A. has signed contracts to provide

management support services to several subsidiaries.

Revenues received for this concept in 2025 and 2024

amount to 25 and 37 million euros, respectively, and are

recognized under "Rendering of services to Group

companies and associates".

Revenues in 2025 and 2024 also include property rental

income amounting to 34 million euros in both years,

mainly generated from the lease of office space in

Distrito Telefónica to several Telefónica Group

companies (see note 7).

b) Dividends from Group companies and

associates

The detail of the main amounts recognized in 2025 and

2024 is as follows:



Millions of euros	2025	2024
O2 Europe, Ltd.	—	2,200
Telefónica Latinoamérica Holdings, S.L.	—	1,000
Telefónica de España, S.A.U.	—	815
Telefónica Móviles España, S.A.U.	—	522
Telefónica O2 Holdings Limited	—	512
Telfisa Global, B.V.	—	435
Telefônica Brasil, S.A.	211	202
Telefónica Finanzas, S.A.U.	136	115
Telefónica Local Services, Gmbh	—	62
Telefónica Luxembourg Holding, S.à.r.L.	19	—
Telefónica Factoring España, S.A.	5	5
Other companies	14	11
Total	385	5,879

c) Interest income on loans to Group

companies and associates

This heading includes the return obtained on loans

granted to subsidiaries to carry out their business (see

note 8.5). The breakdown of the most significant

amounts is as follows:



Millions of euros	2025	2024
Telefónica Cybersecurity & Cloud Tech, S.L.	6	6
Telfisa Global, B.V.	9	10
Telefónica Móviles Chile, S.A.	11	—
Telxius Telecom, S.A.	9	13
Telefónica Europe, B.V.	1	1
Total	36	30

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

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

based on the recommendations by the OECD Transfer

Pricing Guidance on Financial Transactions, the

Company signed an agreement to partially share the

financial profit or loss raised by its subsidiary within its

operations. In 2025 and 2024 the impact has been a

revenue shown in the chart above.

19.2 Non-core and other current

operating revenues

Non-core and other current operating revenues – Group

companies relates to revenues on centralized services



	Individual Annual Report 2025	Telefónica, S. A.	63



Financial statements 2025	Index

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

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

these services and then charges each individual

subsidiary for the applicable portion.

In July 2025, the Company signed an agreement with

Millicom International Cellular to settle the claim for

breach of contract related to the sale of the Group's

subsidiary in Costa Rica (see note 9.4 and 20.b) for 82

million US dollars. The present value of this amount as of

the date of the agreement was recorded under the

heading "Non-core and other current operating

revenues" in the amount of 65 million euros.

This caption included in 2024 the notional amount of the

ICSID award dated November 12, granted to Telefónica,

S.A. amounting to 380 million US dollars equivalent to

358 million euros at that date (see notes 9.4 and 20.b).

19.3 Personnel expenses and

employee benefits

The breakdown of Personnel expenses is as follows:



Millions of euros	2025	2024
Wages, salaries and other personnel expenses	363	161
Pension plans	(6)	9
Social security costs	30	26
Total	387	196

In 2025 and 2024, Wages, salaries and other personnel

expenses includes lay-off expenses amounting to 202

million euros (7 million euros in 2024) as described in

note 18.

Telefónica has reached an agreement with its staff to

provide an Occupational Pension Plan pursuant to

Legislative Royal Decree 1/2002, of November 29,

approving the revised Pension Plans and Funds Law.

The features of this plan are as follows:

• Defined contribution of 4.51% of the participating

employees’ base salary. The defined contributions of

employees transferred to Telefónica from other Group

companies with different defined contributions (e.g.

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

be maintained.

• Mandatory contribution by participants of a minimum

of 2.2% of their base salary.

• Individual and financial capitalization systems.

This fund was outsourced to Telefónica's subsidiary,

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

which has added the pension fund assets to its Fonditel

B fund.

At December 31, 2025, 2,427 participants have signed up

for the plan (2,428 participants in 2024). This figure

includes both active employees, employees under

termination plans and former employees who voluntarily

decided to maintain the plan, as provided for in Royal

Decree 304/2004 approving the regulations for Pension

Plans and Funds. The cost for the Company amounted

to 3.7 and 3.5 million euros in 2025 and 2024,

respectively.

In 2006, a Pension Plan for Senior Executives, wholly

funded by the Company, was created and complements

the previous plan and involves additional defined

contributions at a certain percentage of the executive’s

fixed remuneration, based on professional category, plus

some extraordinary contributions depending on the

circumstances of each executive, payable in accordance

with the terms of the plan.

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

contributions to this executive plan of 7 million euros in

both 2025 and 2024. In 2025 and 2024 some executives

under this Pension Plan for Senior Executives left the

Company, and accordingly their accumulated

contributions were retrieved by Telefónica, S.A. and

registered as a decrease in the expense totaling 17 and 3

million euros, respectively.

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

externalized.

The main share-based payment plans in place in the

2025 and 2024 period are as follows:

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 consisted 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

was divided.

The number of shares to be delivered depended (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.



	Individual Annual Report 2025	Telefónica, S. A.	64



Financial statements 2025	Index

The plan had a duration of five years and was divided

into three cycles of three years each. Performance

assesment was carried out on the basis of the evolution

of the share price, as well as the audited results of the

Company, prior to their validation by the Nominating,

Compensation and Corporate Governance Committee.

The first cycle commenced on January 1, 2021 and

ended on December 31, 2023. The maximum number of

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

and the outstanding shares at December 31, 2023 were

17,728,523, with the following breakdown:



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

Out of this total, the maximum number of shares

assigned to Telefónica, S.A.'s employees amounted to

7,831,873 euros (outstanding shares were 7,615,700).

Once considered the target fulfillment levels, a weighted

achievement ratio of 89.45% was fulfilled.

The second cycle commenced on January 1, 2022 and

ended on December 31, 2024. The maximum number of

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

and the outstanding shares at December 31, 2024 were

13,851,509 with the following breakdown:



Second cycle	No. of shares assigned	Outstanding shares at 12/31/2024	Unit fair value (euros)
TSR Objective	7,534,825	6,925,755	2.43
FCF Objective	6,027,860	5,540,604	2.95
CO2 E.N. Objective	1,506,965	1,385,150	2.95

The maximum number of shares assigned to Telefónica,

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

shares as of December 31, 2024 amounting to

6,795,543 ). Once considered the target fulfillment

levels, a weighted achievement ratio of 100% has been

fulfilled.

The third cycle commenced on January 1, 2023 and it

ended on December 31, 2025. The maximum number of

shares assigned to this cycle of the plan was 16.618.564

and the outstanding shares at December 31, 2025 were

9,239,165, with the following breakdown:



Third cycle	Nº of shares assigned	Outstanding shares at 12/31/2025	Unit fair value (euros)
TSR Objective	8,309,282	4,619,582	1.77
FCF Objective	6,647,426	3,695,666	2.81
N.E. CO2 Objective	1,661,856	923,917	2.81

The maximum number of shares assigned to Telefónica,

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

shares as of December 31, 2024 amounting to 3,144,772).

Once considered the target fulfillment levels, a weighted

achievement ratio of 50% was fulfilled.

Long-term incentive plan based on

Telefónica, S.A. shares: Performance Share

Plan 2024-2028

At the General Shareholders’ Meeting held on April 12,

2024, 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 be delivered for the two cycles

launched in 2024 and 2025 depends (i) 50% on

achievement of the total shareholder return ("TSR")

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

TSRs of a comparison group made up of companies of

the telecommunication sector, weighted by its

relevance for Telefónica, (ii) 40% on the generation of

Free Cash Flow of Telefónica Group ("FCF"), and (iii) 5%

on CO2 Emission Neutralization, in line with the goal set

by the Company and (iv) 5% on the number of women in

executive positions, aligned with the target set by the

Company.

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

three cycles of three years. Performance assessment

has been carried out based on the evolution of the stock

price and on the audited results of the Company

(audited both by internal and external audit teams) prior

to the approval by the Nominating, Compensation and

Corporate Governance Committee.

The first cycle commenced on January 1, 2024 and will

end on December 31, 2026. The maximum number of

shares assigned to this cycle of the plan was 15,353,759

and the outstanding shares at December 31, 2024 were

9.327.976, with the following breakdown:



	Individual Annual Report 2025	Telefónica, S. A.	65



Financial statements 2025	Index



First cycle	Nº of shares assigned	Outstanding shares at 12/31/2025	Unit fair value (euros)
TSR Objective	7,676,879	4,663,988	2.85
FCF Objective	6,141,504	3,731,192	3.42
N.E. CO2 Objective	767,688	466,398	3.42
Women executives	767,688	466,398	3.42

The maximum number of shares assigned to Telefónica,

S.A.'s employees amounts to 7,105,106 (outstanding

shares as of December 31, 2024 amounting to

3.015.787 ).

The second cycle of the plan began on January 1, 2025

and will end on December 31, 2027. The maximum

number of shares granted in this cycle was 12,929,951, of

which 11,440,097 remained outstanding as of December

31, 2025, with the following breakdown:



Second cycle	Nº of shares assigned	Outstanding shares at 12/31/2025	Unit fair value (euros)
TSR Objective	6,464,975	5,720,048	2.09
FCF Objective	5,171,980	4,576,039	3.13
N.E. CO2 Objective	646,498	572,005	3.13
Women executives	646,498	572,005	3.13

From this total number of shares, the maximum number

allocated to employees of Telefónica, S.A. amounts to

5,975,394, with 4,930,741 shares remaining outstanding.

Long-term incentive plan based on

Telefónica, S.A. shares: Talent for the Future

Share Plan 2021-2025 (TFSP)

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

Board of Directors agreed to launch a new installment of

the long-term incentive plan "Talent for the Future

Share Plan".

As in the case of the Performance Share Plan 2021-2025

described above, the number of shares to be delivered

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 plan had a duration of five years and was divided

into three cycles of three years. Performance

assessment was carried out based on the evolution of

the stock price and on the audited results of the

Company (audited both by internal and external audit

teams) prior to the approval by the Nominating,

Compensation and Corporate Governance Committee.

The first cycle commenced on January 1, 2021 and

ended on December 31, 2023. The maximum number of

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

and the outstanding shares at December 31, 2023 were

1,557,000 with the following breakdown:



First cycle	No. of shares assigned	Outstanding shares at 12/31/2023	Unit fair value (euros)
TSR Objective	875,750	778,500	2.64
FCF Objective	700,600	622,800	3.15
CO2 E.N. Objective	175,150	155,700	3.15

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

employees were 232,500. The outstanding shares as of

December 31, 2023 were 203,000. Once considered the

target fulfillment levels, a weighted achievement ratio of

89.45% was reached.

The second cycle commenced on January 1, 2022 and

ended on December 31, 2024. The maximum number of

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

and the outstanding shares at December 31, 2024 was

1,458,000 with the following breakdown:



Second cycle	No. of shares assigned	Outstanding shares at 12/31/2024	Unit fair value (euros)
TSR Objective	823,250	729,000	2.43
FCF Objective	658,600	583,200	2.95
CO2 E.N. Objective	164,650	145,800	2.95

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

employees were 219,000. The outstanding shares as of

December 31, 2024 were 214,000. Once considered the

target fulfillment levels, a weighted achievement ratio of

100% has been reached.

The third cycle commenced on January 1, 2023 and it

ended on December 31, 2025. The maximum number of

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

and the outstanding shares at December 31, 2025 was

1,421,500, with the following breakdown:



Third cycle	Nº of shares assigned	Outstanding shares at 12/31/2025	Unit fair value (euros)
TSR Objective	885,750	710,750	1.77
FCF Objective	708,600	568,600	2.81
N.E. CO2 Objective	177,150	142,150	2.81



	Individual Annual Report 2025	Telefónica, S. A.	66



Financial statements 2025	Index

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

employees are 239,000. The outstanding shares as of

December 31, 2025 are 244,000. Once considered the

target fulfillment levels, a weighted achievement ratio of

50%. has been reached.

Long-term incentive plan based on

Telefónica, S.A. shares: Talent for the Future

Share Plan 2024-2028 (TFSP)

At its meeting on April 12, 2024, 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".

As in the case of the Performance Share Plan

2024-2028 described above, the number of shares to be

delivered for the two cycles launched in 2024 and 2025

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) 5% on CO2 Emission

Neutralization, in line with the goal set by the Company

and (iv) 5% on the number of women in executive

positions aligned with the target set by the Company.

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

three cycles of three years. Performance assessment

has been carried out based on the evolution of the stock

price and on the audited results of the Company

(audited both by internal and external audit teams) prior

to the approval by the Nominating, Compensation and

Corporate Governance Committee.

The first cycle commenced on January 1, 2024 and will

end on December 31, 2026. The maximum number of

shares assigned to this cycle of the plan was 1,530,500

and the outstanding shares at December 31, 2025 were

1,319,500 with the following breakdown:



First cycle	Nº of shares assigned	Outstanding shares at 12/31/2025	Unit fair value (euros)
TSR Objective	765,250	659,750	2.85
FCF Objective	612,200	527,800	3.42
N.E. CO2 Objective	76,525	65,975	3.42
Women executives	76,525	65,975	3.42

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

employees are 206,000. The outstanding shares as of

December 31, 2023 are 203,000.

The second cycle of the plan began on January 1, 2025

and will end on December 31, 2027. The maximum

number of shares granted in this cycle was 1,252,000, of

which 1,176,500 remained outstanding as of December

31, 2025, with the following breakdown:



Second cycle	Nº of shares assigned	Outstanding shares at 12/31/2025	Unit fair value (euros)
TSR Objective	626,000	588,250	2.09
FCF Objective	500,800	470,600	3.13
N.E. CO2 Objective	62,600	58,825	3.13
Women executives	62,600	58,825	3.13

From this total number of shares, the maximum number

allocated to employees of Telefónica, S.A. amounts to

194,500, with 190.500 shares remaining outstanding.

Telefónica, S.A. global share plans: Global

Employee Share Plans

The Telefónica, S.A.'s Ordinary General Shareholders'

Meeting on April 8, 2022 approved a new voluntary plan

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

for the employees of the Group. Under this Plan,

employees were offered the option to acquire

Telefónica, S.A. shares during a twelve-month period,

with the company undertaking to deliver a certain

number of free shares to participants, subject to certain

requirements.

The maximum amount that each employee can invest is

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

to be delivered can not exceed 0.38% of the share

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

General Shareholders’ meeting.

The purchase period commenced in October 2022 and

ended in September 2023. In March 2024 the vesting

period of the plan ended and 10,255,044 shares were

distributed to the Group employees. From this total,

303,747 shares corresponded to Telefónica, S.A.'s

employees.



	Individual Annual Report 2025	Telefónica, S. A.	67



Financial statements 2025	Index

19.4 Average number of employees

in 2025 and 2024 and number of

employees at year-end



2025
	Employees at 12/31/25			Average no. of employees in 2025
Professional category	Females	Males	Total	Females	Males	Total
Head of departments	51	87	138	50	90	140
Managers	148	168	316	146	163	309
Mid range managers	152	177	329	134	158	292
Other professionals	248	140	388	270	160	430
Total	599	572	1,171	600	571	1,171



2024
	Employees at 12/31/2024			Average no. of employees in 2024
Professional category	Females	Males	Total	Females	Males	Total
Head of departments	49	93	142	49	102	151
Managers	140	160	300	139	144	283
Mid range managers	117	141	258	139	167	306
Other professionals	281	173	454	242	135	377
Total	587	567	1,154	569	548	1,117

According to the requirement of the Spanish Companies

Law established in article 260, the average number of

employees with disability of 33% or higher, establishing

the categories to which they belong are the following:



Professional category	Average number of employees
Managers	1
Mid range managers	2
Other professionals	5
Total	8

19.5 External services

The items composing External services are as follows:



Millions of euros	2025	2024
Rent	3	4
Independent professional services	136	95
Donations (Note 18)	25	41
Marketing and advertising	121	140
Utilities	10	9
Other expenses	45	38
Total	340	327

In 2025 and 2024 the caption donations includes funds

contributed and paid to Fundación Telefónica

amounting to 24 and 39 million euros.

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

contract to rent Diagonal 00 building, owned by the

Company until that moment, due in 2029, renewable for

another 6 years.

Future minimum rentals payable under non-cancellable

operating leases without penalization at December 31,

2025 and 2024 are as follows:



	Individual Annual Report 2025	Telefónica, S. A.	68



Financial statements 2025	Index



Millions of euros	Total	Up to 1 year	From 1 to 3 years	From 3 to 5 years	Over 5 years
Future compromised payments 2025	11	3	8	—	—
Future compromised payments 2024	12	3	5	4	—

19.6 Finance revenue

The items composing Finance revenue are as follows:



Millions of euros	2025	2024
Dividends from other companies	32	39
Other third parties financial revenues and gains on derivative instruments	343	501
Total	375	540

In 2024 other financial income from third parties

included the interest revenue from the ICSID award

detailed in note 9.4 and note 20.b) for a total amount of

164 million euros (equivalent to 154 million euros).

Other third parties financial revenues and gains on

derivative instruments includes the effect of the

financial hedges arranged to unwind positions for 2025

and 2024, which have the same amount under Finance

costs payable to third parties and losses on interest

rates of financial hedges and therefore do not have a net

impact in the income statement.

19.7 Finance costs

The breakdown of “Finance costs” is as follows:



Millions of euros	2025	2024
Interest on borrowings from Group companies and associates	1,472	1,573
Finance costs payable to third parties and losses on interest rates of financial hedges	111	319
Total	1,583	1,892

The breakdown by Group company of debt interest

expenses is as follows:



Millions of euros	2025	2024
Telefónica Europe, B.V.	523	542
Telefónica Emisiones, S.A.U.	878	865
Other companies	71	166
Total	1,472	1,573

Other companies includes financial costs with Telfisa

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

needs. The amount included as Finance costs payable

to third parties and losses on interest rate of financial

hedges refers to fair value effects in the measurement of

derivative instruments described in note 16, together

with the effect of the debt interest rates' trend during

the year.

19.8 Exchange differences

The breakdown of exchange gains recognized in the

income statement is as follows:



Millions of euros	2025	2024
On current operations	25	34
On loans and borrowings	33	21
On derivatives	507	461
On other items	21	12
Total	586	528

The breakdown of exchange losses recognized in the

income statement is as follows:



Millions of euros	2025	2024
On current operations	44	45
On loans and borrowings	51	15
On derivatives	424	406
On other items	44	41
Total	564	506

The variation in exchange gains and losses is due to the

fluctuations in the main currencies the Company works

with. In 2025 euro exchange rate has appreciated

against US dollar 11,59% and pound sterling 5.01%. Euro

has slightly appreciated against Brazilian real in 2025

(0.51%).

In 2024 euro exchange rate depreciated against US

dollar 6.32% and pound sterling 4,78%. However, euro

exchange rate appreciated against Brazilian real

(16.88%)

These impacts are offset by the hedges contracted to

mitigate exchange rate fluctuations.



	Individual Annual Report 2025	Telefónica, S. A.	69



Financial statements 2025	Index

Note 20. Other information

a) Financial guarantees

At December 31, 2025, Telefónica, S.A. had provided

financial guarantees for its subsidiaries and affiliates to

secure their transactions with third parties amounting to

35,544 million euros (36,853 million euros at December

31, 2024 ). These guarantees are measured as indicated

in note 4.g).



Millions of euros
Nominal Amount	2025	2024
Debentures and bonds and equity instruments	34,275	35,596
Loans and other payables	81	92
Other marketable debt securities	1,188	1,165
Total	35,544	36,853

The debentures, bonds and equity instruments in

circulation at December 31, 2025 issued by Telefónica

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

guaranteed by Telefónica, S.A. The nominal amount

guaranteed was equivalent to 34,275 million euros at

December 31, 2025 (35,596 million euros at December

31, 2024). During 2025 Telefónica Emisiones, S.A.U.

issued 1,880 million euros of instruments on capital

markets (1,750 million euros in 2024) and 2,019 million

euros matured during 2025 (1,000 million euros during

2024).

Other marketable debt securities includes the

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

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

outstanding balance of commercial paper in circulation

issued through this program at December 31, 2025 was

1,188 million euros and 1,165 million euros in 2024

Telefónica, S.A. provides operating guarantees granted

by external counterparties, which are offered during its

normal commercial activity. At December 31, 2025 these

guarantees amounted to approximately 29 million euros

(29 million euros in 2024).

b) Litigation and arbitration

Telefónica and its group companies are party to several

legal proceedings which are currently in progress in the

courts of law and the arbitration bodies of the various

countries in which Telefónica Group is present.

Based on the advice of our legal counsel it is reasonable

to assume that these legal proceedings will not

materially affect the financial condition or solvency of

Telefónica, S.A.

It is worth highlighting the following aspects relating to

the unresolved legal proceedings or those underway

during 2025 (see note 17 for details of tax-related cases):

Decision by the High Court regarding the

acquisition by Telefónica of shares in Český

Telecom by way of a tender offer

Venten Management Limited ("Venten") and Lexburg

Enterprises Limited ("Lexburg") were non-controlling

shareholders of Český Telecom. In September 2005,

both companies sold their shares to Telefónica in a

mandatory tender offer. Subsequently, Venten and

Lexburg, in 2006 and 2009, respectively, filed actions

against Telefónica claiming a higher price than the price

for which they sold their shares in the mandatory tender

offer.

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

Prague took place in order to decide the appeal against

the second decision of the Municipal Court, which had

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

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

the end of the hearing, the High Court announced the

second appellate decision by which it reversed the

second decision of the Municipal Court and ordered

Telefónica to pay 644 million Czech korunas

(approximately 23 million euros) to Venten and 227

million Czech korunas (approximately 8 million euros) to

Lexburg, in each case plus interest.

On December 28, 2016, the decision was notified to

Telefónica, wich 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.



	Individual Annual Report 2025	Telefónica, S. A.	70



Financial statements 2025	Index

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.

After receiving the expert report, Telefónica challenged

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

this challenge were held in the High Court of Prague in

November and December 2023.

On February 20, 2025 a hearing of closing arguments

was held before the High Court of Prague.

On May 14, 2025, the judgment was notified, upholding

the plaintiffs’ claim and ordering Telefónica to pay 2,381

million Czech korunas (approximately 96 million euros

based on the exchange rate of such date).

On May 30, 2025, an extraordinary appeal was filed

before the Supreme Court against the aforementioned

judgment, also requesting its suspension.

On October 21, 2025, the Supreme Court ruled to grant

the suspension of the judgment of the High Court of

Prague appealed by Telefónica.

As of December 31, 2025, the amount under litigation

was 2,438 million Czech korunas (approximately 101

million euros based on the exchange rate of such date).

ICSID Arbitration Telefónica, S.A. vs. Republic

of Colombia

In the local arbitration brought by Colombia against

Colombia Telecomunicaciones, on July 25, 2017, the

local arbitration tribunal ordered Colombia

Telecomunicaciones 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, Colombia Telecomunicaciones’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 tribunal was constituted on February 26,

2019.

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 tribunal dismissed the request

for Bifurcation presented by Colombia, ordering the

continuation of the proceeding.

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.

On November 12, 2024, the tribunal issued an arbitration

award favorable to the interests of Telefónica,

determining that Colombia failed to comply with its

obligation to grant fair and equitable treatment to

Telefónica's investments under the applicable

investment treaty and ordering Colombia to pay the

amount of 380 million U.S. dollars (approximately 358

million euros at the exchange rate of November 12,

2024) plus compound interest at a rate of 5% per year as

compensation for the damages caused (i.e., the entire

principal amount and interest sought by Telefónica in

the dispute). In addition, the tribunal ordered Colombia

to pay Telefónica’s attorneys’ fees with respect to the

arbitration proceedings, together with the

corresponding interest.



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Financial statements 2025	Index

On November 27, 2024, the Republic of Colombia filed a

request with the ICSID to annul and suspend the award.

According to ICSID procedures, the request for a stay of

enforcement in the annulment proceeding provisionally

suspends the enforcement of the award until the new

tribunal decides on the request.

On March 14, 2025, the tribunal that will rule on the

annulment and suspension applications was

constituted.

After the approval of the procedural calendar, on June 5,

2025, the Republic of Colombia submitted the Memorial

requesting the suspension of enforcement.

On August 7, 2025, Telefónica, S.A. filed its reply to the

Memorial requesting the suspension of enforcement. On

the same date, the Republic of Colombia submitted its

Memorial on Annulment.

On November 6, 2025, Telefónica, S.A. filed its reply to

the Memorial on Annulment of the Republic of

Colombia.

On December 10, 2025, the ad hoc Committee held a

videoconference hearing on the suspension of the

enforcement of the award.

On January 9, 2026, the ad hoc Committee issued a

decision on the suspension of the award, the annulment

resolution remains pending.

Telefónica's lawsuit against Millicom

International Cellular for default in the sale of

Telefónica de Costa Rica

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

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

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

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

In March 2020, Telefónica informed Millicom that, once

the pertinent regulatory authorizations had been

obtained and all the other conditions established in the

aforementioned agreement for the execution of the sale

had been completed, the execution of the contract and

the closing of the transaction should be in April 2020.

Millicom expressed its refusal to proceed with the

closing, arguing that the competent Costa Rican

administrative authorities had not issued the

appropriate authorization.

On May 25, 2020, Telefónica filed a lawsuit against

Millicom before the New York Supreme Court,

considering that Millicom had breached the terms and

conditions established in the sale contract, demanding

compliance with the provisions of the aforementioned

agreement, and compensation for all damages that this

unjustified breach could cause to Telefónica.

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

which Telefónica replied on July 8, 2020.

On August 3, 2020, Telefónica submitted an

amendment to the lawsuit, removing the requirement to

comply with the provisions of the sale and purchase

contract and requesting only compensation for all

damages that the unjustified breach of said agreement

could cause to Telefónica.

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

Millicom in June 2020 was dismissed by the New York

Supreme Court.

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

summary judgment" once the discovery period had

ended.

On February 13, 2024, the New York Supreme Court

issued a decision granting Telefónica’s motion for partial

summary judgment, concluding that Telefónica is

entitled to compensatory damages and prejudgment

interest (approximately 140 million U.S. dollars) from

Millicom.

On August 5, 2024, Millicom filed its appellate brief with

the Appellate Division of the New York Supreme Court,

and Telefónica filed its response on September 4, 2024.

On December 17, 2024, the Appellate Division issued a

decision and order upholding Telefónica’s entitlement to

summary judgment, but decided that the Supreme

Court had calculated the prejudgment interest

incorrectly and reduced the amount to be awarded to

Telefónica accordingly.

On January 21, 2025, Telefónica filed an appeal against

the decision of the Appellate Division of the New York

Supreme Court.

On May 22, 2025, the Court of Appeal ruled on the

appeals filed by Millicom and Telefónica, completely

dismissing Millicom’s appeal and partially upholding

Telefónica’s appeal. In this favorable context for

Telefónica, on July 4, 2025, the parties reached an

agreement to settle the dispute.

The proceeding was terminated by a settlement signed

by the parties.

ICSID Arbitration Telefónica, S.A. vs. Republic

of Peru

On February 5, 2021, Telefónica filed a request for

arbitration against the Republic of Peru at the ICSID,

which was formally registered on March 12, 2021.

Telefónica bases its claims on the Agreement for the

Promotion and Reciprocal Protection of Investments



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Financial statements 2025	Index

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 Telefónica two

additional weeks to file the memorial or claim.

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

merits. On that date, the Republic of Peru filed

observations on the claimant's request for provisional

measures submitted by Telefónica on February 9, 2023.

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

claimant's request for provisional measures.

On May 11, 2023, the Tribunal issued Procedural Order

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

objections to jurisdiction as a preliminary question. As a

result, the objections to jurisdiction were joined to the

merits of the dispute.

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

memorial on the merits and a memorial on jurisdiction.

On December 22, 2023, the Tribunal issued Procedural

Order No. 6 concerning production of documents.

On March 29, 2024, Telefónica filed a reply on the

merits, and on June 28, 2024, the Republic of Peru filed a

rejoinder on the merits and a reply on jurisdiction.

On July 16, 2024, following the resignation of the

arbitrator appointed by Peru, the Acting Secretary-

General notified the parties of the vacancy on the

Tribunal and the proceeding was temporarily

suspended pursuant to ICSID Arbitration Rule 10 (2).

On August 12, 2024, the proceedings resumed under

ICSID Arbitration Rule 12, following the appointment of

the new arbitrator by the Republic of Peru.

On August 20, 2024, the defendant filed a submission

on quantum.

The final hearing was held in the last weeks of February

2025.

After the final hearing held, on March 18, 2025,

Telefónica filed a request for urgent injunctive relief

together with a request for injunctive relief.

On March 24 and April 30, 2025, the Tribunal issued

respective decisions regarding the requested for

injunctive relief.

On December 15, 2025, Telefónica submitted its post-

hearing brief following the hearing held in February

2025.

On December 16, 2025, the Republic of Peru submitted

its post-hearing brief regarding the aforementioned

hearing.

UK High Court claim by Phones 4 U Limited

against various mobile network operators and

other companies, among others, Telefónica,

S.A., Telefonica O2 Holdings Limited and

Telefonica UK Limited

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

(“P4U”) commenced a claim in the English High Court in

London against various mobile network operators:

Everything Everywhere, Deutsche Telekom, Orange,

Vodafone, Telefónica, S.A., Telefonica O2 Holdings

Limited and Telefonica UK Limited (together the

“Defendants”).

P4U carried on a business of selling mobile phones and

connections to the public, such connections being

supplied by mobile network operators including the

Defendants. In 2013 and 2014, the Defendants declined

to extend and / or terminated their contracts to supply

connections to P4U.

P4U went into administration in September 2014.

P4U alleges that the Defendants ceased to supply

connections because they had colluded between

themselves in contravention of the United Kingdom and

the European Union competition laws and asserts that it

has a basis to claim damages for breach of competition

law by all the Defendants. The Defendants deny all

P4U’s allegations.

The claim commenced on December 18, 2018 by P4U.

The Defendants filed their initial defenses in the course



	Individual Annual Report 2025	Telefónica, S. A.	73



Financial statements 2025	Index

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

18, 2019. The first case management conference took

place on March 2, 2020.

The trial was held between May and July 2022. On

November 10, 2023 the court issued a judgment,

concluding that none of the Defendants was in breach

of either UK or EU competition law.

On April 10, 2024, P4U filed an appeal, and the

Defendants filed a response on June 28, 2024.

After the appeal hearing held from May 19 to 23, 2025,

on July 11, 2025 the Court of Appeal completely

dismissed P4U's appeal.

With this ruling, the matter has been brought to a close.

c) Other contingencies

In October 2024, Telefónica Venezolana, C.A.,

Telefónica, S.A. and the United States Department of

Justice (“DOJ”) entered into a Deferred Prosecution

Agreement (“DPA”) in connection with a single charge

for violation of the provisions of the FCPA, which

resulted in the payment of a monetary penalty of 85

million U.S. dollars (approximately 81 million euros at the

date of payment).

The terms of the DPA include, among others,

requirements relating to a corporate compliance plan

and annual reports regarding such plan throughout the

duration of the DPA. Accordingly, in October 2025,

Telefónica submitted to the DOJ the annual report

corresponding to the first year of work.

The DOJ has agreed that if all the obligations under the

DPA are fully complied with, then DOJ will seek dismissal

with prejudice of the charge described above after the

DPA concludes.

d) Commitments

Agreement for the sale of the shares of

Telefónica Gestión de Servicios Compartidos

España, S.A.U., Telefónica Gestión de

Servicios Compartidos Argentina, S.A. and T-

Gestiona Servicios Contables y Capital

Humano, S.A.C.

On March 1, 2016, a share purchase agreement

between, on one hand, Telefónica, S.A., Telefónica

Servicios Globales, S.L.U. and Telefónica Gestión de

Servicios Compartidos Perú, S.A.C. (as sellers), and, on

the other hand, IBM Global Services España, S.A., IBM

del Perú, S.A.C., IBM Canada Limited and IBM Americas

Holding, LLC (as purchasers) for the sale of the

companies Telefónica Gestión de Servicios

Compartidos España, S.A.U., Telefónica Gestión de

Servicios Compartidos Argentina, S.A. and T-Gestiona

Servicios Contables y Capital Humano, S.A.C., for a total

price of approximately 22 million euros, was ratified

before Notary Public. This share purchase agreement

was subscribed on December 31, 2015.

Following the aforementioned share purchase

agreement and in connection with the latter transaction,

also, on December 31, 2015, Telefónica subscribed a

master services agreement with IBM for the outsourcing

of economic-financial and HR activities and functions to

be provided to the Telefónica Group for an initial

duration of ten years and a total amount of

approximately 450 million euros. Most of the Telefónica

Group’s subsidiary companies adhered to that master

services agreement.

The master service agreement has been amended on

several occasions (on March 31, 2021, March 31, 2022,

July 29, 2022 and August 31, 2023). The most relevant

changes have affected the scope of services and

extended the term of the agreement.

On June 28, 2024, an additional amendment to the

master service agreement was signed. As a result of the

various amendments, the term of the master service

agreement may be extended up to 2031 for adhering

companies in Latin America or up to 2034 for adhering

companies in Spain.

Contracts for the provision of IT services with

Nabiax

In 2019 Telefónica, S.A. signed an agreement for the sale

of a portfolio of eleven data center businesses located in

seven jurisdictions 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.

("Asterion") 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 received a 20% equity stake in Nabiax.

Once the relevant authorizations and other conditions

precedent to the contribution of the two data centers



	Individual Annual Report 2025	Telefónica, S. A.	74



Financial statements 2025	Index

located in Spain were obtained, the partial closing of the

transaction took place as of July 21, 2021, whereby

Telefónica Group contributed those data centers to

Nabiax, with T. Infra receiving in exchange a 13.94%

stake in Nabiax at this stage. The agreement was

complemented by the signing of a contract for the

provision to Telefónica of housing services from those

two data centers under terms and conditions equivalent

to those established in the transaction executed in 2019,

for an initial period of ten years.

Once the conditions related to the contribution of the

two data centers located in Chile were fulfilled, on May

24, 2022, the complete closing of the transaction took

place, and T. Infra reached a 20% stake in Nabiax. The

agreement was complemented by the signing of a

contract for the provision to Telefónica of housing

services from those two data centers under terms and

conditions equivalent to those established in the

transaction executed in 2019, for an initial period ending

in 2031.

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

located in the Americas were sold to the investment

fund Actis. T. Infra owns a 20% stake in Nabiax. After this

transaction, Nabiax only owns data centers in Spain.

The data centers sold to Actis continue to provide

housing services to the Telefónica Group under the

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

waived its right to terminate the housing services

contracts upon the sale of the data centers.

On June 10, 2024, Telefónica de España, S.A.U. and

Nabiax’s subsidiary Digital DHF Iberia S.L signed an

addendum to the agreement for the provision of

housing services in Spain to, among other things, extend

the validity of the agreement until July 2034, but only

with respect to a data center in Alcalá de Henares.

In June 2024, Asterion began a process to sell its 80%

stake in Nabiax. In accordance with the rights held by

Asterion under the Nabiax Shareholders Agreement,

Asterion negotiated the conditions of the sale and also

exercised its drag-along right over the 20% stake in

Nabiax owned by T. Infra. On November 7, 2024, a

purchase and sale agreement for 100% of the share

capital of Nabiax was signed with the investment fund

Aermont Capital. Once the required regulatory approval

was obtained, Telefónica Infra transferred its 20% stake

in Nabiax on March 27, 2025.

Nabiax continues to provide housing services to the

Telefónica Group under the terms of the contracts

signed in 2019.

50:50 joint venture with Liberty Global for the

combination of both groups' businesses in

the United Kingdom

On May 7, 2020, Telefónica agreed to enter into a joint

venture with Liberty Global plc ("Liberty Global")

pursuant to a contribution agreement (as amended from

time to time, the "Contribution Agreement") between

Telefónica, Telefonica O2 Holdings Limited, Liberty

Global, Liberty Global Europe 2 Limited and a newly

formed entity of which, after closing, each of Telefónica

and Liberty Global would hold 50% of its share capital

named VMED O2 UK Limited.

After having obtained the clearance from the

Competition and Market Authority (the antitrust

authority in the UK in charge) 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 contributing to VMED O2

UK Limited: (i) Telefónica, its O2 mobile business in the

United Kingdom and (ii) Liberty Global, its Virgin Media

business in the United Kingdom.

The corporate governance of VMED O2 UK Limited is

regulated by a shareholders' agreement, which was

entered into by the parties to the Contribution

Agreement on June 1, 2021 and was amended on

November 15, 2023 and August 1, 2025 (as amended

from time to time, (the "Shareholders' Agreement")).

On the date of closing of the transaction, Telefónica,

Liberty Global, and certain companies belonging to each

shareholder’s corporate group entered into certain

services, reverse services, licensing and data protection

agreements with VMED O2 UK Limited and certain

entities belonging to the VMED O2 UK Limited group. In

particular, Telefónica and Liberty Global agreed that

each shareholder’s group would provide certain

services, either on a transitional or ongoing basis, to

VMED O2 UK Limited and its group. Finally, VMED O2

UK Limited and its group would also provide certain

services to specific companies belonging to the

corporate group of each of its shareholders.

Pursuant to the terms of the above referred services

agreements, the transitional services that are to be

provided by the Telefónica Group to VMED O2 UK

Limited would be provided for terms initially ranging

from 7 to 24 months (subsequently extended in some

cases to terms up to 40 months) while the ongoing

services that are to be provided by the Telefónica Group

to VMED O2 UK Limited would be provided for periods

of two to six years, depending on the service. The

services provided by the Telefónica Group to VMED O2

UK Limited, under the agreements as amended, consist



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Financial statements 2025	Index

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

Telefónica 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, Telefónica Group licensed the use

of Telefónica and O2 brand rights to VMED O2 UK

Limited.

e) Directors’ and Senior executives’

compensations and other benefits

The compensation of the members of Telefónica’s

Board of Directors is governed by article 35 of the

Company’s By-Laws, which provides that the annual

amount of the compensation to be paid thereby to all of

the Directors in their capacity as such, i.e., as members

of the Board of Directors and for the performance of the

duty of supervision and collective decision-making

inherent in such body, shall be fixed by the shareholders

at the General Shareholders' Meeting. The Board of

Directors shall determine the exact amount to be paid

within such limit and the distribution thereof among the

Directors, taking into account the duties and

responsibilities assigned to each Director, their

membership on Committees within the Board of

Directors and other 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 2025, the total

amount of compensation accrued by the Directors of

Telefónica, in their capacity as such, was 2,699,067

euros for the fixed allocation and for attendance fees.

The compensation of the Directors of Telefónica in their

capacity as members of the Board of Directors, of the

Executive Commission and/or of the Advisory or Control

Committees, consists of a fixed amount payable

monthly, and of attendance fees for attending the

meetings of the Advisory or Control Committees.

The amounts established in fiscal year 2025 as fixed

amounts for belonging to the Board of Directors, the

Executive Commission and the Advisory or Control

Committees of Telefónica, and the attendance fees for

attending meetings of the Advisory or Control

Committees of the Board of Directors, are indicated

below:

Compensation of the Board of Directors and

of the Committees thereof



Amounts in euros
Position	Board of Directors	Executive Commission	Advisory or Control Committe es (*)
Chairman	240,000	80,000	22,400
Vice chairman	200,000	80,000	—
Proprietary Member	120,000	80,000	11,200
Independent Member	120,000	80,000	11,200
Other external	120,000	80,000	11,200

(*) In addition, the amount of the attendance fee for each of the meetings of

the Advisory or Control Committees is 1,000 euros.

In addition, and given the importance of the function

performed by the Lead Independent Director, at the

proposal of the Nominating, Compensation and

Corporate Governance Committee, the Board of

Directors agreed to assign an additional remuneration of

80,000 euros for the exercise of this position.

The Executive Directors do not receive the

remuneration that may correspond to them for their

status as members of the Board of Directors

(remuneration in their capacity as such) or for their

membership in the Executive Commission, or for their

membership in the administrative bodies or collegiate

bodies of subsidiaries and investees of Telefónica.

The fixed remuneration established for the Executive

Chairman, Mr. Marc Thomas Murtra Millar, for his

executive roles is 1,923,100, amount that remains

unchanged since 2016 for the Executive Chairman role.

On the other hand, the fixed remuneration established

for the Chief Operating Officer (C.O.O.) Mr. Emilio Gayo

Rodríguez, is 1,450,000 euros, amount that is 9.375%

lower compared to the former Chief Operating Officer.

Individualized description

Appendix II provides an individual breakdown by item of

the compensation and benefits that the members of the

Board of Directors of the Company have accrued and/or

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

companies of the Telefónica Group during fiscal year

2025. Likewise, the compensation and benefits accrued



	Individual Annual Report 2025	Telefónica, S. A.	76



Financial statements 2025	Index

and/or received, during such year, by the members of

the Company's Senior Management are broken down.

f) Related-party transactions

1. Significant shareholders with

representation on the Board of Directors of

Telefónica S.A.

General Information

In 2025, the Company's shareholders that have been

represented on the Board of Directors of Telefónica, S.A.

have been Banco Bilbao Vizcaya Argentaria, S.A.

(BBVA), Criteria Caixa, S.A.U., Sociedad Estatal de

Participaciones Industriales and Green Bridge

Investment Company SCS / STC Group (with

representation on the Board since February 26, 2025).

According to information provided by BBVA for the 2025

Annual Corporate Governance Report of Telefónica, S.A.

as of December 31, BBVA's stake in the share capital of

Telefónica, S.A. was 5.01%. Likewise, and in accordance

with the aforementioned information provided by BBVA,

the percentage of economic rights attributed to the

shares of Telefónica, S.A. that were owned by BBVA as

of December 31, 2025, would increase by 0.009%

without voting rights of the Company's share capital.

According to the information provided by Sociedad

Estatal de Participaciones Industriales (SEPI) for the

2025 Annual Corporate Governance Report of

Telefónica, S.A., as of December 31, 2025, the

participation of the SEPI in the share capital of

Telefónica, S.A. was 10%.

According to information provided by Criteria Caixa,

S.A.U. for the 2025 Annual Corporate Governance

Report of Telefónica, S.A., as of December 31, 2025, the

participation of Criteria Caixa, S.A.U. (CriteriaCaixa) in

the share capital of Telefónica, S.A., was 9.99%.

Likewise, and without this implying an incremental or

additional participation, Fundación Bancaria Caixa

d'Estalvis i Pensions de Barcelona, as the sole

shareholder of Criteria Caixa, S.A.U., holds the same

participation indirectly.

According to information provided by Public Investment

Fund for the 2025 Annual Corporate Governance

Report of Telefónica, S.A., as of December 31, 2025, the

participation of the Green Bridge Investment Company

SCS (a company controlled by Saudi Telecom Company

and this in turn controlled by Public Investment Fund) in

the share capital of Telefónica, S.A. was 9.97%.

Below is a summary of the relevant transactions of the

Telefónica Group with the companies of BBVA,

CriteriaCaixa, SEPI and Green Bridge Investment

Company SCS / STC Group, other than the payment of

the dividend corresponding to its participation.

Participated companies

Telefónica, S.A. holds a 50% interest in Telefónica

Factoring España and a 40.5% interest in its subsidiaries

in Peru, Colombia and México as well as a 40% interest

in its subsidiary in Brazil, in which BBVA have minority

interests. (see Appendix I).

Derivatives held with BBVA

In addition, the nominal outstanding value of derivatives

held with BBVA in 2025 amounted to 5,093 million euros

(6,911 million euros held with BBVA in 2024). The fair

value of these derivatives in the balance sheet is 78

million euros in 2025 (123 million euros in 2024) being a

net asset in both years. As explained in Derivatives

policy in note 16, this figure is inflated by the use in some

cases of several levels of derivatives applied to the

nominal value of a single underlying.

The Company maintains various derivative financial

instruments settled by differences contracted with

BBVA (see note 11).

Moreover, as of December 31, 2025 collateral

guarantees on derivatives from BBVA have been

received, amounting to 40 million euros, net asset

position (24 million euros, net liability position, in 2024).

Others operations carried out with BBVA

In this chapter the most significant transactions of

Telefónica, S.A. with BBVA group companies are

disclosed.

The impact on the balance sheet and income statement

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

BBVA in 2025 and 2024 are as follows:



BBVA	2025	2024
Financial expenses	3	3
Total expenses	3	3
Financial revenues	12	18
Dividends received (1)	32	30
Total revenues	44	48
Finance arrangements: loans and capital contributions (lender)	142	35
Other accounts receivable	101	353
Finance arrangements: loans and capital contributions (receiver)	36	12
Dividends paid	85	84

(1) As of December 31, 2025 Telefónica does not hold any stake (0.756% in

2024) in Banco Bilbao Vizcaya Argentaria, S.A. (See note 9.3).



	Individual Annual Report 2025	Telefónica, S. A.	77



Financial statements 2025	Index

Operations with CriteriaCaixa

Since the date on which it became considered a related

party, Telefónica, S.A. has not carried out significant

transactions with the companies controlled by

CriteriaCaixa Group.

Operations with SEPI

Since the date on which it became considered a related

party, Telefónica, S.A. has not carried out significant

transactions with SEPI or the companies controlled by

SEPI Group.

General State Administration

SEPI is an entity that is part of the Spanish State

Institutional Public Sector.

In 2025, Telefónica, S.A. has not carried out any

individually significant transaction with entities

belonging to the Spanish State Institutional Public

Sector. In 2025, the only transactions considered as a

whole exceeding 1 million euros refer to 1,1 million euros

in other operational expenses with several companies

comprising the Spanish Public Sector.

Operations with Green Bridge Investment Company

SCS / STC Group

Since the date on which it became a related party,

Telefónica,S.A.has not carried out any significant

transactions with Green Bridge Investment Company

SCS or companies controlled by STC Group.

2. Other significant shareholders

During fiscal year 2025, the significant shareholder of

the Company without representation on the Board of

Directors of Telefónica, S.A. was BlackRock, Inc. This

shareholder is not considered a related party as it do not

have representation on the Board of Directors of

Telefónica, S.A. nor exert significant influence on the

company.

According to the data collected in the communication

sent by BlackRock, Inc. to the CNMV, as of July 28, 2025,

BlackRock, Inc.'s stake in the share capital of Telefónica,

S.A. was 5.01%, including the percentage of voting rights

attributed to the shares as well as those generated

through financial instruments.

3. Balances with Group and Associated

companies

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

investments in companies in Latin América, Spain and

the rest of Europe which do business in the

telecommunications, media and entertainment sectors.

The balances and transactions between the Company

and these subsidiaries (Group and associated

Companies) at December 31, 2025 and 2024 are

detailed in the notes to these individual financial

statements.

4. Directors and senior executives

During the financial year to which these accompanying

financial statements refer, the Directors and senior

executives did not perform any transactions with

Telefónica, S.A. or any Telefónica Group company other

than those in the Group’s normal trading activity and

business.

Compensation and other benefits paid to members of

the Board of Directors and senior executives are

detailed in note 20 e) and Appendix II of these financial

statements.

Telefónica contracted a civil liability insurance scheme

(D&O) for Directors, managers and staff with similar

functions in the Telefónica Group, with standard

conditions for these types of insurance and a premium

attributable to 2025 of 4.267.172,13 euros (4.743.347,97

euros in 2024). This scheme provides coverage for

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

of this amount, Telefónica, S.A. has paid 2.036.072,48

euros in 2025 (2.354.919,59 euros in 2024).

g) Auditors' fees

The services commissioned to PricewaterhouseCoopers

Auditores, S.L., the statutory auditor of Telefónica, S.A.

during the financial years 2025 and 2024, comply with

the independence requirements stipulated by the

Spanish Law 22/2015, July 20, on Auditing of Accounts,

as well as with the rules of the Securities and Exchange

Commission (SEC) and the Public Company Accounting

Oversight Board (PCAOB), both of the United States of

America.

The expenses accrued refer to the fees for services

rendered by the various member firms of the PwC

network, comprising PricewaterhouseCoopers

Auditores, S.L., amounted to 4.88 and 4.71 million euros

in 2025 and 2024, respectively.

The detail of these amounts is as follows:



	Individual Annual Report 2025	Telefónica, S. A.	78



Financial statements 2025	Index



Millions of euros	2025	2024
Audit services	3.64	3.54
Audit-related services	1.24	1.17
Total	4.88	4.71

“Audit services” include audit fees for the statutory audit

of the individual and consolidated financial statements,

as well as reviews of interim financial statements. These

Audit services also incorporate the audit of the

effectiveness of internal control over financial reporting,

in accordance with the requirements of the

Sarbanes‑Oxley Act of 2002 (Section 404), up to the

date of the suspension of the related reporting

obligations.

“Audit‑related services” include services related to the

verification of the Non‑Financial Information Statement

and Sustainability Information, the issuance of comfort

letters, the review of allocation and impact reports of

sustainable finance instruments, and the reasonable

assurance report on the Internal Control over Financial

Reporting (ICFR) system.

During the financial years 2025 and 2024, Telefónica,

S.A. did not engage the auditor to provide any services

other than audit services or audit‑related services.

h) Environmental matters

Commitment to protect the environment is part of the

Company's general strategy and is the responsibility of

the Board of Directors. The performance in this area is

regularly supervised by the Sustainability and

Regulation Committee as well as by the Global

Sustainability (ESG) Office in coordination with the

global areas responsible for executing this strategy

alongside the business units.

The Group has a Global Environment and Energy Policy,

and externally certified environmental management

systems in accordance with ISO 14001 in the Group

operators. The environment is a cross-cutting issue

throughout the Company, involving both operational

and management areas as well as business and

innovation areas.

The Telefónica Group has 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.

Carbon reduction targets are part of the variable

remuneration of the Company employees, including the

Executive Committee. In addition, the cycles of

Telefónica, S.A.'s long-term share-based incentive plans

initiated until December 31, 2025 (see note 19) have

included CO2 Emission Neutralization targets.

Telefónica's Sustainable Financing Framework is aligned

with the International Capital Markets Association

(ICMA) Green, Social and Sustainable Bond Principles,

as well as the Green Lending Principles and the Social

Loans of the LMA (Loan Market Association), the

APLMA (Asian Pacific Loan Market Association) and the

LSTA (Loan Syndications and Trading Association), and

it is linked to the United Nations Sustainable

Development Goals.

In addition to senior green bonds and hybrid

instruments, the Group uses other sustainable banking

financing tools, such as loans and credits linked to

sustainability objectives, such as emissions reduction or

gender equality. The Group's main syndicated loan is

also linked to the performance of sustainability

indicators.

In terms of bank financing, Telefónica has an undrawn

syndicated loan linked to sustainability indicators,

amounting to 5,500 million euros (see note 14). The first

extension option was exercised on January 13, 2026,

subject to the consent of all creditors, with the new

maturity date being January 13, 2031.

Additionally, in January 2026 Telefónica carried out two

issues of undated deeply subordinated securities, for an

aggregate amount of 1,750 million euros and intended to

be issued as green bonds, and a bond issue for an

amount of 1,000 million euros whose funds will be

allocated towards eligible investments in accordance

with the Sustainable Financing Framework of 2023 (see

note 22).

These debt issuances have not been made directly

through Telefónica, S.A. but are guaranteed by the

Company.

i) Trade and other guarantees

The Company is required to issue trade guarantees and

deposits for concession and spectrum tender bids and

in the ordinary course of its business. No significant

additional liabilities in the accompanying financial

statements are expected to arise from guarantees and

deposits issued (see note 20.a).



	Individual Annual Report 2025	Telefónica, S. A.	79



Financial statements 2025	Index

Note 21. Cash flow analysis

Cash flows from/(used in) operating

activities

The net result before tax in 2025 amounts to a loss of

1,440 million euros (see income statement), adjusted by

items recognized in the income statement that did not

require an inflow or outflow of cash in the year, or are

included within the investing and financing activities.

These adjustments relate mainly to:

• The impairment of investments in Group companies,

associates and other investments of 758 million euros

(in 2024, 4,223 million euros).

• Declared dividends as income in 2025 for 385 million

euros (5,879 million euros in 2024), interest accrued in

2025 on loans granted to subsidiaries of 36 million

euros (30 million euros in 2024) and a net financial

expense of 851 million euros (1,277 million euros in

2024), adjusted initially to include only movements

related to cash inflows or outflows during the year

under “Other cash flows from operating activities.”

Other cash flows from operating activities amount to

682 million euros (4,573 million euros in 2024). The main

items included are:

a) Net interest paid:

Payments of net interest and other financial expenses

amounted to 1,291 million euros (1,365 million euros in

2024), including:

•Net proceeds from external credit entities, net of

hedges, for 143 million euros (129 million euros in

2024 offset by their hedges), and

• Interest and hedges paid to Group companies of

1,434 million euros (1,494 million euros in 2024).

b) Dividends and other distributions from reserves and

paid-in capital received:



Millions of euros	2025	2024
Telefónica de España, S.A.U.	815	473
Telefónica Móviles España, S.A.U.	522	677
Telefônica Brasil, S.A.	133	173
Telefónica Finanzas, S.A.U. (TELFISA)	115	118
O2 Europe, Ltd.	—	2,200
Telefónica Latinoamérica Holding, S.L.	—	1,000
Telefónica O2 Holdings, Ltd.	—	511
Telfisa Global, B.V.	—	435
Other dividend collections	69	116
Total	1,654	5,703

In addition to the dividends declared in 2025 (see note

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

includes dividends from previous periods collected in

2025.

c) Income tax collected: Telefónica, S.A. is the parent of its

consolidated Tax Group (see note 17) and therefore it is

liable for filing income tax with the Spanish Tax

Authorities. It subsequently informs companies included

in the Tax Group of the amounts payable by them. In

2025 payments on account of income tax were made by

41 million euros as disclosed in note 17 (no payments on

account of income tax were made in 2024). A collection

of 43 million euros has been received for partial

execution of the favorable decision in the National Court

of May 22, 2025, which includes the effects of the

unconstitutionality of RTD 3/2106 and a collection of 17

million euros for the reimbursements of withholding

taxes consumed in the settlement of the corporate

income tax of 2024.

In this regard, the main amounts passed on to

subsidiaries of the tax group were as follows:

•Telefónica Móviles España, S.A.U.: A collection

amounting to 195 million euros corresponding to: 160

million euros from the 2024 income tax and 34

million euros from the payments on account of 2025

income tax.

In 2024 there was a collection of 98 million euros,

corresponding to a refund for the 2023 income tax.

•Telefónica de España, S.A.U.: A collection of 67

million euros, corresponding to: 48 million euros from

the payments on account of 2025 income tax and 19

million euros from the 2024 income tax.



	Individual Annual Report 2025	Telefónica, S. A.	80



Financial statements 2025	Index

In 2024 a total payment of 77 million euros,

corresponding to a payment for the 2023 income

tax.

•Telefónica Audiovisual Digital, S.L: A total collection

by 25 million euros has been received

corresponding to: 20 million euros from the 2024

income tax and 5 million euros from the payments

on account of the 2025 income tax.

▪ Telefónica Soluciones Informáticas y

Comunicaciones de España, S.A.: A total collection

has been received by 18 million euros

corresponding to: 12 million euros from the 2024

income tax and 6 million euros from payments on

behalf of the 2025 income tax.

▪ Telefónica Compras Electrónicas, S.L.: A total

collection has been received by 14 million euros,

corresponding to: 11 million euros from the 2024

income tax and 3 million euros from payments on

behalf of the 2025 income tax.

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

total payment of 55 million euros corresponding to

2024 income tax of 41 million euros, 17 million euros

from payments on account of the 2025 income tax

and a collection of witholdings on capital gains by 3

million euros.

In 2024 there was a total payment of 8 million euros

corresponding to a payment of withholding taxes of

10 million euros partially offset by the collection of 2

million euros for the income tax of 2023.

▪ Telefónica Finanzas, S.A.: There was a collection of

55 million euros corresponding to: 44 million euros

of 2024 income tax and 11 million euros for

payments on account of 2025 income tax.

In 2024 there was a total payment of 19 million

euros, corresponding to a payment for the 2023

income tax.

Cash flows from/(used in) investing

activities

Payments on investments under Cash flows from/ (used

in) investing activities included a total payment of 6,653

million euros (3,829 million euros in 2024). The main

transactions to which these payments refer are as

follows:

•Capital increases: the main disbursements correspond

to Telefónica Hispanoamérica, S.A. amounting to

2,245 million euros and contribution to the reserves of

Telefónica España Filiales, S.A.U. by 425 million euros

and Telefónica Infra, S.L. by 419 million euros. These

capital increases, as well as other minor

disbursements of this same concept are disclosed in

note 8.1.a.

• Disbursement of the successive tranches of the loan

granted to Telefónica Móviles Chile, S.A. for a total

amount of 268 million euros detailed in note 8.5.

• Payments of financial investments related to the

reinvestment of treasury overage amounting to 1,697

million euros.

•Payments of collaterals related to financial derivative

instruments amounting to 1,483 million euros.

Proceeds from disposals totaling 3,315 million euros in

2025 (3,432 million euros in 2024) includes:

•Proceeds from the share capital decrease of

Telefónica de Brasil amounting to 121 million euros

(see note 8).

• Collection of the partial early cancellation of the credit

granted to Telefónica Cyber Security & Cloud Tech,

S.L. for the amount of 25 million pounds sterling

equivalent to 29 million euros (see note 8).

• Collection for the sale of the total investment in BBVA

as indicated in note 9 amounting to 608 million euros.

• Collections from financial divestments for

reinvestment of treasury surpluses amounting to 1,697

million euros.

• Proceeds from collaterals related to financial

derivative instruments amounting to 848 million euros.

Cash flows from/(used in) financing

activities

This caption mainly includes the following items:

i. Proceeds from financial liabilities:

a) Debt issues: The main collections comprising this

heading are as follows:



Millions of euros	2025	2024
Telefónica Emisiones, S.A.U. (Note 20)	1,880	1,750
Bank loans (Note 14)	225	390
Telfisa Global, B.V. (Note 15)	3,700	—
Promissory notes (Note 13)	21	33
Telefónica de Argentina, S.A. (Note 15)	—	107
Telefónica Europe B.V. (Note 15)	—	1,300
Telefónica Europe, B.V. promissory notes (Note 15)	25	158
Other collections	9	20
Total	5,860	3,758



	Individual Annual Report 2025	Telefónica, S. A.	81



Financial statements 2025	Index

b) Prepayments and redemption of debt: The main

payments comprising this heading are as follows:



Millions of euros	2025	2024
Bilateral loans with several entities (Note 14.4)	81	140
Telfisa Global, B.V. (Note 15)	—	3,298
Telefónica Europe, B.V. (Note 15)	—	1,300
Telefónica Emisiones, S.A.U. (Note 20)	2,019	1,000
TLH Holdco, S.L. (Nota 15)	111	—
Other payments	6	4
Total	2,217	5,742

The commercial paper transactions with

Telefónica Europe, B.V. are stated at their net

balance as recognized for the purposes of the

cash flow statement, being high-turnover

transactions where the interval between purchase

and maturity never exceeds six months.

The financing obtained by the Company from

Telfisa Global, B.V. relates to the Group's

integrated cash management (see note 15). These

amounts are stated net in the cash flow statement

as new issues or redemptions on the basis of

whether or not at year-end they represent current

investment of surplus cash or financed balances

payable.

ii. Acquisition of own equity instruments for an amount

of 86 million euros refers to the purchases of treasury

shares as indicated in note 11.a.

iii. Payments of dividends amount to 1,697 million euros

(1,720 million euros in 2024). The figure differs from

the one shown in note 11.1.d) because of the

withholding taxes deducted in the payment to certain

major shareholders, which will be paid to Tax

Authorities in 2026 and also the withholding taxes

referred to the dividend distribution made in

December 2024 which have been paid to the Tax

Authorities in January 2025.



	Individual Annual Report 2025	Telefónica, S. A.	82



Financial statements 2025	Index

Note 22. Events after the

reporting period

The following events regarding the Company took place

between the reporting date and the date of preparation

of the accompanying financial statements:

Financing

• On January 12, 2026, Telefónica Europe B.V. carried

out the following transaction related to its capital

structure:

◦ a tender offer for its outstanding (i) EUR

1,000,000,000 Undated 8.5 Year Non-Call Deeply

Subordinated Guaranteed Fixed Rate Reset (the

"2026 Notes"); (ii) EUR 500,000,000 Undated 7.25

Year Non-Call Deeply Subordinated Guaranteed

Fixed Rate Reset Securities (the "2027 Notes"); and

(iii) EUR 750,000,000 Undated 6 Year Non-Call

Deeply Subordinated Guaranteed Fixed Rate Reset

Securities (the "2028 Notes"), all of them irrevocably

guaranteed by Telefónica, S.A. Telefónica Europe,

B.V. accepted the purchase in cash of the 2026

Notes and 2028 Notes for an aggregate principal

amount of 885 million euros, 653 million euros,

respectively. Telefónica Europe, B.V. did not accept

for purchase validly tendered 2027 Notes. The

tender offer settled on January 22, 2026.

• On January 12, 2026, Telefónica Emisiones, S.A.U.,

closed the pricing and the terms and conditions of an

issuance of (i) undated deeply subordinated

guaranteed fixed rate reset securities, with the

subordinated guarantee of Telefónica, S.A., for an

aggregate nominal amount of 900 million euros and

intended to be issued as green bonds; and (ii) undated

deeply subordinated guaranteed fixed rate reset

securities, with the subordinated guarantee of

Telefónica, S.A., for an aggregate nominal amount of

EUR 850 million euros and intended to be issued as

green bonds. The settlement took place on January 19,

2026.

• On January 13, 2026, in accordance with the terms of

Telefónica, S.A.'s sustainability-linked syndicated

credit facility, for up to 5,500 million euros, as

amended on January 13, 2025, the first extension

option was exercised, subject to the consent of all

creditors. The new maturity date is January 13, 2031.

• On January 26, 2026, Telefónica, S.A., through its

subsidiary Telefónica Emisiones, S.A.U., has launched

under the EMTN Programme a new issuance of notes

guaranteed by Telefónica, S.A. in an aggregate

principal amount of 1,000 million euros, due on May 2,

2033, pays an annual coupon of 3.707% and was

issued at par. The settlement of the transaction took

place on February 2, 2026. An amount equivalent to

the net proceeds will be allocated towards eligible

investments in accordance with Telefónica's 2023

Sustainable Financing Framework.

• On February 3, 2026, Telefónica, S.A. through its

subsidiary Telefónica Emisiones, S.A.U., launched

under its EMTN Programme an issuance of notes

guaranteed by Telefónica, S.A. in a principal amount of

170 million Swiss francs (equivalent to 183 million

euros). This issue, due on February 3, 2034, pays an

annual coupon of 1.5075% and was issued at par.

• On February 2, 2026, Telefónica Emisiones S.A.U.

redeemed 500 million pounds sterling (approximately

577 million euros) of its notes issued on February 2,

2006. These notes were guaranteed by Telefónica,

S.A.

Corporate transactions

• On February 5, 2026, Telefónica, S.A. informed, once

the corresponding regulatory authorizations had been

obtained and after the fulfilment of the agreed

conditions, Telefónica Hispanoamérica, S.A.,

transferred to Millicom Colombia Holdings SAS, the

total stake it holds in the share capital of Colombia

Telecomunicaciones S.A. E.S.P. BIC, representing

67.5% of its share capital for an amount of 214 million

US dollars (approximately 182 million euros at the

exchange rate of such date). This transaction is part of

the Telefónica Group’s asset portfolio management

policy and is aligned with its strategy of exit from

Hispanoamerica.

• On February 10, 2026, Inversiones Telefónica

Internacional Holding SpA, a wholly owned subsidiary

of Telefónica transferred to NJJ Holding SAS and

Millicom Spain S.L., the 100% of the share capital of



	Individual Annual Report 2025	Telefónica, S. A.	83



Financial statements 2025	Index

Telefónica Móviles Chile S.A. ("Telefónica Chile"). The

signing and closing of the transaction took place

simultaneously.

The transaction amount included: (i) a cash payment

of 50 million US dollars (approximately 42 million euros

at the exchange rate of such date) paid at closing; (ii)

a deferred payment of 340 million US dollars

(approximately 286 million euros) which will be settled

based on the financial results of Telefónica Chile; and

(iii) an additional payment of 150 million US dollars

(approximately 126 million euros) subject to the

potential occurrence of certain events in the Chilean

telecommunications market. The agreed price

includes the customary adjustments applicable to this

type of transaction.

This transaction is part of the Telefónica Group’s asset

portfolio management policy and is aligned with its

strategy of exit from Hispanoamerica.

Prior to the closing of the transaction, on February 9,

2026, T. Móviles Chile, S.A. fully repaid the loan

granted by Telefónica, S.A. (see note 8.5).

On that same date, Telefónica, S.A. granted a loan of

325 million euros to Inversiones Telefónica

Internacional Holding, SpA, a company wholly owned

indirectly by Telefónica, S.A.

Telefónica Chile, S.A. also transferred to Inversiones

Telefónica Internacional Holding, SpA the shares it

held in Onnet Fibra Chile, representing 40% of its

share capital.

• On February 18, 2026, Telefónica Infra, S.L.U.

(“Telefónica Infra”) together with Liberty Global

Europe 2 Limited (“Liberty Global”) and InfraVia

Capital Partners (“InfraVia”), through their fibre-to-

the-home (FTTH) joint venture ("nexfibre"), reached

an agreement to acquire 100% of the share capital of

Substantial Topco Limited (“Netomnia”), the second

largest full fibre altnet in the United Kingdom.

The amount of the transaction (firm value) was 2,000

million pounds sterling (approximately 2,294 million

euros at the current exchange rate). Telefonica and

Liberty Global will jointly contribute 150 million pounds

sterling to fund the transaction and Infravia with GBP

850 million pounds. The corresponding price is

subject to the usual price adjustments for this type of

transaction.

As part of the transaction, VMO2 will (i) acquire

Netomnia’s retail customers and the “YouFibre” and

“Brsk” brands, (ii) enter into an extended wholesale

agreement with nexfibre, (iii) receive cash proceeds in

consideration for its wholesale commitment, and (iv)

obtain 30% equity stake in the holding company

through which Telefónica Infra and Liberty Global

currently invest in nexfibre. At Completion, Telefónica

Infra, Liberty Global and VMO2 will, in aggregate, hold

50% of nexfibre, and InfraVia will hold the remaining

50%.

Closing of the transaction is subject to obtaining the

corresponding regulatory authorizations.

This transaction is part of Telefónica’s strategy in the

United Kingdom, which includes, among other

objectives, the development of a financially

sustainable and strengthened network, fibre

expansion and value creation through VMO2 and

nexfibre.

Corporate Governance

• On January 20, 2026, Telefónica, S.A. announced

that, following the announcement of its intention to

delist its American Depositary Shares and certain

series of debt securities from the New York Stock

Exchange, Telefónica and two wholly-owned

subsidiaries of Telefónica —Telefónica Emisiones,

S.A.U. and Telefónica Europe, B.V.—, was voluntarily

filing Forms 15F with the Securities and Exchange

Commission (“SEC”) to suspend immediately their

reporting obligations under the U.S. Securities

Exchange Act of 1934, as amended. The deregistration

and termination of such reporting obligations is

expected to become effective 90 days after the filing

of the Forms 15F, unless objected to by the SEC.



	Individual Annual Report 2025	Telefónica, S. A.	84



Financial statements 2025	Index

Note 23. Additional note for

English translation

These annual financial statements were originally

prepared in Spanish and were authorized for issue by

the Company’s Directors in the meeting held on

February 23, 2026. In the event of a discrepancy, the

Spanish language version prevails.



	Individual Annual Report 2025	Telefónica, S. A.	85



Financial statements 2025	Index

Appendix I: Details of subsidiaries

and associates at December 31,

2025



Millions of euros	% Ownership					Income (loss)
Name and corporate purpose	Direct	Indirect	Capital	Rest of equity	Dividends	From operations	For the year	Net carrying amount
Telefónica Latinoamérica Holding, S.L.U. (SPAIN) Holding Company Distrito Telefónica. Ronda de la Comunicación s/n 28050 Madrid	100%	—	291	8,802	—	737	925	10,367
Telefónica Móviles España, S.A.U. (SPAIN) Wireless communications services provider Distrito Telefónica, Ronda de la Comunicación s/n 28050 Madrid	100%	—	209	857	—	183	28	5,561
Telefónica O2 Holdings Limited (UNITED KINGDOM) Holding Company Highdown House, Yeoman Way, Worthing, West Sussex, BN99 3HH	99.99%	0.01%	13	8,306	—	(2,157)	(1,932)	6,923
Telefónica Móviles México, S.A. de C.V. (MEXICO) Holding Company Prolongación Paseo de la Reforma 1200 Col. Cruz Manca, México D.F. CP.05349	99.99%	0.01%	86	(37)	—	—	4	53
Telefónica de España, S.A.U. (SPAIN) Telecommunications service provider in Spain Gran Vía, 28 - 28013 Madrid	100%	—	1,024	3,038	—	(627)	(510)	2,455
O2 (Europe) Ltd. (UNITED KINGDOM) Holding Company Highdown House, Yeoman Way, Worthing, West Sussex, BN99 3HH	100%	—	6,896	276	—	682	682	8,421
Telefónica España Filiales, S.A.U. (SPAIN) Organization and operation of multimedia service- related activities and businesses Distrito Telefónica, Ronda de la Comunicación s/n, Madrid 28050	100%	—	226	1,522	—	36	135	2,258
Telfisa Global, B.V. (NETHERLANDS) Integrated cash management, consulting and financial support for Group companies Strawinskylaan 1259; tower D; 12th floor 1077 XX - Amsterdam	100%	—	—	730	—	(1)	6	712
O2 Oak Limited (UNITED KINGDOM) Holding Company Highdown House, Yeoman Way, Worthing, West Sussex, BN99 3HH	100%	—	—	—	—	—	—	—
Telefónica Hispanoamérica, S.A. (SPAIN) Holding Company Ronda de la Comunicación, s/n – 28050 Madrid	100%	—	109	497	—	(504)	(621)	—
TIS Hispanoamérica, S.L. (SPAIN) Holding Company Ronda de la Comunicación, s/n - 28050 Madrid	100%	—	2	21	—	(22)	(22)	1
Telefónica Soluciones de Criptrografía, S.A. (SPAIN) Other services related to information technology and computing Gran Vía 28, 28013 Madrid	100%	—	1	18	—	2	2	21



	Individual Annual Report 2025	Telefónica, S. A.	86



Financial statements 2025	Index



Millions of euros	% Ownership					Income (loss)
Name and corporate purpose	Direct	Indirect	Capital	Rest of equity	Dividends	From operations	For the year	Net carrying amount
Telefónica Tech , S.L. (SPAIN) Promotion of business initiatives and holding for securities Gran Vía 28-28013 Madrid	100%	—	67	881	—	(57)	(55)	1,259
O2 Worldwide Limited (UNITED KINGDOM) Private Limited Company C/O Stobbs Building 1000, Cambridge Research Park, Cambridge, CB25 9PD	100%	—	—	—	—	—	—	—
Telefónica Capital, S.A.U. (SPAIN) Finance Company Gran Vía, 28 - 28013 Madrid	100%	—	7	228	—	—	8	110
TLH HOLDCO, S.L. (SPAIN) Holding Company Ronda de la Comunicación, s/n - 28050 Madrid	100%	—	87	1,102	—	(4)	13	1,202
Lotca Servicios Integrales, S.L. (SPAIN) Ownership, operation and aircraft leases Gran Vía, 28 - 28013 Madrid	100%	—	18	41	—	(11)	(8)	51
Telefónica Local Services GmbH (GERMANY) Holding company Adalbertstrasse 82-86 85737, Ismaning	100%	—	—	1,789	—	—	—	1,834
Telefónica Infra, S.L. (SPAIN) Portfolio Company (Holding) Ronda de la Comunicación S/N - 28050 Madrid	100%	—	12	1,348	—	80	81	1,408
Telefónica Finanzas, S.A.U. (TELFISA) (SPAIN) Cash pooling, consulting and financial support for Group companies Ronda de la Comunicación, s/n – 28050 Madrid	100%	—	3	(86)	136	(2)	114	13
Telefónica Global Solutions, S.L.U. (SPAIN) International services provider Ronda de la Comunicación, s/n – 28050 Madrid	100%	—	1	23	—	(67)	(62)	—
Telefónica Innovación Digital, S.A.U. (SPAIN) Development of activities and research projects in telecommunication Ronda de la Comunicación S/N - 28050 Madrid	100%	—	28	307	—	(67)	(83)	253
Telefónica Luxembourg Holding S.à.r.L. (LUXEMBOURG) Holding Company 26, rue Louvingny, L-1946- Luxembourg	100%	—	3	156	19	—	6	4
Telefónica Servicios Globales, S.L.U. (SPAIN) Management and administrative services provider Ronda de la Comunicación, s/n – 28050 Madrid	100%	—	1	77	—	1	1	80
Telefónica Participaciones, S.A.U. (SPAIN) Issues of preferred shares and/or other debt financial instruments Gran Vía, 28 - 28013 Madrid	100%	—	—	1	—	—	—	—
Telefónica Emisiones, S.A.U. (SPAIN) Issues of preferred shares and/or other debt financial instruments Gran Vía, 28 - 28013 Madrid	100%	—	—	18	—	(3)	1	—
Telefónica Europe, B.V. (NETHERLANDS) Fund raising in capital markets Strawinskylaan 1259; tower D; 12th floor 1077 XX – Amsterdam	100%	—	—	3	3	(1)	3	—
Toxa Telco Holding, S.L. (SPAIN) Holding Company Ronda de la Comunicación s/n Madrid 28050	100%	—	—	—	—	(0.08)	(0.06)	—
Telefónica Digital Limited (UNITED KINGDOM) Holding Company Highdown House, Yeoman Way, Worthing, West Sussex, BN99 3HH, Reino Unido	100%	—	—	14	—	—	—	14



	Individual Annual Report 2025	Telefónica, S. A.	87



Financial statements 2025	Index



Millions of euros	% Ownership					Income (loss)
Name and corporate purpose	Direct	Indirect	Capital	Rest of equity	Dividends	From operations	For the year	Net carrying amount
Telxius Telecom, S.A. (SPAIN) Telecommunications Services Ronda de la Comunicación, s/n- 28050 Madrid	70%	—	260	240	—	(10)	57	344
Telefónica Centroamérica Inversiones, S.L (SPAIN) Holding Company Ronda de la Comunicación, s/n. - 28050 Madrid	60%	—	—	—	—	—	1	—
Telefónica Factoring España, S.A. (SPAIN) Factoring Zurbano, 76, 8 Plta. - 28010 Madrid	50%	—	5	2	5	9	8	3
Aliança Atlântica Holding B.V. (NETHERLANDS) Portfolio Company Strawinskylaan 1725 – 1077 XX – Amsterdam	50%	38.94%	40	6	—	—	1	22
Telefónica Renting, S.A. (SPAIN) Retail renting business of furniture and office ancillary. Av. de Manoteras, 20, Hortaleza, 28050 Madrid	50%	—	1	9	4	26	19	5
Telefônica Brasil, S.A. (BRAZIL) (1) (*) Telecommunication operator in Brazil Av. Luis Carlos Berrini, 1.376 – Brooklin São Paulo 04571-000	39.32%	38.55%	22,656	(12,142)	211	1,590	1,002	9,078
Telefónica Factoring Do Brasil, Ltd. (BRAZIL) Factoring Rua Desembargador Eliseu Guilherme, 69 Pt. 6 Paraíso Sao Paulo	40%	10%	2	(5)	2	(1)	4	1
Telefónica Factoring México, S.A. de C.V. SOFOM ENR (MEXICO) Factoring Prolongación Paseo de la Reforma 1200 Col. Cruz Manca, México D.F. CP.05349	40.50%	9.50%	—	—	—	—	—	—
Telefónica Factoring Perú, S.A.C. (PERÚ) Factoring Avenida República de Panamá Nro 3030 piso 6to. San Isidro Lima, Perú	40.50%	9.50%	1	3	1	(1)	(1)	1
Telefónica Factoring Colombia, S.A. (COLOMBIA) Factoring Calle 93 No. 15-73 Oficina 502 Bogotá	40.00%	10.00%	1	—	1	2	1	1
Telefónica Correduría de Seguros y Reaseguros Compañía de Mediación, S.A. (SPAIN) Insurance contracts, operating as a broker Ronda de la Comunicación S/N - 28050 Madrid	16.67%	83.33%	—	—	2	6	8	—
Torre de Collçerola, S.A. (SPAIN) Operation of telecommunications tower and technical assistance and consulting services. Ctra. Vallvidrera- Tibidabo, s/n - 08017 Barcelona	30.40%	—	5	—	—	—	—	1
Wayra Argentina,S.A. (ARGENTINA) Telecommunications activities Av. Corrientes 707, Planta Baja, Ciudad de Buenos Aires, Argentina	5%	95%	28	(25)	—	1	3	—
Telefónica Global Solutions Argentina, S.A. (ARGENTINA) Telecommunications services Avenida Ingeniero Huergo 723, 1107 Buenos Aires	5%	95%	—	—	—	3	—	—
Others
Total group companies and associates					385			52,453

(1) Consolidated data.

(*) Companies listed on international stock exchanges at December 31, 2025.



	Individual Annual Report 2025	Telefónica, S. A.	88



Financial statements 2025	Index

Appendix II: Board and Senior

Management Compensation

TELEFÓNICA, S.A.

(Amounts in euros)



Directors	Salary1	Fixed remunera- tion2	Allowances3	Short-term variable remuneration4	Remuneration for belonging to the Board Committees5	Other items6	Total
Mr. Marc Thomas Murtra Millar 7	1,834,870	—	—	3,292,857	—	6,037	5,133,764
Mr. Isidro Fainé Casas	—	200,000	—	—	80,000	—	280,000
Mr. José María Abril Pérez	—	200,000	9,000	—	91,200	—	300,200
Mr. Carlos Ocaña Orbis	—	186,667	19,000	—	100,533	—	306,200
Mr. Emilio Gayo Rodríguez8	1,189,530	—	—	1,983,726	—	14,660	3,187,916
Mr. Olayan M. Alwetaid9	—	100,000	—	—	—	—	100,000
Ms. María Luisa García Blanco	—	120,000	25,000	—	101,200	—	246,200
Mr. Peter Löscher10	—	193,333	23,000	—	113,600	—	329,933
Ms. Anna Martínez Balañá 9	—	50,000	—	—	—	—	50,000
Mr. César Mascaraque Alonso 9	—	20,000	—	—	7,600	—	27,600
Ms. Mónica Rey Amado9	—	50,000	3,000	—	4,667	—	57,667
Mr. Alejandro Reynal Ample	—	120,000	—	—	933	—	120,933
Ms. Ana María Sala Andrés9	—	100,000	10,000	—	15,867	—	125,867
Ms. Claudia Sender Ramírez	—	120,000	—	—	80,000	—	200,000
Ms. Solange Sobral Targa	—	120,000	9,000	—	11,200	—	140,200

1Salary: Regarding Mr. Marc Thomas Murtra Millar and Mr Emilio Gayo Rodríguez, the amount includes the non-variable remuneration earned from their

executive functions.

2Fixed remuneration: Amount of the compensation in cash, with a pre-established payment periodicity, whether or not it can be consolidated over time, earned

by the member for his/her position on the Board, regardless of the effective attendance of the member to board meetings.

3 Allowances: Total amount of allowances for attending Advisory or Steering Committee meetings.

4Short-term variable remuneration (bonuses): Variable amount linked to the performance or achievement of a series of individual or group objectives

(quantitative or qualitative) within a period of time equal to or less than a year, corresponding to the year 2025 and to be paid in the year 2026. In reference to

the bonus corresponding to 2024, which was paid in 2025, former Executive Chairman Mr. José María Álvarez-Pallete López received 3,513,504 euros and

former Chief Operating Officer Mr. Ángel Vilá Boix received 2,436,000 euros.

5Remuneration for belonging to the Board Committees: Amount of items other than allowances, which the directors are beneficiaries through their position on

the Executive Commission and the Advisory or Steering Committees, regardless of the effective attendance of the board member such Committee meetings.

6Other concepts: This includes, among others, the amounts received as remuneration in kind (general medical and dental coverage and vehicle insurance), paid

by Telefónica, S.A.

7Mr. Marc Thomas Murtra Millar was appointed Executive Director and Executive Chairman of the Board of Directors of Telefónica, S.A. on January 18, 2025,

thus reflecting the remuneration received since that date.

8 Mr. Emilio Gayo Rodríguez was appointed Executive Director and Chief Operating Officer of the Board of Directors of Telefónica, S.A. on March 6, 2025, thus

reflecting the remuneration received since that date.

9 The remuneration received by the Director is reported from the date of their appointment. Specifically, Mr. Olayan M. Alwetaid and Ms. Ana María Sala Andrés

as from February 26, 2025; Ms. Anna Martínez Balañá and Ms. Mónica Rey Amado as from July 29, 2025; and Mr. César Mascaraque Alonso as from October 22,

2025.

10 The additional remuneration of the Lead Independent Director, Mr. Peter Löscher, which began to apply in February 2025, is hereby noted.



	Individual Annual Report 2025	Telefónica, S. A.	89



Financial statements 2025	Index

The remuneration accrued and/or received in 2025 by

the Directors who ceased during that year is presented

below. Specifically, Mr. José María Álvarez-Pallete López

on January 18, 2025; Mr. Ángel Vilá Boix on March 6,

2025; Mr. Francisco José Riberas Mera on February 26,

2025; Ms. Verónica Pascual Boé and Ms. María Rotondo

Urcola on July 29, 2025; and Mr. Francisco Javier de Paz

Mancho on October 22, 2025:

(Amounts in euros)



Directors	Salary1	Fixed remune- ration2	Allowances 3	Short-term variable remuneration 4	Remuneration for belonging to the Board Committees5	Other items6	Total
Mr. José María Álvarez-Pallete López7	93,420	—	—	—	—	531	93,951
Mr. Ángel Vilá Boix7	291,733	—	—	—	—	5,456	297,189
Mr. Francisco Javier de Paz Mancho	—	100,000	18,000	—	94,667	—	212,667
Ms Verónica Pascual Boé	—	70,000	8,000	—	6,533	—	84,533
Mr. Francisco José Riberas Mera	—	20,000	—	—	—	—	20,000
Ms. María Rotondo Urcola	—	70,000	14,000	—	13,067		97,067

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

7 The remuneration received by Mr. José María Álvarez‑Pallete López, former Executive Chairman, and by Mr. Ángel Vilá Boix, former Chief Operating Officer, is

reported up to the date of their respective terminations (January 18, 2025 and March 6, 2025). Additionally, Mr. José María Álvarez‑Pallete López received, in

January 2025, a severance payment of 23,526 thousand euros as financial compensation for his termination, following the Company’s unilateral decision, in

accordance with the terms of his contract. Likewise, Mr. Ángel Vilá Boix received, in March 2025, a severance payment of 17,378 thousand euros as financial

compensation for his termination, following the Company’s unilateral decision, in accordance with the terms of his contract.

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 or Collegiate Bodies of such companies:



	Individual Annual Report 2025	Telefónica, S. A.	90



Financial statements 2025	Index

OTHER COMPANIES OF THE TELEFÓNICA GROUP

(Amounts in euros)



Directors	Salary1	Fixed remune- ration2	Allowances3	Short-term variable remuneration4	Remuneration for belonging to the Board Committees5	Other items6	Total
Mr. Marc Thomas Murtra Millar	—	—	—	—	—	—	—
Mr. Isidro Fainé Casas	—	—	—	—	—	—	—
Mr. José María Abril Pérez	—	—	—	—	—	—	—
Mr. Carlos Ocaña Orbis	—	—	—	—	—	—	—
Mr. Emilio Gayo Rodríguez	—	—	—	—	—	—	—
Mr. Olayan M. Alwetaid	—	—	—	—	—	—	—
Ms. María Luisa García Blanco	—	—	—	—	—	87,500	87,500
Mr. Peter Löscher	—	133,000	—	—	—	—	133,000
Ms. Anna Martínez Balañá	—	—	—	—	—	—	—
Mr. César Mascaraque Alonso7	—	15,938	—	—	—	—	15,938
Ms. Mónica Rey Amado	—	—	—	—	—	—	—
Mr. Alejandro Reynal Ample	—	—	—	—	—	—	—
Ms. Ana María Sala Andrés	—	—	—	—	—	—	—
Ms. Claudia Sender Ramírez	—	—	—	—	—	132,500	132,500
Ms. Solange Sobral Targa	—	81,870	—	—	—	—	81,870

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.

3Allowances: Total amount of the allowances for attending the board meetings of other companies of the Telefónica Group.

4Variable 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 2025 and to be paid in the year 2026 by other

companies of the Telefónica Group.

5.Remuneration for belonging to the Board Committees of other companies of the Telefónica Group: Amount of items other than allowances, which the

directors are beneficiaries through their position on the Advisory or Steering Committees of other companies of the Telefónica Group, regardless of the

effective attendance of the board member such Committee meetings.

6.Other concepts: This includes, among others, the amounts received as remuneration in kind (general medical and dental coverage and vehicle insurance), paid

by other companies of the Telefónica Group. Also included are the amounts received for membership of the Advisory Boards of Telefónica España, Telefónica

Hispanoamérica, Telefónica Tech and Telefónica Ingeniería de Seguridad.

7The remuneration received by Director Mr. César Mascaraque Alonso in other Telefónica Group companies, different from Telefónica, S.A., is reported from the

date of his appointment (22 October 2025)

Payment received and/or accrued in 2025 by Directors

who ceased during this year with respect to the other

companies of the Telefónica Group in 2025 is detailed

below. Specifically, Mr. José María Álvarez-Pallete López

on January 18, 2025; Mr. Ángel Vilá Boix on March 6,

2025; Mr. Francisco José Riberas Mera on February 26,

2025; Ms. Verónica Pascual Boé and Ms. María Rotondo

Urcola on July 29, 2025; and Mr. Francisco Javier de Paz

Mancho on October 22, 2025:



	Individual Annual Report 2025	Telefónica, S. A.	91



Financial statements 2025	Index

(Amounts in euros)



Directors	Salary1	Fixed remune- ration2	Allowances 3	Short-term variable remuneration 4	Remuneration for belonging to the Board Committees5	Other items6	Total
Mr. José María Álvarez-Pallete López	—	—	—	—	—	—	—
Mr. Ángel Vilá Boix	—	—	—	—	—	—	—
Mr. Francisco Javier de Paz Mancho	—	219,526	—	—	—	129,167	348,693
Ms Verónica Pascual Boé	—	53,590	—	—	—	37,397	90,987
Mr. Francisco José Riberas Mera	—	—	—	—	—	—	—
Ms. María Rotondo Urcola	—	—	—	—	—	—	—

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

Additionally, the Executive Board Members have a

series of Assistance Services, which are detailed below.

LONG-TERM SAVINGS SCHEMES

The long-term saving system applicable to Executive

Directors replicates that applicable to Telefónica’s

employees and Senior Managers. It consists of

contributions (i) to a pension plan or a similar instrument

and to a collective life insurance policy in a unit‑link

modality (to channel any excess contribution over the

financial and tax limits applicable to pension plans), as

well as (ii) to Telefónica’s Executive Long-term Savings

Plan, implemented through a collective life insurance

policy in the unit‑link modality.

In the case of the Executive Chairman, given that he did

not have an employment relationship prior to his

appointment as Executive Chairman, contributions are

implemented through a savings insurance policy that

covers the same contingencies as the Pension Plan and

the unit‑link insurance policies applicable to Telefónica’s

employees and Senior Managers.

Below are the contributions made by the Company to

long-term savings systems during fiscal year 2025:

(Amounts in euros)



Directors	Contributions for fiscal year 2025
Mr. Marc Thomas Murtra Millar	645,003
Mr. Emilio Gayo Rodríguez	419,443

Executive Directors that ceased in 2025:

(Amounts in euros)



Directors	Contributions for fiscal year 2025
Mr. José María Álvarez-Pallete López1	32,697
Mr. Ángel Vilá Boix 2	102,106

1!Mr.José María Álvarez-Pallete López ceased as Executive Chairman and

Director of the Company on January 18, 2025.

2 Mr. Ángel Vilá Boix ceased as Chief operating Officer on March 6, 2025.

The breakdown of long-term savings systems includes

contributions to Pension Plan, the Savings Insurance

Policy, the Unit Link Insurance, and the Executive Long-

Term Savings Plan, as set out below:

(Amounts in euros)



Directors	Contribution to Executive Long-term Savings Plan1	Contributions to Savings Insurance Policy / Unit link Insurance - Pension Plan Surplus2
Mr. Marc Thomas Murtra Millar3	562,250	82,753
Mr. Emilio Gayo Rodríguez 4	359,966	59,477

1 Contributions to the Executive Long-term Savings 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 In the case of the Chief Operating Officer: Contributions to Unit link

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 insurance - Pension Plan Surplus is arranged with the entity

Occident GCO, S.A.U. de Seguros y Reaseguros, and covers the same

contingencies as those of the “Pension Plan” and the same exceptional

liquidity events in case of serious illness or long-term unemployment.

In the case of the Executive Chairman: contributions to the savings

insurance policy that replicates the main features of the Pension Plan and

the collective life insurance policy under a unit‑link modality applicable to

Telefónica employees.

3 Mr. Marc Thomas Murtra Millar was appointed Executive Director and

Executive Chairman of the Board of Directors of Telefónica, S.A. on January

18, 2025.

4 Mr. Emilio Gayo Rodríguez was appointed Executive Director and Chief

Operating Officer of the Board of Directors of Telefónica, S.A. on March 6,

2025.



	Individual Annual Report 2025	Telefónica, S. A.	92



Financial statements 2025	Index

Executive Directors that ceased in 2025:

(Amounts in euros)



Directors	Pension Plans1	Executive Long-term Savings Plan2	Unit link Insurance - Pension Plan Surplus1
Mr. José María Álvarez- Pallete López3	6,418	26,279	—
Mr. Ángel Vilá Boix 4	6,721	88,949	6,436

1 Contributions made to the Pension Fund Fonditel B, Pension Fund and,

additionally, in the case of Mr. Ángel Vilá Boix, to the Unit‑link Insurance –

Pension Plan Surplus, related to the Pension Plan arranged with Occident

GCO, S.A.U. de Seguros y Reaseguros.

2 Contributions to the Pension Plan and to the Executive Long-term Savings

Plan established in 2006, financed exclusively by the Company, to

complement the existing Pension Plan. This plan consists of defined

contributions equivalent to a specific percentage of the Executive’s fixed

remuneration, depending on the professional level within the Telefónica

Group’s organisational structure.

3 Mr. José María Álvarez‑Pallete López ceased to serve as Executive

Chairman and Director of the Company on 18 January 2025.

4 Mr. Ángel Vilá Boix ceased to serve as Chief Executive Officer of the

Company on 6 March 2025.

Furthermore, and in relation to the Executive Long-term

Savings Plan, and as reflected in the 2025 Annual

Director Remuneration Report, until March 31, 2023,

Telefónica's Directors' Remuneration Policies

established only the incompatibility between the

recognition of economic rights derived from this Plan

and compensation for termination of an employment

relationship, as reported in the successive previous

Directors' Remuneration Reports. As of March 31, 2023,

the date on which the previous Directors' Remuneration

Policy was approved by the General Shareholders'

Meeting, said incompatibility was extended to any

termination compensation, whether from an

employment or contractual relationship.

However, although the Company understood that said

modification introduced by the Directors' Remuneration

Policy approved on March 31, 2023 was applicable to

previous services agreements (by application of Article

529 novodecies.5 of the Spanish Companies Act), on

the occasion of the termination of the former Executive

Chairman and the former Chief Operating Officer

(C.O.O.), in January and March 2025 respectively, the

discrepancy that arose between the parties in this

regard was resolved through an alternative dispute

resolution mechanism (independent expert opinion)

which, based on general principles of contracts, ruled in

favor of the aforementioned executives and the

maintenance of their economic rights derived from the

Plan.

The amount of the mathematical provision

corresponding to the former Executive Directors as of

the date of their respective terminations was as follows:

• Mr. José María Álvarez-Pallete López: 13,086 thousand

euros.

• Mr. Ángel Vilá Boix: 9,699 thousand euros

Payment of the aforementioned amounts will not take

place until one of the contingencies covered by the Plan

occurs (retirement, early retirement, permanent

disability in the degrees of total or absolute disability or

severe disability, and death).

LIFE INSURANCE PREMIUMS

The 2025 amounts for life insurance premiums were as

follows:

(Amounts in euros)



Directors	Life insurance premiums
Mr. Marc Thomas Murtra Millar1	42,001
Mr. Emilio Gayo Rodríguez 2	51,058

1 Mr. Marc Thomas Murtra Millar was appointed Executive Director and

Executive Chairman of the Board of Directors of Telefónica, S.A. on January

18, 2025.

2 Mr. Emilio Gayo Rodríguez was appointed Executive Director and Chief

Operating Officer of the Board of Directors of Telefónica, S.A. on March 6,

2025.

Executive Directors that ceased in 2025:

(Amounts in euros)



Directors	Life insurance premiums
Mr. José María Álvarez-Pallete López1	1,520
Mr. Ángel Vilá Boix 2	4,614

1 Mr.José María Álvarez-Pallete López ceased as Executive Chairman and

Director of the Company on January 18, 2025.

2 Mr. Ángel Vilá Boix ceased as Chief operating Officer on March 6, 2025.

REMUNERATION PLANS BASED ON

As regards to remuneration plans based on shares (in

which former Executive Directors Mr. José María Álvarez

Pallete-López and Mr. Ángel Vilá Boix participated, and

in which current Executive Directors Mr. Marc Thomas

Murtra Millar and Mr. Emilio Gayo Rodríguez

participate), the following long-term variable

remuneration plans were in existence during the year

2025:

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

of: the Long-Term Incentive Plan 2021-2025 (with Third

cycle (2023-2025) active) approved by the General

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

Long-Term Incentive Plan 2024-2028 (with First cycle

(2024-2026) and Second cycle (2025-2027) active),

approved by the General Shareholders' Meeting held on

April 12, 2024.

The Third cycle (2023-2025) of the Long-Term

Incentive Plan 2021-2025 started on January 1, 2023 and

ended on December 31, 2025.



	Individual Annual Report 2025	Telefónica, S. A.	93



Financial statements 2025	Index

In this cycle, a maximum of 2,257,000 shares were

allocated to the Executive Directors on January 1, 2023,

with a unit fair value of 2.8104 euros per share for FCF

("Free Cash Flow"), 1.7780 euros for TSR ("Total

Shareholder Return") and 2.8104 euros for the CO2

Emission Neutralization and Reduction target.

Taking into account the Relative TSR, Free Cash Flow

and CO2 Neutralization results, the weighted payout

ratio increased to 50%. Thus, at the end of the Plan's

cycle, the Chief Operating Officer (COO) Mr. Emilio

Gayo Rodríguez is entitled to receive 158,000 gross

shares.

In the case of the former Executive Directors Mr. José

María Álvarez-Pallete López and Mr. Ángel Vilá Boix, due

to their termination as Executive Chairman and Chief

Operating Officer (C.O.O.), respectively, they did not

receive the delivery of shares corresponding to this, but

they received the equivalent amount in cash based on

the length of time they had been with the Company. Mr.

José María Álvarez-Pallete López received 2,857

thousand euros (corresponding to the value of 725,570

shares at a price of 3.94 euros per share) and Mr. Ángel

Vilá Boix received 2,408 thousand euros (corresponding

to the value of 559,780 shares at a price of 4.30 euros

per share.

Similarly, during the 2025 financial year, the First cycle

(2024-2026) and Second cycle (2025-2027) of the

Long-Term Incentive Plan 2024-2028 were in force,

starting on January 1, 2024 and January 1, 2025

respectively and ending on December 31, 2026 and

December 31, 2027 respectively.

In relation to the First cycle (2024-2026) and Second

cycle (2025-2027) of the Long-Term Incentive Plan

2024-2028, the number of Telefónica, S.A. shares that

could be delivered to the participants, within the

established maximum, is conditioned and determined by

the compliance with the established objectives: 50% on

the compliance with the Total Shareholder Return (TSR)

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

Telefónica Group's Free Cash Flow (FCF), 5% on the

Neutralization and Reduction of CO2 Emissions and 5%

of the target for the number of Women in Executive

Positions.

To determine compliance with the TSR target and

calculate the specific number of shares to be delivered

for this concept, the performance of the TSR on

Telefónica, S.A.'s shares will be measured during the

measurement period of each three-year cycle, in

relation to the TSRs experienced by certain companies

in the telecommunications sector, weighted according

to their relevance to Telefónica, S.A., which for purposes

of the Plan will constitute a comparison group

(hereinafter the "Comparison Group"). The companies

included in the Comparison Group are listed below:

América Móvil, BT Group, Deutsche Telekom, Orange,

Telecom Italia, Vodafone Group, Proximus, Koninklijke

KPN, Millicom, Swisscom, Telenor, TeliaSonera, TIM

Brasil, and Liberty Global.

With regard to complying with the TSR objective, the

number of shares to be delivered associated with

meeting this objective will range from 15% of the number

of theoretical shares assigned, assuming that the TSR

performance of Telefónica, S.A. shares is at least the

median of the comparison group, to 50% if the

performance is in the third quartile or above in the

comparison group, with the percentage calculated by

linear interpolation for cases falling between the median

and third quartile.

In order to determine the compliance with the FCF

objective and calculate the specific number of shares to

be delivered for this concept, the FCF level generated

by the Telefónica Group during each year will be

measured and compared to the value set in the budgets

approved by the Board of Directors for each financial

year.

With regard to the FCF, for each of the cycles in force

during the financial year 2025, the Board of Directors, at

the proposal of the Nominating, Compensation and

Corporate Governance Committee, determined a scale

of achievement that includes a minimum threshold of

90% compliance, below which no incentive is paid and

compliance with which will entail the delivery of 20% of

the theoretical shares assigned, and a maximum level of

100% compliance, which will entail the delivery of 40%

of the theoretical shares assigned.

In the case of the First cycle (2024-2026) and Second

cycle (2025-2027) of the 2024-2028 Long-Term

Incentive Plan, includes a potential upside in case of

over achievement that may end in a payout of 60% at

the end of the cycle.

In order to determine compliance with the CO2

Emission Neutralization and Reduction target and to

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.

The level of direct and indirect CO2 emissions from our

daily activity shall be calculated according to the

following:

CO2 Emission = Activity Data x Emission Factor, where:

- Activity: Amount of energy, fuel, gas, etc. consumed

by the Company.

- Emission Factor: Amount of CO2 emitted to the

atmosphere by the consumption of each unit of activity.



	Individual Annual Report 2025	Telefónica, S. A.	94



Financial statements 2025	Index

The emission factor provided by official sources

(European Union, Ministries, CNMC, International

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

Protocol emission factors are used for fuels.

At the beginning of the Third cycle (2023-2025) of the

Long-Term Incentive Plan 2021-2025 and First cycle

(2024-2026) and Second cycle (2025-2027) of the

Long-Term Incentive Plan 2024-2028, the Board of

Directors of Telefónica, S.A., at the proposal of the

Nominating, Compensation 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 the case of Women in Executive Positions target for

the Long-Term Incentive Plan 2024-2028, the

proportion of Women executives over the total

executive population will be measured at the end of the

period on December 31, 2026 and December 31, 2027,

respectively.

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, S.A., 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),

CO2 Emission Neutralization Reduction and Women in

Executive Positions targets of the active plans, as

applicable, is shown below.

PSP 2024-2028 - First cycle / 2024-2026



Current Directors	Maximum number of shares (*)
Mr. Marc Thomas Murtra Millar	—
Mr. Emilio Gayo Rodríguez	326,000

(*) 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 the Chief Operating Officer (COO) Mr.

Emilio Gayo Rodríguez under the First cycle

(2024-2026) of the Long-Term Incentive Plan

2024-2028 and that the above table only reflects the

number of shares potentially deliverable, without in any

way implying that all or part of the shares will actually be

delivered.

In the case of Mr. José María Álvarez-Pallete López and

Mr. Ángel Vilá Boix, due to their resignation as Executive

Chairman and Chief Executive Officer, respectively, they

did not receive the delivery of shares corresponding to

this, but they received the equivalent amount in cash

based on the length of time they had been with the

Company. Mr. José María Álvarez-Pallete López 1,023

thousand euros (corresponding to the value of 259,959

shares at a price of 3.94 euros per share) and Mr. Ángel

Vilá Boix 872 thousand euros (corresponding to the

value of 202,782 shares at a price of 4.30 euros per

share).

PSP 2024-2028 - Second cycle / 2025-2027



Current Directors	Maximum number of shares (*)
Mr. Marc Thomas Murtra Millar	916,000
Mr. Emilio Gayo Rodríguez	622,000

(*) 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 the Executive Chairman, Mr. Marc Thomas

Murtra Millar, or to the Chief Operating Officer (C.O.O),

Mr. Emilio Gayo Rodríguez under the Second cycle

(2025-2027) of the 2024-2028 Long-Term Incentive

Plan, and that the above table only reflects the number

of shares potentially deliverable, without in any way

implying that all or part of the shares will actually be

delivered.

In addition, it should be noted that the external Directors

of the Company do not receive and did not receive

remuneration during the year 2025 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 2025, 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 was

applicable to Telefónica in 2025 as a listed company in

this market.



	Individual Annual Report 2025	Telefónica, S. A.	95



Financial statements 2025	Index

Remuneration of the Company’s

Senior Management

As for the Directors who made up the Senior

Management1 of the company in the year 2025,

excluding those who form an integral part of the Board

of Directors, have accrued a total amount of 20,018,852

euros during the 2025 fiscal year. This amount includes

the sums paid as severance compensation for the

termination of members of Senior Management in 2025

(12,329,834 euros)

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

the contributions made by the Telefónica Group during

the year 2025 to the Social Security Plan described in

the "Income and expenditure" note with regard to these

Directors increased to 1,039,383 euros; the contributions

corresponding to the Pension Plan increased to 33,607

euros; the contributions to the Seguro Unit link-Excess

Pension Fund increased to 120,723 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 135,733 euros.

On the other hand, regarding share-based remuneration

plans, during the year 2025, there were in force the

following long-term variable remuneration plans:

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

up of: the Long-Term Incentive Plan 2021-2025 (with

Third cycle (2023-2025) active) approved by the

General Shareholders' Meeting held on April 23, 2021,

and the Long-Term Incentive Plan 2024-2028 (with First

cycle (2024-2026) and Second cycle (2025-2027)

active), approved by the General Shareholders' Meeting

held on April 12, 2024.

The target measurement period of the Third cycle

(2023-2025) of the Long-Term Incentive Plan

2021-2025 started on January 1, 2023 and ended on

December 31, 2025. The maximum number of shares

allocated to be delivered in the event of maximum

compliance with the TSR ("Total Shareholder Return"),

FCF ("Free Cash Flow") and CO2 Emission

Neutralization and Reduction targets set for the this

cycle for all the Company's Senior Executives was

733,204.

Taking into account the Relative TSR, Free Cash Flow

and CO2 Neutralization results, the weighted payout

ratio increased to 50%. Thus, at the end of the first cycle

of the Plan, the Company's Senior Executives are

entitled to receive 366,602 gross shares.

The target measurement period for the First cycle

(2024-2026) and the Second cycle (2025-2027) of the

Long-Term Incentive Plan 2024-2028 started on

January 1, 2024 and January 1, 2025 respectively, and will

end on December 31, 2026 and December 31, 2027

respectively. The maximum number of shares allocated

to be delivered in the event of maximum compliance

with the TSR (Total Shareholder Return), FCF (Free

Cash Flow), CO2 Emission Neutralization and Reduction

and Women in Executive Positions targets set for both

cycles, as applicable, for all the Company's Senior

Executives is 693,727 in the First cycle (2024-2026) and

770,823 in the Second cycle (2025-2027) of the Long-

Term Incentive Plan 2024-2028.

(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.



	Individual Annual Report 2025	Telefónica, S. A.	96



Management report 2025	Index

Management report 2025

This Management Report has been prepared taking into

consideration the ‘Guidelines on the preparation of

annual corporate governance reports for listed

companies’, published by CNMV in July 2013.

In accordance with Law 11/2018 of December 28, and

following the amendment of the article 262 of

Commerce Law, the Company is not complied to

include non-financial information in the Management

Report. The disclosure of this information can be found

in the Consolidated Management Report of the

Telefónica Group (whose parent Company is Telefónica,

S.A.) which will be filed as well as the consolidated

financial statements in the Commercial Registry of

Madrid.

Business Model

In 2025, Telefonica’s environment was characterised by

growing geopolitical complexity, an accelerated pace of

technological transformation and an evolving European

telecommunications market. This context combines

significant challenges with relevant opportunities to

strengthen competitiveness, boost innovation and

contribute to the development of a more resilient and

autonomous digital ecosystem in Europe.

Political and macroeconomic context:

The global macroeconomic environment of 2025 is

marked by greater geopolitical polarisation and the

advancement of strategic autonomy as a priority on the

European agenda. The reconfiguration of alliances,

competition for critical technologies, and the

rearrangement of supply chains continue to exert a

significant influence on economic stability and

businesses operations.

Technological disruption continues to advance at even

greater pace. Artificial intelligence, automation and new

digital models are transforming business processes and

generating new opportunities for value creation. This

accelerated pace requires organizations to be highly

adaptable and continuously develop new digital

capabilities.

In macroeconomic terms, the environment continues to

present great uncertainty and volatility. New tariff

barriers, risks associated with monetary and fiscal

policies, currency volatility and challenges associated

with the energy transition determine an uncertain

scenario for the future. These factors will continue to

condition the development of the Telco and Tech sector

in the coming years.

2. Context for the telecommunications

industry:

The European telecoms market continues to show

moderate growth, with forecasts of around 1.5% per year

for the period 2023–2028, below expected inflation

levels. This development highlights the uniqueness of

the European market, which is characterised by high

fragmentation: around 40 operators maintain their own

networks, in contrast to more concentrated markets in

the United States and China.

Consumer preferences are evolving towards a greater

demand for quality, digital experience and service

reliability, attributes that already prevail over price for

most users. This environment encourages operators to

double-down on digitization, automation and

continuous improvement of customer service.

The cycle of infrastructure divestments has slowed

significantly in recent years, reflecting a more restrictive

financial environment. In parallel, the increase in

cybersecurity threats and the expansion of regulatory

requirements reinforce the role of the sector in the

protection of critical infrastructures. In this area, an

opportunity of between 10,000 and 22,000 million

euros per year in cybersecurity services is estimated by

2035.

3. Technology context:

The global technology landscape is dominated by large

companies with leading positions at key segments of the

digital economy. These companies, mainly American

and Chinese, concentrate a capacity for investment and

technological development which Europe has been

unable to match so far, generating relevant

dependencies on critical technologies.

According to the Draghi report, Europe will require more

than 750,000 million euros in additional investment until

2030 to close the accumulated technological gap.

Despite this situation, digital services maintain solid

growth, with rates above 10% per year driven by the



	Individual Annual Report 2025	Telefónica, S. A.	97



Management report 2025	Index

adoption of artificial intelligence, cloud services,

advanced automation and cybersecurity solutions.

The increase in cyberattacks targeting critical

infrastructure reinforces the need to strengthen

technological resilience and move towards European

capabilities in areas such as cybersecurity and the

sovereign cloud. This development underlines the

essential role of telecom operators in protecting the

continent's strategic digital services.

4. European context: strategic

autonomy and potential sector

consolidation

Europe is at a turning point to strengthen its strategic

autonomy and promote an environment that

encourages investment in critical infrastructure and

technologies. The fragmentation of the European Telco

market has led to smaller-scale operators and less

efficient networks, limiting the ability to compete vis-a-

vis other large developed markets.

The differences in investment are evident: while

operators in the United States and China are allocating

between 6,700 and 11,300 million euros per year to

CapEx, the average per European operator is around

700 million. As a result, technology deployment is

progressing at different paces: China reaches 77%

availability of 5G Standalone and the United States 24%,

compared to an estimated 2% in Europe.

Recent reports, such as those by Mario Draghi and

Enrico Letta, highlight the need for larger-scale

European operators and have generated a broad

consensus on the importance of consolidation to

strengthen the continent's competitiveness and

technological autonomy. Its potential development

could be accompanied by a regulatory framework more

aligned with the sector's investment, efficiency and

sustainability objectives.

In this context, consolidation in national markets

represents an opportunity to improve operational

efficiency, increase investment capacity and contribute

to closing the technological gap with other large blocs.

Various sector analyses estimate that its unlocking

could generate between 18,000 and 22,000 million

euros in synergies, with benefits for customers,

operators and for the European digital ecosystem as a

whole.

5. Implications for Telefónica

The evolution of the environment determines several

strategic implications for Telefónica that should guide

the Group's priorities in terms of investment, capabilities

and operating model:

• European consolidation is increasingly likely, although

its timing remains uncertain, and could lead to more

efficient and larger-scale scenarios in key markets.

• Europe will increase investment to regain

technological sovereignty, creating opportunities to

strengthen Telefónica's role in critical technologies

and advanced digital services.

• Customer experience will continue to be a major

differentiating factor, which requires developing new

digital models, more personalization and operational

excellence.

• Leading operators should maintain end-to-end

industrial control over essential infrastructure,

ensuring security, resilience and technological

evolution.

• Artificial intelligence will transform processes and

networks across the board, driving improvements in

efficiency, automation and quality of service in across

Groups’ areas.

Economic results of

Telefónica, S.A.

Telefónica, S.A. obtained a loss of 1,060 million euros in

Highlights of the 2025 income statement include:

• Revenue from operations, amounting to 890 million

euros, lower than the previous year figure due to the

decrease of dividends registered as revenues

(disclosed in note 19).

• The figure of “Impairment losses and other losses”

amounting to a write down of 758 million euros in

2025 (4,223 million euros in 2024).

• Net financial expense totaled 851 million euros (1,277

million euros of financial expense in 2024). This figure

is mainly due to finance costs with Group companies

and associates, principally from Telefónica Europe,

B.V. amounting to 2,025 million euros (2,024 million

euros in 2024) and Telefónica Emisiones, S.A.U.

totaling 523 million euros (542 million euros in 2024).

Net exchange rate gains amount to 22 million euros

both in 2025 and 2024).

• Income tax caption amounts to positive 380 million

euros (see note 17).



	Individual Annual Report 2025	Telefónica, S. A.	98



Management report 2025	Index

Investment activity

The investment activity of the Company regarding

additions, sales, valuation criteria and impact of this

valuation in 2025 is described in note 8 of these financial

statements.

Share price performance

In 2025, global equity markets posted positive returns

for the third consecutive year (MSCI World ACWI index

+20.6%, in euros +6.3%) in a context marked by the US

government's trade war and the strength of artificial

intelligence. Trump's proposed trade war caused sharp

market declines in the first half of 2025, a situation that

did not reverse until the first trade agreements with its

main economic partners, including the European Union

and China, were finalized. AI captured all the attention

during the second half of the year, driving Wall Street to

new all-time highs (S&P 500 +16.4%) thanks to the

strong performance of technology companies (Nasdaq

100 +20.2%).

European indexes also recorded widespread gains

(Stoxx 600, +16.7%, Euro Stoxx-50 +18.3%), with the

banking sector leading the way, after appreciating 67%.

The Ibex-35 (+49.3%) is the best performing index on the

continent, after achieving its best performance since

1993, also driven largely by banks. It has thus surpassed

the historic highs set in 2007, with a cumulative return

of +110% over the last three years. The other major

indices: MIB +31.5%; DAX +23%; FTSE 100 +21.5%; and

CAC 40 +10.4%.

Asian markets have joined the global stock market rally

and achieved their best performance since 2017 (MSCI

Asia Pacific +25.3%), driven by markets with significant

exposure to technology and AI, including South Korea

(Kospi +75.6%) Hong Kong (Hang Seng +28%), Japan

(Nikkei +26.2%), and Taiwan (TWSE +25.7%).

On the other hand, 2025 has also been marked by the

rise of precious metals such as gold (+65%) and silver

(+148%), with the highest gains since 1979.

The European telecommunications sector appreciated

by 12%, below the Stoxx 600's +16.7%, ranking as the

eighth best sector in the region. In the first quarter of

2025, there was a significant rotation into telecoms from

sectors most affected by trade tariffs, showing a high

relative correlation with other defensive sectors. Despite

improved fundamentals, increased cash flow as fiber

deployment slows, and growing prospects for

consolidation, the sector's performance weakened in

the second half of the year as markets recovered and

investment flows shifted to cyclical companies.

The outlook for the telecommunications sector for 2026

remains positive. The market considers the sector to be

defensive and gives it good credentials: solid and

consistent execution, cost control, lower investment

levels, positive impact of artificial intelligence, healthier

balance sheets, and growing cash flows. However,

consolidation continues to be seen as a key factor in the

sector's future. 2026 should be the year in which

mergers and acquisitions take place in France, Spain,

Germany, Italy, and the Nordic countries.

The year 2025 has been a turning point for Telefónica,

marked by the presentation of its new five-year strategic

plan, Transform & Grow, during its Capital Markets Day

in November. This new plan will drive growth and long-

term value creation, and strengthen leadership in Spain,

Brazil, Germany, and the United Kingdom, while being

structured around six strategic pillars: delivering the

best in-class customer experience, expanding the B2C

offering, scaling the B2B and public administration

business, evolving its technological capabilities,

simplifying the operating model, and developing talent.

The market reacted negatively to the plan, with lower-

than-expected free cash flow and a reduction in the

dividend for 2026, along with low operating growth and

the absence of announcements on mergers and

acquisitions. However, the market applauded the

credibility of the objectives presented, the efficiency

measures, the higher quality of free cash flow, the

improvement in dividend sustainability, and the

complete exit from Hispam.

Telefónica ended 2025 with a market capitalization of

€19.806 billion and a share price of €3.49, representing

a fall of 11.3% over the year and a total shareholder

return including dividends of -4.4%, below that achieved

by the sector.

Regarding the dividend payment, €0.30 per share in

cash was paid during 2025 (€0.15 in June and €0.15 in

December), bringing the dividend yield for 2025 to 7.6%.

The dividend policy for 2025 is €0.30 per share in cash

(€0.15 per share paid in December 2025 and €0.15 per

share to be paid in June 2026). In 2026, a dividend of

€0.15 per share in cash will be paid in June 2027. The

remuneration target for 2027 and 2028 will be based on

a range of 40-60% of the base free cash flow for

dividends, payable in June of the following year. These

latest targets were announced in the new Transform &

Grow Strategic Plan.



	Individual Annual Report 2025	Telefónica, S. A.	99



Management report 2025	Index

Contribution and

innovation

Telefónica remains committed to technological

innovation as a fundamental tool for being one of the

main players in the new digital universe, contributing to

the creation of a more sustainable world while achieving

competitive advantages and distinctive products. By

introducing new technologies and developing business

solutions and processes, we aim to become a more

effective, efficient and customer-oriented Group.

Telefónica bases its innovation strategy on the balance

between two main complementary models:

First, through our internal research, development and

innovation (R&D&I), for which we have developed our

own innovation model, which allows us to leverage

R&D&I results and capabilities in developing commercial

products and services benefiting from knowledge

gained in collaborations with research centers,

technological institutes and universities, amongst other

sources; and

Second, through the creation of open innovation

ecosystems, in which the “Wayra” initiative stands out as

a global program designed to connect entrepreneurs,

start-ups, investors, venture capital funds and public

and private organizations around the world to promote

innovation in collaboration with other actors.

In addition to these two models, Telefónica seeks to

promote the development of sustainable solutions that

generate a positive impact on the environment and on

the economic, social and technological progress of the

regions in which we operate. To this effect, Telefónica

invests in promoting sustainable innovation projects and

in the activities that improve the accessibility of our

solutions to all groups.

Internal Research, Development and Innovation:

Telefónica believes that competitive advantage cannot

be based solely on acquired technology, and so has

considered the promotion of internal R&D&I activities as

a strategic axis, in an effort to achieve this differentiation

and move forward in other activities which support the

sustainability of our business.

To this end, Telefónica Group’s internal innovation

policy focuses on contributing solutions that support

Telefónica’s commitment to developing a responsible

business under the criteria of economic, societal and

environmental sustainability, by:

• Developing new products and services that enable

growth and competition in an increasingly global

environment, while being adapted to the diversity and

local needs of each market;

• Increasing the revenue potential related to new

products by creating value from the intellectual

property rights of the generated technology;

• Increasing our customers' loyalty and satisfaction;

• Increasing the revenues, profits and value of the

Company;

• Increasing the quality of our infrastructure and

services;

• Strengthening our relationship with our technology

and solutions providers; and

• Improving business processes and operations with the

aim of optimizing resources, increasing efficiency and

reducing environmental impact.

During 2025, Telefónica’s numerous technological

innovation activities were focused on:

• Evolution of advanced networks and intelligent

automation: The Company has prioritized the

evolution of its networks towards more flexible and

programmable architectures, enhancing the

development of capabilities associated with 5G and

5G Advanced. These initiatives have been geared

towards improving operational efficiency, enabling

new cases of use, and moving toward advancing to

progressively more autonomous network models

through virtualization, disaggregation, and the use of

artificial intelligence.

• Cloud-native architectures, edge computing, and

digital sovereignty: Telefónica has continued

developing cloud-native and edge architectures as

the foundation for providing advanced, low-latency

digital services. These lines of work, developed in

coordination with European projects and industrial

alliances, contribute to the strengthening of resilient

digital infrastructures and achieving technological

sovereignty.

• Exposing network capabilities and open ecosystems:

In 2025, Telefónica has progressed in the

standardized exposure of network capabilities through

APIs, facilitating their integration into third-party

applications and services. In this context, the Open

Gateway initiative has become a strategic pillar for

promoting open and interoperable environments

accelerating collaborative innovation and creation of

new business models based on telco capabilities.

• Cybersecurity, resilience, and digital trust:

Cybersecurity has continued to be a cross-cutting



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pillar of the R&D&I activity. Telefónica has

strengthened the development of solutions aimed at

improving the resilience of networks and services,

incorporating automation and artificial intelligence

into incident detection, prevention, and response

processes, with the goal of strengthening the digital

trust of customers and organizations.

• Quantum technologies and post-quantum security:

The Company has maintained its commitment to

research in quantum technologies, with a particular

focus on quantum communications and the

progressive adoption of post-quantum security

frameworks. These activities have been developed

within the framework of European initiatives and

public-private partnerships, anticipating the future

impacts of quantum computing on information

protection.

• Early research in 6G and future networks: Telefónica

has continued to participate in research projects

focused on defining 6G networks, addressing aspects

such as efficient spectrum use, the integration of

artificial intelligence, and new security approaches.

These initiatives reinforce its contribution to the

evolution of next-generation network standards and

architectures.

• Exploration of emerging technologies and technology

monitoring: In addition, the Company has developed

innovation and technology monitoring activities in

emerging areas such as blockchain, Web3 and

advanced artificial intelligence, with the aim of

evaluating their future applicability and their potential

impact on business models and operational efficiency.

• Experimental and applied research: With a medium

and long-term vision, Telefónica also has specialized

scientific groups whose mission is to research and

advance the latest generation of technologies to solve

emerging technological, social, and environmental

challenges. These activities are carried out in

collaboration with universities and public and private

research centers, both national and international.

The total research and development ("R&D") expense in

the Group for 2025 amounted to 1,004.2 million euros,

51% higher than the 619 million euros incurred in 2024.

These expenses represented 2.86% and 1.7% of the

Group’s consolidated revenues for 2025 and 2024,

respectively. These figures were calculated using

guidelines of the Organization for Economic Co-

operation and Development ("OECD") manual.

During 2025, Telefónica filed 25 patent applications for

new inventions, 19 of which were European applications,

and 6 of which were international applications (PCT). All

of them were registered through the Spanish Patent

and Trademark Office (OEPM). During 2025 a total of 42

patent applications from former years were granted.

These figures represent an increase of 38.9% in the

number of patent applications for new inventions

compared with the 18 patent applications in 2024 and

an increase of 223% in the number of patent

applications granted compared with the 13 patent

applications in 2023.

Moreover, three new industrial design families related to

Customer Premises Equipment with European scope

were registered in 2025 through the European Union

Intellectual Property Office (EUIPO) and in Brazil and

Chile (in 2024 also three new industrial designs were

registered).

At the end of 2025, the Telefónica Group had a portfolio

of 478 active patents, 145 industrial designs and eleven

utility models, resulting in a portfolio of 634 registered

technological intangible assets (566 as of December 31,

2024).

Open Innovation

Wayra is the Group's main open innovation tool and

functions as a Corporate Venture Capital vehicle,

facilitating collaboration between Telefónica and the

entrepreneurial environment, as well as connecting with

corporate and institutional partners and investors.

Throughout 2025, it has continued to focus its activity

on identifying disruptive technologies and generating

collaboration and business opportunities aligned with

the Group's strategic priorities.

As of the end of 2025, Wayra will have invested over

260 million euros (direct and indirect investment

through funds) in more than 1,200 startups, maintaining

an active portfolio of over 520 companies. Wayra has

also completed divestments in more than 200 startups

and strengthened its focus on industrial collaboration,

with over 460 startups working with Telefónica or its

clients, collectively generating over 700 million euros in

revenue for the startups.

During the year, the operational collaboration model

with the Group's business has been consolidated, so

that more than 200 startups in the active portfolio

maintain collaborations with Telefónica. This model is

complemented by indirect investment activity through

participation as a limited partner in 15 funds in markets

considered strategic.

Throughout 2025, Wayra has strengthened its position

as a platform connecting startups, investors, and

corporations, particularly through its participation in

4YFN, with over 30 startups from its portfolio and an

agenda focused on fostering agreements and

collaboration opportunities. In the area of investment

and scaling, transactions and increased stakes in

portfolio companies have been announced, including an

investment in Wise CX to support its growth in Spain

and Brazil, as well as an investment in LuxQuanta,



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specializing in quantum communications technologies

and advanced security. Investments related to the

digital transformation of the insurance sector have also

been made through Íope Ventures, including, among

others, Weecover and Foliume.

In addition, in 2025 Telefónica has maintained its activity

of promoting territorial entrepreneurship through

Telefónica Open Future, articulating announcements

and acceleration programs in collaboration with regional

and local actors, with a focus on technological areas

such as data, Internet of Things, artificial intelligence

and cybersecurity.

Finally, Wayra has continued to promote collaborative

initiatives with third parties through platforms such as

Alaian or Scaleup Spain, maintaining a model focused

on identifying solutions with the potential to scale and

integrate with the Group's business.

Environment

Climate change adaptation and mitigation

Telefónica integrates the risks and opportunities

identified into its business model through the CAP,

which is included in the Company’s strategy and

financial planning. This is achieved through the

diversification of products and services, sustainable

financing models and mitigation and adaptation actions,

such as renewable energy consumption and energy

efficiency.

The Global Environment and Energy Policy and the

Global Supply Chain Sustainability Policy address

climate change issues (mitigation, adaptation and

energy efficiency) on a cross-cutting basis.

Global Environmental and Energy Policy

This policy establishes the guidelines that steer the

Company, globally and locally, to support and improve

its environmental and energy performance. It includes

aspects related to climate change mitigation and

adaptation, such as a commitment to efficient energy

consumption and the reduction of GHG emissions,

defining a common framework for moving towards net-

zero emissions by 2040, including in Telefónica’s value

chain.

Its main targets relate to legal compliance in

environmental matters, reducing environmental impact,

collaborating with suppliers to reduce their carbon

emissions, managing impacts, risks and opportunities

deriving from climate change, and fostering the

development of digital solutions to tackle environmental

challenges.

With the firm intention of accelerating towards being a

decarbonised Company, by decoupling data traffic from

GHG emissions, and in accordance with this Policy, all

Telefónica Group companies must:

• Define GHG emissions reduction targets for scopes 1,

2 and 3 for the short, medium and long term that are

science based and externally validated.

• Continue consuming 100% renewable electricity in

own operations (assets under operational control) in

order to minimise the Company’s carbon footprint.

• Reduce the use of fossil fuels in own operations,

promoting the adoption of cleaner and alternative

forms of energy.

• Incorporate innovative measures that will

progressively lead Telefónica towards a net-zero

emissions scenario.

• Offset/neutralise residual emissions in accordance

with Company requirements.

• Minimise the impact of refrigerant gases.

• Promote energy efficiency measures, in both the

design and the operation of facilities and

infrastructures.

Global Supply Chain Sustainability Policy and

Supplier Code of Conduct

Through its Global Supply Chain Sustainability Policy,

Telefónica applies a robust due diligence process to

identify, prevent and address adverse impacts.

The Supplier Code of Conduct is a tool for implementing

these commitments, establishing the minimum

sustainability criteria related to measures to mitigate the

impact on climate change and energy efficiency, which

must be met by suppliers.

It sets out the following criteria:

• Climate change: suppliers must minimise their

environmental impact in their value chain, set GHG

emissions reduction targets (preferably science-

based), promote energy efficiency and the use of

renewables and provide Telefónica with climate

information when requested.

• Refrigerant gases: the suppliers shall not supply

equipment containing ozone-depleting GHGs (such

as CFC or HCFC), nor shall they refuel with these

gases, unless expressly authorised to do so by

Telefónica..

The main climate change adaptation and mitigation

actions Telefónica is working on are set out below.

These initiatives are developed on an ongoing basis,

given their strategic nature for the Company.



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The definition and implementation of these measures

contribute directly to meeting the targets set out in

Telefónica’s Global Environmental and Energy Policy, as

well as those set out in the Supply Chain Policy,

particularly with regard to environmental risk

management, achieving the Company’s net-zero carbon

emissions target by 2040 and promoting digital

solutions to help Telefónica’s customers address the

major environmental challenges affecting society as a

whole.

1.Renewable Energy Plan

The consumption of renewable energy contributes to

mitigating the potential transition climate-related risks

associated with the increase in costs derived from

carbon and electricity prices, and the uncertainty about

carbon credit prices.

This measure also promotes adaptation to physical

climate-related risks such as drought and precipitation

variability. By increasing self-generation of photovoltaic

renewable energy, the Company is reducing its

dependence on other sources such as hydroelectric

power, which is more exposed to prolonged droughts.

Through the Renewable Energy Plan, the Company not

only promotes adaptation and mitigation of the potential

impacts of climate change, but also considers

renewable energy as a market opportunity to reduce

operating costs and strengthen the Company's

competitiveness.

The Renewable Energy Plan is applicable to all

Telefónica’s own operations. The consumption is based

on three groups of activities:

Self-generation of renewable energy: Telefónica has

renewable energy self-generation systems (solar and/

or biomethanol) in base stations and buildings, which

enable it to improve its autonomy, reduce its

dependence on the electricity distribution network

and dispense or reduce the use of fossil fuel

generators in isolated base stations (off-grid).

Purchase of renewable electricity with a guarantee of

origin: certificates that guarantee the traceability of

renewable energy from its place of production to each

point of consumption.

Long-term Power Purchase Agreements (PPAs):

these contracts are designed to guarantee a supply of

renewable electricity at a fixed or predictable price, so,

in addition to supplying zero emissions electricity, they

offer an opportunity for savings by reducing exposure

to volatility in electricity market prices. Furthermore,

they also contribute to promoting the construction of

renewable energy parks in the countries in which

Telefónica operates.

In 2025 renewable energy consumption reached 93% of

total electricity consumption in own facilities (92% in

2024)

2. Energy efficiency projects

Energy efficiency projects in operations optimise

electricity consumption, which reduces exposure to

energy price volatility, avoids additional costs due to

carbon regulations and reduces the need to purchase

carbon credits. This helps mitigate climate transition

risks, reduce operating costs and maintain

competitiveness in the face of rising energy costs.

At the same time, they serve as a measure for

adaptation to extreme weather events such as

heatwaves and cold waves. Through implementing

more efficient processes and equipment, the Company

is adapting air conditioning to extreme temperatures,

ensuring an optimal environment in which the

infrastructure is operative and workers can perform their

jobs in a safe setting.

The following actions, included in the Energy Efficiency

Plan, reduce energy consumption:

• Network transformation: Telefónica is making

progress with the modernisation of its mobile network,

progressively switching off older technologies such as

2G and 3G, optimising 4G and consolidating 5G. In the

fixed network, replacing copper with fibre optics

improves capacity and service quality. The

virtualisation of environments also contributes to

optimising resources and energy consumption. By

doing this, Telefónica seeks to reduce its energy

consumption per unit of traffic (MWh/Petabyte) while

deploying the network of the future.

• Compacting of technical rooms: redistribution of loads

and reconfiguration of the network are promoted to

switch off equipment with low occupancy, reduce

energy consumption, increase the operational density

of spaces and achieve maximum performance. With

less equipment and higher utilisation, the Company

achieves a more sustainable and efficient

infrastructure, ready to support the demands of next-

generation networks.

• Power Saving Features (PSF): implementing smart

systems that optimise energy consumption during

low-traffic hours makes it possible to reduce energy

consumption without affecting service quality. These

features are particularly useful both for legacy

networks with low traffic density and for next-

generation networks designed to support much

higher volumes. This delivers a more efficient and

sustainable operation, adapted to current and future

needs.

• Modernisation of equipment: replacement of electrical

infrastructure (rectifiers, power plants, external

1 This percentage is the sum of the total emissions attributed to suppliers from whom Telefónica has required science-based emission reduction commitments

and validation of these through the SBTi initiative, divided by total emissions in Telefónica’s Scope 3 categories 1 and 2 in 2024.

2 This percentage is the sum of the total emissions attributed to suppliers that Telefónica invites to complete the CDP Supply Chain questionnaire, divided by

total emissions in Telefónica’s Scope 3 categories 1 and 2 in 2024.



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cabinets and UPS) and air-conditioning systems

(chillers and air-treatment units) with more efficient

equipment, incorporating technological innovations

that optimise energy consumption and replace

cooling systems with equipment that uses gases with

lower global warming potential (GWP).

• Replacement and/or reduction of fossil fuel

consumption in operations: for critical sites without

access to the grid or during power cuts, lithium

batteries are introduced, increasing autonomy and

reducing the need to start generators, reducing

emissions and costs. When their use is unavoidable,

biofuels and additives are used to reduce

environmental impact, delivering cleaner and more

efficient operations.

• Sustainable mobility: the transition to hybrid and

electric vehicles is promoted, reducing fossil fuel

consumption and CO 2 emissions. In parallel, the use of

biofuels such as ethanol in combustion vehicles is

promoted, ensuring a gradual transition towards more

efficient and responsible mobility.

• Complementary actions: replacement of lighting with

LED technology and installation of presence sensors

to optimise the energy consumption of lighting

systems, replacement of diesel with natural gas or

propane in boilers used to heat offices, smart energy

meters, leak control and replacement of refrigerant

gases, among others.

As a result of these initiatives, energy consumption per

unit of traffic in 2025 was 29 MWh/Petabyte, compared

to 38 MWh/PetaByte in 2024. This ratio has improved by

92% compared to 2015, attributable to the efforts to

improve the energy efficiency of the network, which

have allowed for a reduction in energy consumption

while the amount of data traffic managed by the

networks grows.

This energy intensity metric (MWh/PetaByte) is the ratio

of total energy consumption (fuel consumption in

operations and vehicle fleet and electricity

consumption), divided by the volume of data traffic in

PetaBytes. The traffic used is the annual volume of data

traffic (mobile and fixed) carried on Telefónica's data

access networks. It is aggregated both in the

downstream direction (network-customer) and in the

upstream direction (customer-network). The units in

which it is expressed are PetaBytes (10^15 Bytes).

3. Supplier engagement

Scope 3 emissions represent the largest share of

Telefónica’s carbon footprint, and more than half derive

from its supply chain. Therefore, in 2025 supplier

engagement initiatives in collaboration with the

Company’s main suppliers in this area continued.

As a starting point, and to establish minimum

requirements applicable to the suppliers within

Telefónica's Procurement Model (MCT for it’s acronym

in Spanish), acceptance of the Supplier Code of

Conduct is required, which includes, among other

things, requirements on calculating and reducing

emissions.

In addition, specific work is carried out based on each

supplier’s contribution to Telefónica’s emissions

footprint. To that end, suppliers are categorised and

grouped into three priority levels:

• Priority group 1: comprises 56 key suppliers in terms of

ICT sector emissions (44 in 2024).

• Priority group 2: comprises 79 suppliers (82 in 2024)

that make up 55% 1 of Telefónica's supply chain

emissions (79% in 2024).

• Priority group 3: comprises 141 suppliers (188 in 2024)

that make up 62% 2 of Telefónica’s supply chain

emissions (88% en 2024).

Suppliers within Priority Group 3 were invited to provide

information on their climate strategy, targets and

actions through CDP Supply Chain. The information

collected was analysed through the Company’s Supplier

Engagement Program (SEP), which assessed these

suppliers’ climate maturity and identified areas for

improvement, which were addressed through a pledges

model and training webinars.

Telefónica launched the SEP in 2022, and in 2024 it was

scaled up to sector level through the combined efforts

of the Joint Alliance for CSR (JAC) sector initiative. With

this expansion, the program includes more than 0

suppliers (900 in 2024). By 2025, most had already

made measurable progress in their climate maturity.

In addition, since 2022, Telefónica has required

suppliers in Priority Group 2 to set science-based

emissions reduction targets and have them validated by

the Science-Based Targets initiative, a commitment that

is monitored periodically.

Suppliers that, due to their contribution to GHG

emissions in the ICT sector, are also part of Priority

Group 1 were invited to participate in the collaborative

initiative called the Carbon Reduction Program (CRP).

CRP is a program managed through the JAC sector

initiative, which seeks to drive emissions reductions at



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product level. Suppliers identify the most carbon-

intensive products and through a Life Cycle Assessment

(LCA) they determine which stages offer the greatest

potential for reducing emissions. As a result, reduction

plans are agreed with suppliers specific to these

products.

In 2023, the CRP initiative was promoted by the

Company with the support of another three

telecommunications operators. Following its proven

success, in 2025 it included more than a dozen

operators.

4. Circular economy for equipment

Telefónica promotes the refurbishment and reuse of

customer-premises equipment (CPE), such as routers

and set-top boxes, mobile telephones and electronic

operations equipment, through different initiatives.

Integrating circularity criteria into Telefónica’s business

models contributes to achieving net-zero carbon

emissions at the Company, as the reuse of equipment

lengthens its lifespan and avoids the emissions

associated with extracting the materials needed to

manufacture the devices, which would be necessary if

the current equipment was not reused. It also reduces

the emissions associated with the equipment's

manufacturing process, which are greater than the

emissions generated by refurbishment.

These initiatives help to decrease scope 3 emissions,

mainly in categories 1 and 2. These are the emissions

generated by manufacturing the products and capital

goods that Telefónica acquires. Decreasing them

therefore mitigates the effects of climate change and

brings the Company closer to achieving its

decarbonisation target.

5. Business Continuity Plans

Telefónica has a global crisis and business continuity

system to prevent, respond to and mitigate service

disruption due to climatic events such as floods, fires

and landslides. This ensures that, should such events

occur, their duration and cost are minimised.

The Global Business Continuity Regulation sets out

preventive risk management and ensures maximum

resilience of the Company’s operations in the event of

possible disruptions, including extreme weather events.

It stipulates the development of continuity plans to

restore essential activities that have been interrupted.

There is a Local Crisis Committee, one per business unit,

and another at global level. They are activated in the

event of high-impact disruptive events and involve the

relevant areas for each type of crisis.

Crisis management is structured into four phases:

• Alert phase : initial assessment of the incident,

escalation and activation of the Committee.

• Evaluation phase : diagnosis of the situation.

• Development phase: decision-making for managing

the situation and activation of plans.

• Closure phase: crisis resolution, identification of

lessons learned and improvement of action plans.

During the summer of 2025, Spain suffered one of the

worst wildfire seasons in decades. These episodes were

compounded by prolonged heatwaves, persistent

droughts and accumulation of dry vegetation, factors

which, according to scientific evidence, are exacerbated

by climate change. Recent studies warn that, if

structural measures are not adopted, the frequency and

severity of these fires will increase significantly in the

coming years, becoming a growing risk to safety,

ecosystems and the continuity of business operations.

In response, Telefónica launched an extraordinary

operation to restore connectivity in the 236 towns

affected in eight provinces. The Company mobilised

more than 200 specialised technicians and deployed

additional resources such as mobile units, generators

and satellite solutions to ensure critical connectivity in

hospitals and emergency centres. Damaged

infrastructure was also replaced by installing hundreds

of kilometres of fibre-optic cable, and the Company

worked closely with public authorities and the security

forces to ensure safety and speed up service recovery.

Thanks to these measures, connectivity was maintained

at critical moments and service was restored in record

time, strengthening response capacity to extreme

weather events.

6. Insurance Programs and Coverage for climate-

related events

The Corporate Risk and Insurance Department has an

insurance program to protect the network’s property

and assets. This program is defined through risk

modelling of the Company’s locations, using historical

information on extreme weather events and different

computer modelling systems (RMS, EQCat or KatRisk).

This process determines the probabilities of possible

losses and potential impacts for different scenarios and

return periods.

Analysing this data is essential for managing risk and

setting the limits and retentions of the Telefónica

Group’s various insurance programs.

3 Source: Exponential Roadmap Scaling 36 solutions to halve emissions by 2030 Report.

4 This indicator is calculated by dividing the total number of B2B solutions verified as Eco Smart by AENOR by the total number of B2B solutions in the

Company's portfolio.AENOR assesses the products and services portfolio based on the ISO/IEC17029:2019 standard Conformity assessment – General

principles and requirements for validation and verification bodies. In 2025, no evaluations of the B2B portfolios were carried out under the Eco Smart label

framework, so the value of the indicator remains unchanged compared to the end of fiscal year 2024.

5 A methodology based on both the WBCSD’s Guidance on Avoided Emissions and the ITU L.1480 standard is used to calculate this indicator.



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7. Products aimed at decarbonizing the economy

In 2025 Telefónica continued strengthening its portfolio

of digital products and services, which help decarbonise

other sectors of the economy by fostering the digital

and green transitions. These initiatives not only

constitute one of the Company’s main strategies for

mitigating climate change beyond its value chain, but

also represent a strategic opportunity for the Group.

They provide Telefónica with access to a growing

market, where demand is increasing for technological

solutions capable of decarbonising customers’

production processes, helping them to address greater

regulatory pressure and increasing environmental

awareness.

The Exponential Roadmap initiative 3 indicates that

digital technologies could reduce GHG emissions by

15% in the industrial sector by 2030, and by up to 35% if

people’s habits change to become more digital and

sustainable. This underscores the role of digitalisation in

the transition to a low-carbon economy and strengthens

the Company’s commitment to solutions that benefit

both the environment and its customers'

competitiveness.

Development of Eco Smart services

Telefónica develops services based on connectivity,

Internet of Things (IoT), cloud computing, big data and

5G. These solutions not only have the potential to

generate operational and cost-savings , but also

environmental benefits. To identify them, the Company

uses the Eco Smart seal, which has four icons

representing energy savings, reduction of water

consumption, reduction of CO2e emissions and

promotion of the circular economy.

In 2025 the Group continued developing green digital

solutions and identifying them through the deployment

of the Eco Smart seal.

As a result of the verification process of the B2B

solutions portfolios, 57% of the services that Telefónica

offers have been verified as Eco Smart due to their

potential to generate environmental benefits and

contribute to mitigating the impact of customers on the

planet 4.

Eco Smart services meet the following criteria: the

environmental benefit must occur in the customer’s

activity or production process, or among the users of a

service provided by that customer; it must be a direct

consequence and not a side effect derived from the

main benefit; and it must be significant, meaning that it

is relevant to the customer's operations.

Quantification of avoided emissions

To understand Telefónica’s level of contribution to

climate change mitigation, the Company annually

quantifies the greenhouse gas (GHG) emissions that its

customers avoid thanks to the use of its products and

services, i.e. the net carbon impact generated when

compared to a scenario in which the solution is not

used.

Telefónica estimates that its Eco Smart and connectivity

services helped customers in Spain, Brazil and Germany

avoid the emission of 19.2 million tonnes of CO2e in

2025 5 (17.4 million tonnes in 2024). These emissions are

not taken into account in the calculation of Telefónica's

carbon footprint reduction.

The contribution of connectivity services offered to the

residential segment (B2C) in Spain, Germany and Brazil

has been quantified, as well as some IoT-based Eco

Smart services offered to business customers (B2B) in

these markets, given that currently only these markets

have the complete information required by the

reference standards used.

For B2C connectivity services, fixed and mobile

broadband services are considered, enabling the

following uses: teleworking, online training, online

shopping, public transport applications and carpooling

applications. The IoT solutions incorporated are those

related to managing smart cities (lighting, waste and

parking) and vehicle fleets.

For each of the solutions analysed, first-order effects

(direct environmental impacts due to the existence of

the solution), second-order effects (indirect impacts

from the use and application of the solution) and higher-

order effects (indirect impacts due to changes in

consumption patterns or lifestyles in society) have been

identified and, where possible, quantified. Different data

sources are used for calculating the effects, depending

on the case. These include the results of surveys

conducted with Telefónica customers, as well as

bibliographic sources, among others.

The net carbon impact for each solution is calculated as

the sum of the effects described above. Total avoided

emissions are therefore obtained by adding up the net

carbon impacts of all the solutions analysed.



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Circular economy

Telefónica has established actions to become a Zero

Waste company by 2030 and to meet the circular

economy commitments included in its Global

Environmental and Energy Policy. These commitments

include minimising the impact of waste generated,

promoting reuse and recycling, and reducing the

generation of hazardous waste.

In line with these commitments, Telefónica is

implementing the following actions to manage its

material impacts, risks and opportunities related to the

circular economy:

Reuse customer-premises equipment

(routers and set-top boxes)

This action focuses on the reuse of B2C/B2B routers

and set-top boxes that follow under the device as a

service model. It includes equipment that the Company

collects from customers and delivers to a refurbishing

company to give a second life.

This project is implemented at all Telefónica operators

offering fixed telephony services and includes the

upstream and downstream phases of the value chain, as

well as own operations.

The reuse of customer-premise equipment is a long-

term action that helps reduce dependency risks related

to the circular economy. At the same time, it represents

an opportunity for economic savings by avoiding the

purchase of new equipment.

The expected result is to maintain the reuse of 90% of

routers and decoders delivered for refurbishment.

In 2025 the Company reused 3.2 million routers and

decoders (4 million in 2024), representing 80% (91% in

2024) of the total equipment delivered for

refurbishment.

The variation compared to 2024 is due to the reduced

scope of consolidation in 2025, as well as technological

developments affecting this type of equipment. These

factors determine the volume of equipment suitable for

refurbishment.

2. Reuse mobile devices

Within the scope of this initiative, mobile devices owned

by customers or by Telefónica and obtained through

different channels are included, with the aim of giving

them a second life. This is done through initiatives such

as buyback programs, the sale of refurbished devices,

repair services and reuse within leasing services, among

other measures.

This initiative is rolled out in markets that offer mobile

phone services and includes the upstream and

downstream phases of the value chain, as well as own

operations.

Reusing devices contributes to the reduction of circular

economy-related dependency risks, and is a long-term

action.

In 2025, 357,188 mobile devices were reused (437,180 in

2024). The variation compared to 2024 is mainly due to

the reduced scope of consolidation in 2025 and lower

numbers of mobile phones recovered through buyback

programmes. A similar figure is expected in the medium

term.

3. Prioritise the reuse of network equipment

Telefónica has implemented programs and digital

platforms to extend the lifespan of network equipment

and encourage its reuse.

This equipment comes from Telefónica's own

infrastructure and that of partner organisations, mainly

in markets where Telefónica operates

telecommunications networks. The initiative covers both

the upstream and downstream phases of the value

chain, as well as own operations.

The reuse of network equipment is a long-term action

that contributes to the reduction of circular economy-

related dependency risks.

Thanks to efforts to promote the reuse of network

equipment, 781,822 items were reused in 2025,

compared to 533,818 in 2024. A similar figure is

expected to be maintained in the medium term.

Recycle 100% of waste when reuse is not

possible

This initiative includes delivering waste for recycling to

waste managers authorised by the competent bodies

and consolidating the waste generated by the

Company’s activity. In some cases it is possible to

generate income through the sale of waste for recycling.

The GreTel digital tool enhances the traceability of

waste disposal information, helping to mitigate risks and

impacts from improper treatment.

The project is rolled out in regions with fixed or mobile

telecommunications infrastructure, and focuses on the

operations phase (waste management) of the value

chain.

This is a long-term action that is expected to recycle

over 95% of the waste generated. In 2025, 94% of waste

was recycled (94% in 2024).



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Facilitate the sharing of network

infrastructure

Telefónica has agreements in place with other operators

to share network infrastructure, either partially or

completely, in order to optimise its use and reduce the

impact of the telecommunications sector on the

environment.

Sharing telecommunications network infrastructure and

constituent parts, such as sites, RAN components or

frequency spectrum, allows existing assets to be

maximised by increasing their utilisation intensity.

This approach is designed to achieve optimal land use,

minimise visual impact, optimise energy consumption

and reduce waste generation. This strategy contributes

to a more efficient and resilient network model that is

aligned with the Group's circular economy principles.

This initiative is underway and in ongoing development,

mainly in the three key markets, and includes both own

operations and those in the downstream phase of the

value chain.

Human Capital

Within the framework of the "Transform & Grow"

Strategic Plan, people and talent management is a key

driver for boosting the Company's performance and

sustainability. This approach contributes to fulfilling the

mission of delivering the best digital experience and

supports a profitable growth model.

People strategy focuses on simplifying the operating

model, promoting greater autonomy and agility in

operations, optimizing crucial functions and generating

value through efficiency and scale. It also fosters talent

development by attracting, retaining, and training

professionals, promoting a culture centered on impact,

execution, and continuous improvement.

This model allows the Company to anticipate the critical

business capabilities, strengthening key competences,

and promoting professional growth in a constantly

evolving technological environment. In this context, the

Company is committed to offering suitable working

conditions and promoting an inclusive, safe, and healthy

environment, convinced that workforce is the main

driver for transforming the organization and driving its

growth.

Relevant Policies at Telefónica, S.A.

Key policies include Human Rights, Equality, Diversity

and Inclusion, Safety, Health and Wellbeing, Digital

Disconnection policy, as well as specific regulations on

harassment, responsible business and privacy,

Skills Management at Telefónica, training

and education

Telefónica aligns its current and future capabilities

through Skills Workforce Planning, developing new

capabilities through reskilling and upskilling programs.

Tools such as SkillsBank personalize training, while

Universitas Telefónica offers programs designed to

develop strategic skills and foster leadership. We also

use internal mobility as a tool to acquire new skills.

The Company boosts a talent attraction program

placing the candidate as the center of the process and

reinforces an agile and high quality selection

experience.

Talent attraction is based on a multichannel outlook

integrating digital platforms as well as job fairs and

alliances with forums, social networks and technological

universities complementing the use of digital tools.

Company/employee relationship.

Commitment and motivation of our

employees

Employee commitment is key to Telefónica's strategy,

measured annually by the Employee Net Promoter

Score (eNPS), which assesses the likelihood of

recommending the company. In 2025 we achieved a

score of 73, complemented by satisfaction surveys and

qualitative analysis. Internal listening exercises and

evaluations are also carried out to promote equality,

diversity and employee well-being.

Within this framework of listening and continuous

improvement, since 2019 the Company has been

implementing agreements aimed at ensuring a balance

between personal and professional life, as well as

promoting digital disconnection. These commitments

have been recently reinforced with the signing of the

second extension of the Collective Job Agreement in

December 2025, which consolidates the commitment to

a hybrid work model and with the signing of the Social

Framework in October 2025, which promotes measures

related to work-life balance, equal opportunities,

diversity, and well-being.

Benefits Model

The Company has complete benefits model designed to

improve compensation, promote well-being, and

facilitate work-life balance.

This model includes flexible compensation benefits,

health and safety coverage (medical and life insurance),

social security (pension plan), physical, emotional, and

financial well-being programs, as well as various grants

and subsidies, contributing to a more personalized

employee experience tailored to individual needs.



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Diversity and Equal Opportunity

Telefónica is committed to diversity as a source of talent

and to the creation of inclusive and accessible

environments. The Company has a Global Diversity and

Inclusion Policy as well as specific protocols on diversity,

accesibility and gender equality.

The framework has been reinforced through social

dialogue and negotiation. In the first extension of the

Collective Job Agreement for global units (at the

beginning of 2025) an specific protocol for harassment

or violence against LGTBI persons was included, adding

to the already existing protocols for harassment at work,

discrimination and sexual harassment included in the

2023 Collective Agreement.

The Company targets objectives to strenghten its

commitment such as the annual percentage of female

management. For 205 the target aimed at 34.6% and a

35.3% was achieved.

Safety, Health and Wellbeing

At Telefónica, we understand safety and health at work

as comprehensive physical, mental and social wellbeing.

We have a Global Safety Policy with a common set of

principles and guidelines, and we have our own

occupational health, safety, and well-being policy and

management system. These systems are tailored to the

Company's activities, its operational context, and

specific risks, promoting the health, safety, and well-

being of our employees, our supply chain, and our

partners.

Telefónica implements occupational health and safety

management systems aligned with international

standards to prevent incidents and occupational

illnesses. Furthermore, we encourage active employee

participation in health committees and develop

initiatives focused on physical and emotional well-being,

including social benefits and health programs designed

to reduce stress and improve the work environment.

These measures not only directly benefit employees—

who, through internal surveys, indicate that Telefónica

actively promotes their well-being—but also generate a

positive impact on society and contribute to ensuring

long-term business success.

Liquidity and capital

resources

Financing

The main financing transactions carried out in the bond

market in 2025 are as follows:



Description	Issue date	Maturity date	Amount in millions (nominal)	Currency of issue	Amount in millions (nominal)	Coupon
Telefónica Emisiones, S.A.U.
EMTN bond (1)	01/23/2025	01/23/2034	1,000	1,000	EUR	3.724%
EMTN bond (1)	07/08/2025	07/08/2032	130	140	CHF	1.328%

(1) Sustainable bonds

These transactions are guaranteed by Telefónica, S.A.

On the same dates Telefónica, S.A. perceived loans from

Telefónica Emisiones, S.A.U. of similar amount, terms

and conditions.

The main transaction arranged in 2025 in the bank

market is as follows:

• On January 13, 2025, Telefónica, S.A. signed an

extension with respect to its sustainability-linked

syndicated credit facility for up to 5,500 million euros

for an additional year (extending the maturity date to

January 13, 2030). Additionally, Telefónica signed 2

extension options for P1Y additional year each,

permitting Telefónica, S.A.,to extend the maturity date

of the credit facility to January 13, 2032.

• On June, 2025, Telefónica, S.A. drew down 125 million

euros of its bilateral loan signed on January 15, 2025,

and maturing on January 15, 2035.

• On November 11, 2025, Telefónica, S.A. signed and

drew down 100 million euros of its bilateral loan

maturing on November 19, 2032.

Available funds

At December 31, 2025 Telefónica, S.A.’s available funds

from undrawn lines of credit in different financial

institutions totaled 9,377 million euros (of which 9,179

million euros maturing in more than 12 months).

Additionally, cash and cash equivalents as of December

31, 2025 amount to 4,125 million euros.



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Additional information on sources of liquidity and

undrawn lines of credit available to the Company, on

liquidity risk management, on the Company’s debt

levels, and on capital management is provided in notes

13, 14, 15 and 16 of the financial statements.

Contractual commitments

Note 19 to the financial statements provides information

on firm commitments giving rise to future cash outflows

and associated with operating leases, primarily.

Credit risk management

The credit risk in Telefónica, S.A. mainly refers to the one

associated with financial derivative instruments

arranged with different entities. The detailed description

of how those risks are managed and hedged is included

in note 16.

Credit rating

At December 31, 2025, 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 this year, 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 2025, measures taken to protect the credit rating

included an active portfolio management, through the

gradual reduction of the exposure in Latin America. In

this regard, TLH Holdco, S.L.U., a company 100% owned

by Telefonica, has sold all the shares that it holds in

Telefónica Móviles Argentina, S.A. Telefónica

Hispanoamérica, S.A., a wholly owned subsidiary of

Telefónica, has sold all the shares it holds in Telefónica

del Perú S.A.A., in Telefónica Móviles del Uruguay S.A.

and in Otecel S.A. (Telefónica Ecuador), and has

reached an agreement for the sale of all the shares it

holds in Colombia Telecomunicaciones S.A. E.S.P. BIC,

subject to certain closing conditions, including the

relevant regulatory approvals..

Telefónica, during its Capital Markets Day held on

November 4th, has announced a new Strategic plan

(Transform & Grow plan) up to 2030, including

measures to improve the financial flexibility, such as the

reduction of the dividend payment in 2026 and the

transition to a more sustainable remuneration model

that will be tied to the free cash flow evolution, and an

employee’s restructuring process, allowing the capture

of savings, among other measures. .

In addition, Telefonica maintains a solid liquidity position

and conservative approach to debt refinancing, as the

Group took advantage of low refinancing rates to

extend average debt life and smooth its maturity profile

in coming years.

Dividend policy

Dividend policy is an integral part of Telefónica´s Capital

Allocation strategy and will be the outcome of

Telefonica’s free cash flow after investing in Telefónica’s

future and ensuring the right financial leverage.

In February 2024, Telefónica announced the dividend

policy for the year 2024, which consisted of an amount

of 0.30 euros per share in cash, payable in December

2024 (0.15 euros per share) and in June 2025 (0.15 euros

per share).

The Annual General Shareholders Meeting held on April

12, 2024 approved the Proposals of the cash dividend

paid in June 2024 and December 2024.

In February 2025, Telefónica announced the dividend

policy for the year 2025, which consisted of an amount

of 0.30 euros per share in cash, payable in December

2025 (0.15 euros per share) and in June 2026 (0.15 euros

per share).

The Annual General Shareholders Meeting held on April

10, 2025 approved the Proposals of the cash dividend

paid in June 2025 and December 2025.

Treasury shares

Telefónica has performed, and may consider performing,

transactions with treasury shares and financial

instruments or contracts that confer the right to acquire

treasury shares or assets whose underlying is Company

shares.

Treasury share transactions will always be for legitimate

purposes, including:

• Undertaking treasury share acquisitions approved by

the Board of Directors or pursuant to General

Shareholders' Meeting resolutions.

• Honoring previous legitimate commitments assumed.

• Covering requirements for shares to allocate to

employees and management under stock option

plans.

• Other purposes in accordance with prevailing

legislation. In the past, treasury shares purchased on

the stock market were exchanged for other shares-



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securities (as in the case of preferred capital

securities), swapped for stakes in other companies

(e.g. the share exchange with KPN) acquired to

reduce the number of shares in circulation (by

redeeming the shares acquired), thereby boosting

earnings per share, the delivery of treasury shares in

exchange for the acquisition of a stake in another

company (such as the agreement with Prosegur

Compañía de Seguridad, S.A.).

Treasury share transactions will not be performed in any

event based on privileged information or in order to

intervene in free price formation. In particular, any of the

conduct referred to in Articles 83.ter.1 of the Spanish

Securities Market Law and 2 of Royal Decree 1333/2005

of November 11 implementing the Spanish Securities

Market Law, with regards to market abuse will be

avoided.

The disclosure of number of treasury shares at the end

of 2025 and 2024, as well as the explanation about the

evolution of the figure and the transactions involving

treasury shares 2025, are described in note 11 of these

financial statements.

Risk Factors

The Telefónica Group’s business is affected by a series

of risk factors that affect exclusively the Group, as well

as a series of factors that are common to businesses of

the same sector. The main risks and uncertainties faced

by Telefónica, that 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

assessment of their specificity and materiality based on

the 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.

Risks are presented in this section grouped into four

categories: business, operational, financial, and legal

and compliance.These categories are not presented in

order of importance. However, within each category, the

risk factors are presented in descending order of

importance, as determined by Telefónica at the date of

this document. Telefónica may change its vision about

their relative importance at any time, especially if new

internal or external events arise..

Risks related to Telefónica's Business

Activities.

Telefónica's competitive position in some

markets could be affected by the evolution of

competition, market fragmentation or certain

forms of market consolidation.

The Telefónica Group operates in highly competitive

markets and it is possible that the Group may not be

able to market its products and services effectively or

respond successfully to the different commercial

actions carried out by its competitors, causing it to not

meet its growth and customer retention plans, thereby

jeopardizing its future revenues and profitability.

Additionally, the Telefónica Group could be affected by

the regulatory actions of antitrust authorities. These

authorities could prohibit or hinder certain actions, such

as consolidation processes in local markets (making it

more difficult to achieve the scale required to compete

efficiently or to capture operational efficiencies and

optimize investments in infrastructure and technology)

or specific commercial practices or create obligations or

impose heavy fines. Any such measures implemented by

the antitrust authorities could affect the Group’s

competitive position and its ability to sustain long‑term

growth and/or harm to the future growth of some of its

businesses or hinder competition at a global level.

The entry of new competitors in core markets

(leveraging asymmetric regulation and wholesale

obligations for incumbents), market concentration via

mergers by other players (e.g. Vodafone/Three in the

United Kingdom) or changes in control at key

competitors (e.g. Vodafone – Zegona in Spain), may re-

configure markets. This could affect Telefónica’s relative

competitive position, impacting the potential evolution

of revenues and market share, especially if new entrants

pursue aggressive customer acquisition strategies.

Additionally, new entrants could decide to accelerate

network rollout (e.g. 5G and Fibre) aiming at

differentiating in the market, which could lead to

increased competition in infrastructure.

Today most telecom operators, such as Telefónica,

include services beyond core connectivity services in

their portfolio, albeit the weight of these services is

relatively minor. Competitive dynamics for digital

services are different, since these markets are

dominated by specialized over-the-top (OTT) players

and big tech companies, which leverage global platform

economics and strong customer brands.



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If Telefónica is not able to successfully face these

challenges, by ensuring a supply of cutting-edge

technology products and services and maintaining its

competitiveness against current or future competitors,

the Group's business, financial condition, results of

operations and/or cash flows could be adversely

affected.

Telefónica could be affected by disruptions

in the supply chain or international trade

restrictions, or by the dependency on its

suppliers.

The existence of critical suppliers in the supply chain,

especially in areas such as network infrastructure,

information systems or handsets with a high

concentration in a small number of suppliers, poses risks

that may affect Telefónica’s operations. In the event that

a participant in the supply chain engages in practices

that do not meet acceptable standards or does not

meet Telefónica’s performance expectations (including

delays in the completion of projects or deliveries, poor-

quality execution, cost deviations, reduced output due

to the suppliers own stock shortfalls, or inappropriate

practices), this may harm Telefónica's reputation, or

otherwise adversely affect its business, financial

condition, results of operations and/or cash flows.

Further, in certain countries, Telefónica may be exposed

to labour contingencies in connection with the

employees of such suppliers.

As of December 31, 2025, the Group depended on three

handset suppliers (one of them located in China) and

eight network infrastructure suppliers (two of them

located in China), which, together, accounted for 87%

and 80%, respectively, of the aggregate value of

contracts awarded as of December 31, 2025 to handset

suppliers and network infrastructure suppliers,

respectively. One of the handset suppliers (not located

in China) represented 50% of the aggregate value of

contracts awarded as of December 31, 2025 to handset

suppliers.

As of December 31, 2025, the Telefónica Group had

approximately 80 information technology ("IT")

providers that together accounted for 80% of the total

amount of IT purchase awards made as of December 31,

2025, seven of them representing 31% of purchases in

that area and time frame.

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 this regard, the global and regional supply chains of

both the sector's operators and Telefónica's suppliers,

are exposed to disruptions generated by geopolitical

tensions, armed conflicts or political instability (i.e.

Russia-Ukraine, Middle East), as well as trade tensions

(semiconductor crisis), among others, that could disrupt

global supply chains or may have an adverse impact on

certain of Telefónica’s suppliers and other players in the

industry. On the other hand, tensions continue over

control of the future of Artificial Intelligence

technologies, with two blocs (the US and China) in

conflict. There are high risks of export restrictions on

electronic components and mutual blockades that could

polarize the development of these technologies and

increase the fragmentation of ecosystems.Telefónica

Group continuously evaluates the potential impacts of

changes in tariff policies on related products and

components, and develops alternative sourcing

strategies to mitigate any potential impact; to date, no

significant impact from tariff policies has been observed

for the Telefónica Group. Any of the above could

increase prices for Telefónica and ultimately make our

services more expensive for our customers, which could

adversely affect the business, financial condition,

operating results and/or the cash flows of the Telefónica

Group.

National security concerns may also limit Telefónica’s

ability to utilize certain suppliers and require it to incur

additional costs. Several EU countries have imposed

restrictions on the use of telecom suppliers that are

considered high-risk for 5G network infrastructure, such

as certain Chinese suppliers. In Germany, Telefónica

and other mobile network operators have entered into

public law contracts with the Federal Ministry of the

Interior and Community that obligate the mobile

network operators to stop using all critical components

made by Chinese suppliers in their 5G core networks by

the end of 2026. The operators are also required to

replace the critical functions of such suppliers’ 5G

network management systems in the access and

transport networks of the 5G mobile network with

technical solutions of other manufacturers by the end of

2029. This requires the cooperation of the suppliers,

who must provide open interfaces for controlling the

network elements.

Since 2021 a specific monitoring has been carried out

and action plans have been developed by the Group

with respect to the supply chain challenges resulting

from the armed conflict in Ukraine as well as the

potential discontinuation of use of some suppliers as a

result of tensions between the United States and China.

While Telefónica's supply chain has been generally

resilient in recent years, despite various stresses

affecting the semiconductor industry and raw materials,

this may change in the future.



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The imposition of trade restrictions and any disruptions

in the supply chain, such as those related to

international transport, could result in higher costs and

lower margins or affect the ability of the Telefónica

Group to offer its products and services and could

adversely affect the Group's business, financial

condition, results of operations and/or cash flows.

Further, in its sale of digital services, the Telefónica

Group regularly integrates the digital services it offers

with third-party technologies. Similar to more traditional

supplier relationships, these integrations subject the

Telefónica Group to the risks of performance failures by

these third parties and the cost of continuously

monitoring these strategic partners to ensure they

maintain appropriate levels of accreditation and that the

technologies they provide remain secure and up to date.

Any such performance failure by the third parties or the

technologies they provide could negatively impact the

digital services offered by the Telefónica Group, and the

Group's business, financial condition, results of

operations and/or cash flows could be adversely

affected as a result.

Telefónica could be affected by the global

technology talent shortage and the need for

new skills in the workforce due to rapid

technological changes, which may limit the

Group's competitiveness.

The changing need for new skills in the workforce due

to ongoing technological disruptions and the shortage

of technology talent in the marketplace pose significant

risks that may affect the Group's competitiveness.

The successful execution of Telefónica's strategic plan

and Telefónica's ability to compete effectively now and

in the future depends to a large extent on the

Company's key talent, as well as on a highly skilled

workforce.

To continue developing next-generation connectivity

and digital services for our residential and corporate

customers, incorporating the latest technological

changes and adapting them to the evolving customer

needs, we require profiles with technological skills such

as software development, big data, artificial intelligence,

and cybersecurity, among others.

These types of experienced profiles in the technology

sector are in high demand and competition for talent is

fierce worldwide. A lack of talent and the necessary

skills in the Group can slow down innovation and

adaptation to rapid changes in the sector, impacting

business opportunities and the quality of services

provided.

While the Group takes various steps to manage these

risks, including fostering a culture of continuous

learning, through ambitious employee training and

reskilling programs, motivating and seeking to retain the

Group's key talent and by redefining Telefónica's

corporate culture to ensure the company's long-term

growth and sustainability, there can be no assurance

that such steps will be sufficient.

If the Group fails to attract and retain technology talent,

this could negatively affect the Group's business,

financial condition, results of operations and/or cash

flows.

The Group requires government concessions

and licenses for the provision of a large part

of its services and the use of spectrum,

which is a scarce and costly resource.

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

telephone services, Pay TV, the installation and

operation of telecommunications networks, use of

spectrum, etc.) require licenses, concessions or

authorizations from governmental authorities, which

typically require that the Group satisfies certain

obligations, including minimum specified quality levels,

and service and coverage conditions. If the Telefónica

Group breaches any of such obligations, it may suffer

consequences such as fines or other measures that

would affect the continuity of its business. In addition, in

certain jurisdictions, the terms of granted licenses may

be modified before the expiration date of such licenses

or, at the time of the renewal of a license, new

enforceable obligations could be imposed or the

renewal of a license could be refused.

In addition, the Telefónica Group requires sufficient

appropriate spectrum to offer its services. The intention

of the Group is to maintain current spectrum capacity

and, if possible, to expand it, through the participation of

the Group in spectrum auctions which are expected to

take place in the next few years, which will likely require

cash outflows to obtain additional spectrum or to

comply with the coverage requirements associated with

some of the related licenses. While Telefónica considers

its current spectrum capacity to be sufficient in all the

regions in which Telefónica operates, the Group's failure

to retain or obtain sufficient or appropriate spectrum

capacity in these jurisdictions in the future, or its inability

to assume the related costs, could have an adverse

impact on its ability to maintain the quality of existing

services and on its ability to launch and provide new

services, which may materially adversely affect

Telefónica’s business, financial condition, results of

operations and/or cash flows.

Any of the foregoing, as well as the additional matters

addressed below, could have a material adverse effect

on the business, financial condition, results of operations

and/or cash flows of the Group.

Access to new concessions/ licenses of spectrum.



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In Spain, the Ministry of Economic Affairs and Digital

Transformation (currently the Ministry of Digital

Transformation and Civil Service) approved in June 2023

a modification to the National Frequency Allocation

Table ("CNFA"), allowing for the possibility of making

available 450 MHz of the 26 GHz spectrum band, to

companies, industries and organizations operating in a

specific sector, that deploy private networks to support

their connectivity needs (verticals). This could mean

more competition in the private corporate network

segment. Additionally, in June 2025, concerning the

draft regulation to amend the CNAF, the Spanish

telecommunications regulator (CNMC) has proposed to

the Ministry of Digital Transformation and the Civil

Service, that the initial 20 MHz of the 3500MHz band

(3400-3420 MHz), that currently constitute a guard

band, to be allocated for self-provision uses, which

could affect the B2B private network business.

In the UK, following the clearance of the merger

between Vodafone UK and Three UK, the Office of

Communications ("Ofcom") has approved a series of

spectrum trades that were agreed in the process with

the merging parties and VMO2 in exchange of a

payment. Following a process of defragmentation of

certain bands, a net transfer to VMO2 of 78.8MHz of

useable spectrum, comprising 20MHz (1400MHz),

18.8MHz (2100MHz), 25MHz (2600MHz including a

5MHz guard band) and 20MHz (3500MHz) will take

place. In addition, VMO2 acquired 800MHz of 26GHz

and 1000MHz of 40GHz spectrum in an auction in

October 2025. These new licenses have a 15-year

duration.

In Brazil, the Agencia Nacional de Telecomunicações

(“ANATEL”) conducted a public consultation until April 7,

2025, about a long-term schedule for spectrum

auctions. This proposal includes frequencies in multiple

bands for auctions in the short (2026–2028), medium

(2029–2032) and long term (2032–2036). The final

version of the spectrum auction schedule was approved

by Resolution 785/2025. In addition, on July, 2025,

ANATEL approved the bidding process for the 700 MHz

band which involves the spectrum that was returned by

the provider Winity in 2023. According to the approved

terms, regional lots will be offered, prioritizing, in this

order, regional providers that already hold authorizations

in the 3.5 GHz band and those that do not yet hold

authorizations in the 700 MHz band. The bid notice was

approved by the Federal Court of Accounts and

published by ANATEL on February 13, 2026. The

opening of bids is scheduled for April 30, 2026.

Existing licenses: renewal processes and modification of

conditions for operating services.

In Germany, in March 2025, the Bundesnetzagentur

(“BNetzA”) published a decision on the extension of the

frequencies at 800 MHz, 1800 MHz and 2.6 GHz, which

partially expired at the end of 2025. The decision

provides for the existing frequency usage rights in the

above mentioned frequency ranges, to extend upon

request for a transitional period of five years. The

extension of the usage rights is accompanied by

obligations for the further deployment of mobile

networks, particularly in rural areas and along transport

routes. There would also be a requirement to negotiate

with mobile virtual network operators ("MVNOs") on the

purchase of wholesale mobile services as well as an

obligation to negotiate national roaming and a co-

operative and shared frequency usage below 1 GHz with

1&1 Mobilfunk GmbH (“1&1”). Finally, an obligation is

imposed to extend the existing 2.6 GHz spectrum lease

arrangements between Telefónica and 1&1 during the

extension period. In June 2025, the BNetzA has

extended Telefónica's frequency usage rights as

requested. As part of a second set of actions, a larger

procedural framework is expected to be established for

utilization from 2031 onwards, including with respect to

rights of use and new frequency ranges that expire in

2033 and 2036 or become newly available for mobile

communications in the coming years. A decision on this

set of actions is planned for 2028.

In December 2025, BNetzA re-launched the 5G

spectrum award proceedings of 2018 with an initial

public hearing on spectrum regulation aspects opened

until January 12, 2026. The re-launch became necessary

after the Federal Administrative Court finally declared, in

December 2025, BNetzA´s decision of November 26,

2018, on the allocation and auction rules of the

frequencies in the 2 GHz and 3.6 GHz ranges, unlawful.

The current frequency assignments will remain valid

until they are either amended or revoked and re-issued

under a new decision by the BNetzA. The grounds for

the judgement would allow the BNetzA to reissue the

previous decision with a new statement of reasons.

Accordingly, in its hearing, BNetzA is considering the

option of a new decision without repeating the auction,

if the changes in the new decision are not significant.

In the UK, mobile spectrum licenses are generally

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

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

2033, after this mentioned fixed period, Ofcom will set

spectrum fees for 800 MHz and 2.6 GHz bands. VMO2

currently holds spectrum in both of these bands.

With respect to Brazil, on December 16, 2024, Telefônica

Brasil, ANATEL, the Brazilian Federal Court of Accounts

and the Brazilian Ministry of Communications signed an

agreement on the terms and conditions for the

adaptation of the STFC concession contracts to an

authorization instrument (the “Self-Composition

Agreement”). The Self-Composition Agreement includes

several key conditions: (i) Telefônica Brasil is required to

make specific investments on terms established under

the agreement; (ii) Telefônica Brasil must maintain the



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provision of fixed-line telephone services in certain

locations without adequate competition, within the

concession area until December 31, 2028; (iii) all pending

administrative and judicial proceedings related to the

concession at ANATEL or in the courts must be

resolved, and Telefônica Brasil must withdraw any cases

filed against the regulator; and (iv) Telefônica Brasil

must commit to fulfilling public interest pledges for up to

ten years as part of the adaptation process. On April 11,

2025, Telefónica Brasil signed the unified authorization

term with ANATEL, that compiles all previous licenses

into one single title, finalizing the migration to the

authorization regime.

ANATEL agreed to extend authorizations of the

currently existing bands of 850MHz until November

2028, of 900/1800 MHz between 2031 and 2035

(depending on the region), and of 2100 MHz, until 2038.

Additionally, pursuant to Resolution n° 757/2022,

ANATEL intends to carry out, respectively, a refarming

action consisting of the promotion of changes in the

channel arrangements of the 850 MHz (2028) and

900/1800 MHz (2032) sub-bands. Certain specific

requirements imposed for these renewals, including

those related to the valuation criteria and obligations,

are still under review by the Federal Court of Accounts.

During 2025, the Group’s consolidated investment in

spectrum acquisitions and renewals amounted to 199

million euros, mainly due to the acquisition of spectrum

in Germany and Venezuela, 180 million euros and 19

million euros, respectively (29 million euros in 2024,

mainly due to the acquisition of spectrum in Spain). 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 "Key regulatory issues and concessions and

licenses held by the Telefónica Group" of the 2025

Consolidated Financial Statements.

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 MNVOs, internet companies,

technology companies or device manufacturers, could

result in a loss of value for certain of the Group's assets,

affect the generation of revenues, or otherwise cause

Telefónica to have to update its business model. In this

respect, revenues from traditional voice businesses

have been shrinking in recent years, while revenues

from connectivity services (e.g., fixed and mobile

internet) are increasing. Additionally, evolving and

diversifying its revenue sources, Telefónica offers new

digital services such as Internet of Things (IoT),

cybersecurity, cloud services, big data and Artificial

Intelligence in the B2B segment. In B2C Telefónica

offers ecosystem services such as devices, health,

insurance, video content, solar energy, alarm systems,

advertising, financial services and education, etc.

Additionally, the world of telecommunications is

evolving towards a model of programmable networks

and services. This type of network can be used by

programmers in a completely new and different way

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

GSMA (Global System for Mobile Communications) is

leading the Open Gateway initiative for the standardized

exposure of APIs (Application Programming Interface) to

developers. This is a totally new market in which

telecommunications companies must be able to

develop not only attractive services but new skills in

order to be successful.

Telefónica continues to invest in 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, 2025, in Spain, fiber coverage

reached 31.3 million premises. There is a growing

demand for the services that these new networks can

offer to the end customer. However, the high levels of

investment required by these networks result in the

need to continuously consider the expected return on

investment. Telefónica is constantly looking for co-

investments through Telefónica Infra, but it may not be

able to identify suitable partners.

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



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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 information, 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 2025,

corresponding to its continuing operations, was 1,004

million euros (619 million euros in 2024), representing

2.9% of the Group’s revenues (1.7% in 2024). These

figures have been calculated using the guidelines

established in the Organization for Economic Co-

operation and Development (“OECD”) manual.

Telefónica Group's investment in CapEx in 2025 was

4,540 million euros (4.704 million euros in 2024).

If Telefónica is not able to anticipate and adapt to the

technological changes and trends in the sector, or to

properly select the investments to be made, this could

negatively affect the Group's business, financial

condition, results of operations and/or cash flows.

The Telefónica Group's strategy, which is

focused on driving new digital businesses

and providing data-based services, involves

exposure to risks and uncertainties arising

from data privacy regulation.

The Telefónica Group’s commercial portfolio includes

products and/or services whose provision involves the

processing of large amounts of information and data.

This entails an enormous responsibility, while at the

same time increasing the challenges related to

compliance with strong and growing privacy and data

protection regulations throughout the Telefónica

Group's footprint, which may stifle the technological

innovation that characterizes it and to which the Group

is committed. Similarly, the Group's efforts to promote

innovation may result in increased compliance risks and,

where applicable, costs, even more so in a context in

which Artificial Intelligence is increasingly present as a

key innovation factor for Telefónica's products and

services, with particular consideration being given to the

risks that the use of this technology poses to the

fundamental rights of customers and users and, with

particular relevance, with regard to their privacy and

control over their data.

Telefónica is subject to Regulation (EU) 2016/679 of the

European Parliament and Council of April 2016, on the

protection of natural persons with regard to the

processing of personal data and on the free movement

of such data ("GDPR"), which is considered by the

Group as a common standard of compliance in all its

operations, even beyond the European Union.

Additionally, the European Union has initiated a data

legislative strategy that seeks to make the EU a leading

space for the data-driven society, allowing data to flow

freely throughout the territory and between different

sectors. Therefore, the regulatory obligations imposed

on operators and the risks inherent in the potential

difficulty of complying with these obligations must be

taken into account

In this area, and as a result of the new regulatory

simplification strategy launched by the European

Commission in 2025 and continued with the publication

on November 19, 2025 of the proposed Digital Omnibus

Regulation, various measures are being considered with

a view to achieving this objective, such as the update

process initiated on the GDPR which, although with little

impact and benefit for Telefónica, does set a precedent

for updating such an important regulation for the Group,

increasing uncertainty regarding the regulatory

framework applicable in the future and, consequently,

negatively affecting the development of new innovative

products. Likewise, the complex legislative process of

these simplification and updating measures, involving a

multitude of stakeholders from different fields and

sectors (including civil associations for the defence of

privacy), could eventually result in additional and more

restrictive obligations and rules than those currently

existing in the GDPR.

Moreover, considering that the Telefónica Group

operates its business on a global scale, it frequently

carries out international data transfers concerning its

customers, users, suppliers, employees and other data

subjects to countries outside the European Economic

Area ("EEA") that have not been declared to have an

adequate level of data protection by the European

Commission, either directly or through third parties. In

this context, it is particularly relevant to have the

necessary legal and technical controls and mechanisms

in place to ensure that such international data transfers

are carried out in accordance with the GDPR, in an

environment marked by uncertainty on this issue as to

the most adequate and effective measures to mitigate

such risks.

With regard to the international transfer of data to the

United States, on July 10, 2023, the European

Commission adopted its adequacy decision for the EU-



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U.S. Data Privacy Framework. The adequacy decision

concludes that the United States ensures an adequate

level of protection for personal data transferred from the

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

Privacy Framework. However, this adequacy decision

can still be challenged, as was the case with previous

decisions, by civil associations for the defence of

privacy.

Telefónica is subject to data privacy regulations similar

to the GDPR in the non-EU countries in which it

operates, including the United Kingdom, Brazil and the

operations in Latin America where the Group still

maintains its businesses increasing compliance risks and

costs in these countries. Any such potential shifts in the

applicable data privacy framework necessitate careful

monitoring by Telefónica to mitigate compliance and

cross-border data transfer risks.

To limit the risks derived from international transfers of

personal data among Telefónica Group companies, the

Telefónica Group adopted Binding Corporate Rules

(BCRs), approved by the Spanish Data Protection

Authority on March 8, 2024, following a procedure of

co-operation between the European data protection

authorities. However, there can be no assurance that

such rules will be sufficient to ensure compliance with

requirements in every jurisdiction in which the

Telefónica Group operates.

Data privacy protection requires careful design of

products and services, as well as robust internal

procedures and rules that can be adapted to regulatory

changes where necessary, all of which entails

compliance risk. Failure to maintain adequate data

security and to comply with any relevant legal

requirements could result in the imposition of significant

penalties, damage to the Group’s reputation and the

loss of trust of customers and users.

Telefónica’s reputation depends to a large extent on the

digital trust it is able to generate among its customers

and other stakeholders. In this regard, in addition to any

reputational consequences, in the European Union, very

serious breaches of the GDPR may entail the imposition

of administrative fines of up to the larger of 20 million

euros or 4% of the infringing company’s overall total

annual revenue for the previous financial year.

Any of the foregoing could have an adverse effect on

the business, financial condition, results of operations

and/or cash flows of the Group.

Telefónica may not anticipate or adapt in a

timely manner to changing customer

demands and/or new ethical or social

standards, which could adversely affect

Telefónica's business and reputation.

To maintain and improve its position in the market vis-à-

vis its competitors, it is vital that Telefónica: (i)

anticipates and adapts to the evolving needs and

demands of its customers, and (ii) avoids commercial or

other actions or policies that may generate a negative

perception of the Group or the products and services it

offers, or that may have or be perceived to have a

negative social impact. In addition to harming

Telefónica's reputation, such actions could also result in

fines and sanctions.

In order to respond to changing customer demands,

Telefónica needs to adapt both (i) its communication

networks and (ii) its offering of digital services.

The networks, which had historically focused on voice

transmission, have evolved into increasingly flexible,

dynamic and secure data networks, replacing, for

example, old copper telecommunications networks with

newer 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, relatively new services

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

“Smart Agriculture”, “Smart Metering” and "Solar 360"

which facilitate certain aspects of the Group’s

customers’ digital lives, are being developed.

Furthermore, new solutions for greater automation in

commercial services and in the provision of the Group’s

services are being developed, through new apps and

online platforms that facilitate access to services and

content, such as new video platforms that offer both

traditional Pay TV, video on demand or multi-device

access. In addition, Telefónica has launched new

customer care applications (My Movistar in Spain, Me

Vivo in Brazil, My O2 in the United Kingdom), with the

aim of increasing the accessibility of the products and

services the Group offers. However, there can be no

assurance that these and other efforts will be

successful.

In the development of all these initiatives it is also

necessary to take into account several factors: firstly,

there is a growing social and regulatory demand for

companies to behave in a socially responsible manner,

and, in addition, the Group’s customers are increasingly

interacting through online communication channels,

such as social networks, in which they express this



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demand. Telefónica's ability to attract and retain clients

depends on their perceptions regarding the Group’s

reputation and behaviour. The risks associated with

potential damage to Telefónica'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.

Telefónica's operations, as well as the products and

services it provides, rely on information technology

systems and platforms that are susceptible to

cyberattacks. If successful, these attacks can hinder the

effective provision, operation, and commercialization of

our products and services and our customers’ use of the

same. Therefore, cybersecurity risks are among the

most significant risks for the Group.

Telecommunications companies worldwide, including

Telefónica, face a continuous increase in cybersecurity

threats. These companies and their customers are

becoming increasingly digital, processing and storing

valuable information electronically relying on cloud

services provided by third parties, permitting remote

access and teleworking by employees and collaborators

and expanding IoT environments. All of the above,

together with the increasing regulatory pressure

regarding cybersecurity, compels companies to review

the applicable requirements and the security controls

implemented beyond the traditional perimeter of the

corporate network.

At the same time, cyberattackers, including both state

and independent actors, are becoming more

sophisticated, armed with high levels of funding and

advanced digital tools that use technologies such as

artificial intelligence and machine learning. Threats

include unauthorized access to systems, the installation

of computer viruses or malicious software, and security

breaches in the supply chain, with the aim of improperly

obtaining sensitive information or disrupting the Group's

operations, which may result in penalties that may

increase due to changes in cybersecurity regulations,

particularly for companies in the European

telecommunications sector. Furthermore, traditional

security threats persist, such as the theft of laptops, data

storage devices, and mobile phones, along with the

possibility that Group employees or collaborators may

leak information and/or perform acts that affect their

networks or internal information. Additionally, the

Telefónica Group is aware of potential cybersecurity

risks arising from various international conflicts and

monitors cyberattacks that may affect its infrastructure.

In the past three years, the Group has suffered various

types of cybersecurity incidents that have included:

intrusion attempts (direct or phishing), exploitation of

vulnerabilities and corporate credentials being

compromised; Distributed Denial of Service (DDoS)

attacks, consisting of generating massive volumes of

Internet traffic significantly degrade, and in some cases

completely disrupt, network capacity; and malicious

actions to carry out fraud in respect of services provided

by Telefónica. In some of these incidents, personal data

from our customers and employees has been stolen. To

date, none of these cybersecurity incidents have had

material consequences for the Telefónica Group, but

this may change in the future.

The development and maintenance of systems to

prevent and detect cyberattacks is costly and requires

ongoing monitoring and updating to address the

increasing sophistication of cyberattacks. In response to

these risks, Telefónica has adopted technical and

organizational measures as defined in its digital security

strategy, such as the use of early vulnerabilities

detection, access control, monitoring and log review

and network segregation, as well as the deployment of

firewalls, security controls in the supply chain,

cryptographic controls, intrusion-prevention systems,

malware detection, incident response and recovery

procedures, and backup systems. Many of these

processes are being automated through the use of

artificial intelligence, however, Telefónica can provide

no assurance that such measures are sufficient to avoid

or fully mitigate such incidents. The Telefónica Group

has insurance policies in place aimed at covering certain

losses resulting from these types of incidents. However,

due to the potential severity and uncertainty about the

evolution of the aforementioned events, these policies

may not be sufficient to cover in its entirety all losses

that may arise out of a cybersecurity attack.

Climate change, natural disasters and other

factors beyond the Group's control may

result in physical damage to Telefónica's

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



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software failures or the theft of network elements, can

damage Telefónica's infrastructure and affect the

quality of, or cause interruption to, the provision of the

services of the Telefónica Group. For example, in late

October 2024, record-breaking flooding and related

power outages in Valencia, Spain, resulting from a high-

altitude cut-off low-pressure storm system, caused

severe damage to Telefónica's infrastructure. In 2025,

the damage estimates were almost fully completed,

ultimately resulting in amounts lower than those initially

expected. In addition, Telefónica’s operations have been

affected in recent years by power outages in Spain,

Brazil and certain Latin American countries, caused by

droughts, floods, fires, or widespread failures of the

electricity grid.

Further, changes in temperature and the increase in the

frequency and intensity of heat waves, patterns

associated with climate change may increase the

energy consumption of telecommunications networks or

cause service disruption due to extreme floods or

extreme weather events. These changes may cause

increases in the price of electricity due to, for example,

reduction in hydraulic generation as a result of recurrent

droughts. Further, as a result of global commitments to

tackle climate change, new carbon dioxide taxes may be

imposed and could affect, directly or indirectly,

Telefónica Group, and may have a negative impact on

the Group’s operations and results. Telefónica analyses

these risks in accordance with the guidelines set forth in

the Corporate Sustainability Reporting Directive (CSRD),

and with the recommendations of the Task Force on

Climate-Related Financial Disclosures (TCFD).

Network or service interruptions or quality loss or

climate-related risks could cause customer

dissatisfaction, a reduction in revenues and traffic, the

realization of expensive repairs, the imposition of

sanctions or other measures by regulatory bodies, and

damage to the image and reputation of the Telefónica

Group, or could otherwise have an adverse effect on the

business, financial condition, results of operations and/

or cash flows of the Group.

Financial Risks

Worsening of the economic and political

environment could negatively affect

Telefónica's business.

Telefónica’s international presence enables the

diversification of its activities across countries and

regions, but it exposes Telefónica to diverse legislation,

as well as to the political and economic environments of

the countries in which it operates. Any adverse

developments in these countries, such as economic

uncertainty, inflationary pressures, rapid normalization of

monetary policy, exchange rate or sovereign-risk

fluctuations, as well as growing geopolitical tensions,

may adversely affect Telefónica’s business, financial

position, debt management, cash flows and results of

operations and/or the performance of some or all of the

Group’s financial indicators.

Over the past few years, the global economy has faced

successive shocks that have created an environment of

extraordinary uncertainty, marked by overlapping

disruptions. Inflationary pressures initially stemmed from

supply bottlenecks during the rapid post-pandemic

recovery and surging commodity prices. These factors

prompted central banks to respond aggressively by

raising interest rates and withdrawing liquidity, which in

turn caused a significant loss of purchasing power for

households. Higher wage demands—driven by tight

labor markets in advanced economies and residual

wage indexation practices—further fueled inflation.

Recently, inflationary pressures have eased across most

regions where the Group operates, but the disinflation

process has been uneven, and core inflation remains still

sticky in several economies. Geopolitical risks persist:

the Russia-Ukraine war, escalating tensions in the

Middle East, and tariff disputes between major

economies continue to threaten global trade flows,

energy security, and price stability. In addition,

flashpoints could broaden to other relevant areas,

including heightened tensions in the Americas, around

Taiwan and the countries bordering the South China

Sea, as well as in Iran and other parts of the Middle East,

adding further uncertainty to supply chains, financial

markets, and economic growth prospects

Financial risks have also evolved. The extended phase of

Central Bank prudence, couple with high government

indebtedness levels increases the likelihood of renewed

market volatility and stress episodes, particularly if

inflation proves more persistent than expected.

Conversely, aggressive monetary easing could reignite

inflationary pressures, increasing the risk of stagflation

period akin to the 1970s.

Looking ahead, several factors could amplify current

vulnerabilities. Intensification of armed conflicts and

disruptions to energy and commodity supply chains.

Additional spikes in commodity prices, which could de-

anchor inflation expectations. Stronger-than-expected

wage growth, prolonging inflation and constraining

monetary policy flexibility. Trade tensions, including

potential new tariffs on U.S. imports, which would have

both economic (lower growth, higher inflation) and

political repercussions. Or any other economic or

political decision that adversely affects the proper

functioning of financial markets.

In this context, global growth has been more resilient

than previously expected despite it is exposed to

sudden stops. Structural challenges—such as

geopolitical fragmentation, supply chain reconfiguration,



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and the transition to clean energy—will continue to

shape the risk landscape for corporates.

So far, the main European countries where the Group

operates have been affected by the ongoing

geopolitical conflicts mainly through the price channel

(higher commodity prices, intermediate inputs, salary

costs and external tariffs, among others). However,

there continues to be a concern in Europe about energy

and security dependence in the face of potential

episodes of gas shortages and lengthening energy

transition on one hand, and economic or conflict amidst

geopolitical shifts on the other. Latin America could be

affected by lower external demand associated with

slower global growth, deteriorating terms of trade,

tighter financial conditions, doubts about debt

sustainability and also by the consequences of global

order changes.

As of December 31, 2025, the contribution of each

segment to the Telefónica Group's total assets,

excluding assets held for sale, was as follows: Telefónica

Spain 31.4% (25.8% as of December 31, 2024), VMO2

7.1% (7.6% as of December 31, 2024), Telefónica

Germany 19.7% (17.7% as of December 31, 2024) and

Telefónica Brazil 25.4% (22.2% as of December 31, 2024).

Part of the Group's assets are located in countries that

do not have an investment grade credit rating (in order

of importance, Brazil and Venezuela). Likewise,

Venezuela is considered country with hyperinflationary

economy in 2025 and 2024.

During 2025, the contribution of each segment to the

Telefónica Group's revenues was as follows (does not

include VMO2 that is recorded by the equity method

and therefore does not contribute to the consolidated

revenues): Telefónica Spain 37.0% (35.9% in 2024),

Telefónica Germany 23.3% (23.8% in 2024) and

Telefónica Brazil 26.9% (27.0% in 2024).

The main risks by geography are detailed below:

In Europe, there are several economic and political risks.

Firstly, the evolution of armed conflicts poses a threat to

growth and inflation prospects as well as the recent

tariff imposition by U.S. that could hit the economy. Any

worsening in the supply of gas, oil, food, or other goods

due to disruptions in the supply chain would negatively

impact their prices, with a consequent effect on the

disposable income of both households and businesses.

In the medium term, this could result in wage increases,

a persistent rise in inflation, and tighter monetary policy.

Any of the above could have a negative impact on the

cost of financing for the private sector, including

Telefónica, and could trigger episodes of financial stress.

In addition, there is also a risk of financial fragmentation

in the eurozone amidst different debt-sustainability

positions, meaning that interest rates may react

differently in different countries, leading to differences in

yields on bonds issued by more indebted countries

(including Spain) and those issued by less indebted

countries, making it challenging for the former to access

credit at low rates.

Lastly, Europe faces three significant long-term risks.

First, Europe may fall behind in the global technological

race in particular because of both its dependence on

several critical raw materials, indispensable for key

sectors, that must be imported from other regions, and

its lag in technological innovation due to economic and

financial fragmentation. Second, a burdensome

regulatory environment in the European Union poses a

significant threat to business, impeding growth and

eroding competitiveness, with companies based in

countries and regions where regulations are relatively

less complex, extensive or restrictive. Third,

demographic factors such as declining birth rates and

population ageing may have a negative impact on the

region's labour force and long-term growth prospects.

Regarding political risk, it remains to be seen whether

parliament fragmentation hinders governance and the

continuity of the ongoing agenda in fiscal and economic

matters, climate and energy policy as well as other

aspects of regional governance.

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

them stems from the risk that high commodity prices

and/or the emergence of wage pressures may delay

inflation from converging toward the target, with a

deeper impact on household income. Secondly,

further delays in the disbursement of Next Generation

European Funds (NGEU) could limit their final impact

on potential GDP growth and employment. In addition,

as one of the most open countries in the world from a

commercial point of view, being among the top ten

countries in respect of capital outflows and inflows

globally, Spain could be negatively impacted by the

rise of protectionism and trade restrictions more if

they are amplified from goods to services. Lastly, the

impact of higher-for-longer interest rates could be a

source of financial stress due to high public

indebtedness. In the long term, the challenge is to

increase the growth of potential GDP through

improvements in productivity and investment and

ensure the sustainability of public debt taking into

account the costs derived from population ageing,

defence and climate transformation.

• Germany : the risk of energy shortages has diminished

recently due to Europe's response in terms of

diversification of energy sources and the rapid

construction of regasification plants. However, it is

possible that problems with energy supply may arise

again. Alternative sources for gas imports could be

limited, consumption could be higher due, for

example, to an unusually cold winter, or competition

for gas from other countries could increase. On the



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other hand, there is concern that higher-than-

expected wage growth and/or higher input costs

could lead to more persistent inflation diminishing

competitiveness among the manufacturing sector.

There is also a risk that prolonged or escalating

geopolitical tensions could reduce international trade

or increase competition to German-made products

with a consequent impact on the country’s potential

growth, which is dependent on exports. Additionally,

on the political front, It is relevant that current

coalition executes the ambitious fiscal package to

mitigate investment needs and enhance economic

growth. Finally, long-term challenges remain, such as

the ageing of the population and productivity

lackluster.

• United Kingdom : more persistent inflation could weigh

on consumption and avoid a stronger economic

recovery. In particular, there is a concern that

currently dynamic wage growth could lead to a

further increase in the prices of goods and services,

preventing inflation rates from totally normalizing. On

the other hand, UK government needs to deliver its

economic program to guarantee debt dynamics and

enhance economic growth amid still visible Brexit

consequences in the form of barriers to trade in goods

and services, mobility and cross-border exchanges.

In Latin America, the exchange rate risk is currently

considered moderate by the Telefónica Group, except in

Venezuela, but may increase in the future. Rapid central

bank actions to contain inflation and prudent fiscal

policy, have , limited the impact of external risks (global

trade tensions, abrupt movements in commodity prices,

concerns about global growth, tight U.S. monetary

policy and financial imbalances in China) and internal

risks (managing the monetary normalization as a

consequence of fewer foreign currency availability and

the possible fiscal deterioration). However, rising

geopolitical tensions with the US have become an

additional source of risk.

• Brazil : fiscal sustainability and increased economic

intervention remain the main domestic risk. Despite

recently announced measures to contain public

spending, and increase taxes, deep fiscal reforms

aimed at simplifying the tax system and promoting

stronger and sustainable economic growth, are slowly

being approved. Despite external country risk is

contained, volatility surrounding public debt

sustainability is still high. Moreover, inflation

expectations albeit at level within Central Bank

tolerance range, stay at high levels, paving the way for

restrictive monetary policy longer than expected and

increasing the risks of a more pronounced economic

slowdown. Political uncertainty is likely to intensify

ahead of Brazil’s October 2026 presidential election,

potentially affecting policy predictability and market

conditions.

• Mexico: economic performance remains exposed to

external conditions and policy adjustments mainly

from US trade policy.

• Venezuela: despite recent US intervention, continues

to face a fragile macroeconomic environment with

inflationary pressures and currency volatility.

Persistent constraints on financial flows, policy

unpredictability and capital‑control regimes are

material risks for the scenario.

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 experienced and, in the

future, could experience impairment of

goodwill, investments accounted for by the

equity method, deferred tax assets or other

assets.

In accordance with current accounting standards, the

Telefónica Group reviews on an annual basis, or more

frequently when the circumstances require it, the need

to introduce changes to the book value of its goodwill

(which as of December 31, 2025, represented 17.2% of

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

of December 31, 2025, represented 6.5% of the Group’s

total assets) or other assets, such as intangible assets

(which represented 9.9% of the Group's total assets as

of December 31, 2025), and property, plant and

equipment (which represented 19.7% of the Group's

total assets as of December 31, 2025). 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 2025, impairment losses were recorded for

the cash‑generating units Chile (174 million euros)

Telefónica Tech UK & Ireland (254 million euros) and

Be‑terna (58 million euros). In addition, VMO2, our 50:50

joint venture with Liberty Global in the United Kingdom,

recorded in 2025 an impairment of its goodwill

amounting to 1,170 million euros, with a negative impact

of 585 million euros on the "results of investments

accounted for using the equity method" in the Group’s

consolidated income statement. In 2024, Telefónica

recorded impairment losses on intangible assets and

property, plant and equipment in Argentina in an

aggregate amount of 1,274 million euros and impairment

losses on goodwill in an aggregate amount of 866

million euros with respect to the cash-generating units



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in Chile (397 million euros), Peru (226 million euros),

Telefónica Tech UK & Ireland (192 million euros) and BE-

terna Group (51 million euros). Likewise, impairment

losses were recorded in Peru in 2024, including

impairment losses on intangible assets (54 million euros)

and on goodwill allocated to the fiber optics business

(34 million euros), as well as a reversal of deferred tax

assets for loss carryforwards (91 million euros).

Additionally, following the analysis of the recoverability

of the assets of Pangea (the wholesale fiber optic

company in Peru) at the end of 2024, an impairment of

property, plant and equipment (108 million euros) was

recorded, as well as a reversal of deferred tax assets (13

million euros). The impairment losses recorded in

connection with assets in Argentina and Peru are

presented as discontinued operations, given that the

companies that generated them were sold in 2025.

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.

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, 2025,

the Group's financial liabilities amounted to 34,339

million euros (38,782 million euros as of December 31,

2024), and the Group's net financial debt amounted to

26,824 million euros (27,161 million euros as of December

31, 2024). As of December 31, the average maturity of

the debt was 10.9 years (11.3 years as of December 31,

2024), 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, 2025, the Group's current financial

liabilities scheduled to mature in the following 12 months

amounted to 4,219 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,

2025. As of December 31, 2025, the Telefónica Group

had undrawn committed credit facilities arranged with

banks for an amount of 10,007 million euros (9,667

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, 2025, 3.4% of the aggregate

undrawn amount under credit lines was scheduled to

expire prior to December 31, 2026.

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



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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, 2025, 57% of the

Group's net financial debt had its interest rate set at

fixed interest rates for periods of more than one year.

The effective cost of debt related interest payments for

the last 12 months excluding leases was 2.98% as of

December 31, 2025 compared to 3.19% as of December

31, 2024. To illustrate the sensitivity of financial

expenses to variations in short-term interest rates as of

December 31, 2025: (i) a 100 basis points increase in

interest rates in all currencies in which Telefónica had a

financial position at that date would have led to an

increase in financial expenses of 107 million euros,

whereas (ii) a 100 basis points decrease in interest rates

in all currencies (even if negative rates are reached)

would have led to a reduction in financial expenses of

107 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 21 million euros as of

December 31, 2025 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 21 million euros as of December 31, 2025. These

calculations have been made assuming a constant

currency position with an impact on profit or loss as of

December 31, 2025 taking into account derivative

instruments in place.

In 2025, the evolution of exchange rates (without

considering the effects of hyperinflationary countries)

had a negative impact in the year-on-year growth of the

Group's consolidated revenues and EBITDA, subtracting

2.8 percentage points and 3.2 percentage points

respectively. Furthermore, translation differences in

2025 (excluding the impact of the negative translation

differences that were recycled into the results by the

companies sold in 2025, which amounted to 1,476

million euros), had a negative impact on the Group's

equity of 809 million euros (negative impact of 959

million euros in 2024).

The Telefónica Group uses a variety of strategies to

manage this risk including, among others, the use of

financial derivatives, which are also exposed to risk,

including counterparty risk. The Group's risk

management strategies may be ineffective, which could

adversely affect the Group's business, financial

condition, results of operations and/or cash flows. If the

Group does not effectively manage its exposure to

foreign currency exchange rates or interest rates, it may

adversely affect its business, financial condition, results

of operations and/or cash flows.

Legal and Compliance Risks

Telefónica and Telefónica Group companies

are party to lawsuits, antitrust, tax claims and

other legal proceedings.

Telefónica and Telefónica Group companies operate in

highly regulated sectors and are and may in the future

be party to lawsuits, tax claims, antitrust and other legal

proceedings in the ordinary course of their businesses,

the outcome of which is unpredictable.

The Telefónica Group is subject to regular reviews, tests

and audits by tax authorities regarding taxes in the

jurisdictions in which it operates and is a party and may

be a party to certain judicial tax proceedings. In

particular, the Telefónica Group is currently party to

certain tax and regulatory proceedings in Brazil,

primarily relating to the ICMS (a Brazilian tax on

telecommunication services) and the corporate tax.

Telefónica Brazil maintained provisions for tax

contingencies amounting to 325 million euros and

provisions for regulatory contingencies amounting to

166 million euros as of December 31, 2025. In addition,

Telefónica Brazil faces possible tax and regulatory

contingencies for which no provisions are made (see

Note 24c "Other provisions" and Note 25 "Tax Litigation

in Telefónica Brazil" to the 2025 Consolidated Financial

Statements). Furthermore, 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 Telefónica's

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 (Tax matters)

and 29 (Other information) to the 2025 Consolidated



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Financial Statements. The details of the provisions for

litigation, tax sanctions and claims in Brazil can be found

in Note 24 "Provisions—Telefónica Brazil" of the 2025

Consolidated Financial Statements , including provisions

for civil proceedings amounting to 222 million euros.

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 Telefónica Group's own

goals regarding ESG matters, may expose the

Telefónica Group to various risks.

The Telefónica Group may be unable to adapt to or

unable to comply with expectations from analysts,

investors, customers and other stakeholders and legal

requirements related to ESG issues. Moreover, such

expectations and requirements may differ from one

another and vary significantly across regions.

Further, the Telefónica Group's ESG objectives and

initiatives incorporated in its public reports and other

communications (including its carbon dioxide emission

reduction targets) exposes the Company to the risk that

it will fail to achieve these objectives and initiatives,

linked, in some cases, to financing instruments

Although the Telefónica Group is working to comply

with ESG 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

carbon dioxide 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 extraterritorial effect such as the U.S.

Foreign Corrupt Practices Act of 1977 (the "FCPA") 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 (OFAC) and the United Kingdom.

Sanctions restrict the Group’s business dealings with

certain countries, territories, individuals and entities and

may impose certain trade restrictions, among others,

export and/or import trade restrictions to certain goods

and services. In this context, the provision of goods and

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. 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



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laws and sanctions regulations) for which the Group, its

subsidiaries or they may be ultimately held responsible.

In this regard, Telefónica cooperates with governmental

authorities in connection with the enforcement of anti-

corruption laws. For example, certain companies within

the Group have been the subject of corruption

investigations and charges in the past, one of which

resulted in a financial penalty. See Note 29 b)-Other

Proceedings to the Consolidated Financial Statements.

Failure to comply with anti-corruption laws and

sanctions regulations could lead to further financial

penalties, termination of government contracts, and the

revocation of licenses and authorizations, and could

have a material adverse effect on the Group's

reputation, or otherwise adversely affect the Group's

business, financial condition, results of operations and/

or cash flows.

Events after the

reporting period

The events regarding the Company that took place

between the reporting date and the date of preparation

of the accompanying financial statements have been

disclosed in note 22.

Annual Corporate

Governance Report

See Chapter 4 (Annual Corporate Governance Report)

of the 2025 Consolidated Management Report of

Telefónica, S.A.

This document is also available in the public registers of

the National Securities Market Commission (CNMV).

Annual Report on the

Remuneration of the

Directors

See Chapter 5 (Annual Report on the Remuneration of

the Directors) of the 2025 Consolidated Management

Report of Telefónica, S.A.

This document is also available in the public registers of

the National Securities Market Commission (CNMV).

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