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Annex 1 | 12 Months Ended
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Dec. 31, 2022
Annex 1 [Abstract] |
Annex 1 | Basis of presentation of the consolidated financial statements The accompanying consolidated financial statements were prepared from the accounting records of Telefónica, S.A. and each of the companies comprising the Telefónica Group, whose separate financial statements were prepared in accordance with the generally accepted accounting principles applicable in the various countries in which they are located, and for the purposes of these consolidated financial statements are presented in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These consolidated financial statements present fairly, in all material respects, the consolidated equity and financial position at December 31, 2022, and of the consolidated results of operations, changes in consolidated equity and the consolidated cash flows obtained and used in the year then ended. The euro is the Group’s reporting currency. The figures in these consolidated financial statements are expressed in million euros, unless indicated otherwise, and may therefore be rounded. Note 3 contains a detailed description of the most significant accounting policies used to prepare these consolidated financial statements. Materiality criteria These consolidated financial statements do not include certain information or disclosures that, not having to be presented due to their qualitative significance, were deemed to be immaterial or of no relevance pursuant to the concepts of materiality or relevance defined in the IFRS conceptual framework, insofar as the Telefónica Group’s consolidated financial statements, taken as a whole, are concerned. Comparative information and main changes in the consolidation scope For comparative purposes, the accompanying consolidated financial statements for 2022 include the figures for 2021, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows, and the notes thereto for the year then ended, they also include those of 2020. The main events and changes in the consolidation scope affecting comparability of the consolidated information for 2022 and 2021 (see Appendix I for a detailed description of the consolidation scope and the changes during the year) are as listed below. Exchange rates evolution
Variation of average exchange rate vs euro
| 2022 vs 2021 | 2021 vs 2020
Brazilian real | 17.6 | % | (8.8 | %)
Pound sterling | 0.8 | % | 3.4 | %
New peruvian sol | 13.7 | % | (13.2 | %)
Chilean peso | (2.2 | %) | 0.6 | %
Colombian peso | (0.6 | %) | (5.1 | %)
Mexican peso | 13.5 | % | 1.6 | %
Variation of closing exchange rate vs euro
| 2022 vs 2021 | 2021 vs 2020 |  |
Brazilian real | 13.5 | % | 0.9 | % |  |
Pound sterling | (5.3 | %) | 6.9 | % |  |
New peruvian sol | 10.9 | % | (1.6 | %) |  |
Chilean peso | 4.7 | % | (8.8 | %) |  |
Colombian peso | (12.2 | %) | (6.6 | %) |  |
Mexican peso | 11.5 | % | 5.4 | % |  |
In 2022, there was a positive impact on Equity attributable to equity holders of the Parent Company for translation differences amounting to 1,169 million euros (see Note 17.f), mainly due to the appreciation of the Brazilian real. Agreement between Telefónica and Liberty Global plc to combine their operating businesses in the UK On May 7, 2020, Telefónica reached an agreement with Liberty Global plc to combine into a 50-50 joint venture their operating businesses in the United Kingdom (O2 Holdings Ltd. and Virgin Media UK, respectively). On June 1, 2021 after obtaining the relevant regulatory approvals, consummation of the necessary recapitalization and satisfaction of other closing conditions, the closing of the transaction was carried out, resulting in the combination of both businesses into the joint venture called VMED O2 UK Limited ("VMO2"). Telefonica United Kingdom, which was fully consolidated within the Group, is excluded from the scope of consolidation from June 1, 2021 (Note 4). From that date, VMO2 is registered under the equity method (see notes 4 and 10). The constitution of the joint venture resulted in a contribution of 5,376 million pounds sterling (equivalent to 6,234 million euros at the transaction day) for Telefonica, of which 2,622 million pounds correspond to the cash payment to Telefónica to equalise ownership in the joint venture (including the post-completion adjustment, see Note 29.c) and 2,754 million pounds correspond to proceeds from recapitalization. As a consequence of this transaction, the Group recognized a gain amounting to 4,460 million euros in “Other income” in 2021 (see Note 26), as follows:
| Millions of euros
Cash received | 6,234 |
Fair value of 50% of VMO2 (Note 10) | 12,012 |
Less: carrying amount of Telefonica United Kingdom at June 1, 2021 | (10,937) |
Liabilities assumed and other costs (see Note 29.c) | (441) |
Result before reclassification of translation differences and gains on hedges | 6,868 |
Reclassification of translation differences included in equity | (3,135) |
Reclassification of gains on hedges included in equity | 727 |
Result of the transaction: gain | 4,460 |
In addition, the accumulated actuarial losses of Telefonica United Kingdom amounting to 392 million euros were reclassified to retained earnings, with no effect in net equity. Agreement between Telxius Telecom and American Tower Corporation for the sale of its telecommunications towers divisions in Europe and Latin America On January 13, 2021 Telxius Telecom, S.A. (a company of the Telefónica Group minority-owned, directly or indirectly, by KKR and Pontegadea), signed an agreement with American Tower Corporation ("ATC") for the sale of its telecommunications towers divisions in Europe (Spain and Germany) and in Latin America (Brazil, Peru, Chile and Argentina). The agreement established the sale of a number of approximately 30,722 telecommunication tower sites and comprises two separate and independent transactions (on one hand, the Europe business and, on the other hand, the Latin American business), fixing the respective closures after the corresponding regulatory authorizations. The agreement included the transfer to ATC of the towers that Telxius agreed to acquire from Telefónica Germany GmbH & Co. under the agreement signed on June 8, 2020, both the towers acquired in the first phase on September 1, 2020 as well as the towers that were acquired in the second phase in August 2021. On June 1, 2021, once the relevant regulatory approvals had been obtained in Spain and Germany, the closing of the sale of the telecommunication towers division located in Europe was carried out, for a total selling price of 6,346 million euros. On June 3, 2021, the closing of the sale of the telecommunication towers division located in Latin America was carried out, for a selling price of 887 million euros. On August 2, 2021, the closing of the sale to ATC of 4,080 sites that Telxius undertook to acquire from Telefónica Germany GmbH & Co. OHG, under the second phase of the agreement reached between both parties on June 8, 2020 was carried out, which stated a total purchase price of 632 million euros. With the closing of this transaction, together with the sales of the telecommunications towers divisions in Europe and Latin America carried out in June, the sale process agreed between Telxius and ATC was finalized. These transactions generated in 2021 a gain of 6,099 million euros registered in "Other income" (see Note 26), with the following breakdown:
| Millions of euros
Selling price | 7,865 |
Less: carrying amount of net assets and transaction costs | 1,729 |
Result before reclassification of translation differences | 6,136 |
Translation differences | (37) |
Result of the transaction: gain | 6,099 |
Income tax | (162) |
Result attributable to non-controlling shareholders | (2,246) |
Result attributable to equity holders of the parent | 3,691 |
After the closing of these transactions, the companies of the Europe and Latin América towers divisions were excluded from the consolidation perimeter. The Telefónica Group operators maintained the leases agreements of the towers signed with the sold subsidiaries of Telxius. Consequently, as of the closing date of the transactions, rights of use and lease liabilities were recorded in the consolidated statement of financial position, amounting to 2,633 million euros (see Note 9) and 2,775 million euros (see Note 20), respectively. Acquisition of mobile assets of Oi Group On April 20, 2022, the closing of the transaction related to the Purchase Agreement for Acquisition of Unidade Produtiva Isolada (UPI) Mobile Assets of Oi Group took place, and Telefónica Brasil acquired, on such date, all the shares of the company Garliava RJ Infraestrutura e Redes de Telecomunicações S.A. (Garliava), to which the mobile assets of Oi Group assigned to Telefónica Brazil had been contributed, under the segregation plan stated in the Oi Agreement (see Note 29.c). Telefónica Brasil thus acquired its share of mobile assets of the Oi Group for an amount, still subject to adjustments, of 5,373 million Brazilian reais (approximately 1,063 million euros at the exchange rate at such date), A payment of 4,885 million Brazilian reais (approximately 972 million euros) was made at closing of the transaction. The remaining amount, equivalent to 10% of the payment made on that date, is withheld subject to certain price adjustments and potential indemnification obligations contained in the Oi Agreement. The total consideration also includes 110 million Brazilian reais subject to the fulfilment of certain targets, and other costs amounting to 8 million Brazilian reais. Thus, the total consideration transferred amounted to 5,492 million Brazilian reais (1,093 million euros at the date of the closing of the transaction). On the date of approval of these consolidated financial statements, the Company had already concluded the report for the allocation of the purchase price. The fair value assigned to Oi's licenses amounts to 520 million euros. The goodwill amounts to 676 million euros (see Note 5). Agreement between Telefónica de España and Telefónica Infra with Vauban Infrastructure Partners and Credit Agricole Assurance for the establishment of Bluevia In July 2022, an agreement was reached between Telefonica de España and Telefonica Infra with the consortium formed by Vauban Infrastructure Partners (Vauban) and Crédit Agricole Assurances (CAA) for the establishment of a company, Bluevia Fibra, S.L. for the deployment and commercialization of a fiber to the home network mainly in rural areas in Spain. On December 20, 2022 once the regulatory authorizations were obtained and after the fulfillment of the remaining agreed conditions, the transaction was completed. The consortium formed by CAA and Vauban has acquired 45% of the Company for a total amount of 1,021 million euros in cash, paid on the closing of the agreement (see Note 28). The transaction had no impact on the consolidated income statements of the Telefónica Group as it consisted on the sale of minority interest, with Telefónica retaining control over Bluevia. The impact of this transaction in equity attributable to equity holders of the parent was an increase of 986 million euros in "Retained earnings". In addition, there was in increase in equity attributable to non-controlling interest amounting to 23 million euros (see Note 17). The difference between the tax value of the assets transferred to Bluevia and their carrying amount in the Group's consolidated annual accounts generated a deferred tax asset for deductible temporary differences amounting to 548 million euros (see Note 25). Individual Suspension Plan On December 28, 2021, Telefónica Spain signed a Social Pact for Employment supported by the largest trade unions. Said Pact includes the Company’s differential commitments and is based on the following six lines of work: equality and diversity; new ways of working, flexibility and productivity; incorporation and retention of talent; reskilling and professional development; functional and geographical mobility; and a plan for the voluntary individual suspension of the employment relationship (the Individual Suspension Plan). The target audience of the Individual Suspension Plan are the employees turning 55 years or older in 2022 and with a seniority of more than 20 years. Maximum percentages of adhesion differ according to the areas. The present value of the estimated payment flows resulting from the Plan resulted in expenses amounting to 1,382 million euros before taxes in 2021 (see Note 24), reflected in "Personnel expenses" to the Consolidated Financial Statements). Impairment of goodwill of Telefónica del Perú In 2021 an impairment loss was recognized on the goodwill allocated to Telefónica del Perú, amounting to 393 million euros (see Note 7). ANNEX 1
BRAZIL'S SPECTRUM PORTFOLIO: MEANING OF THE STATES, REGIONS AND SECTORS ACRONYMS
Acronym | State
AC | Acre
AL | Alagoas
AP | Amapá
AM | Amazonas
BA | Bahia
CE | Ceara
DF | Distrito Federal
ES | Espírito Santo
GO | Goiás
MA | Maranhão
MT | Mato Grosso
MS | Mato Grosso do Sul
MG | Minas Gerais
PA | Pará
PB | Paraíba
PR | Paraná
PE | Pernambuco
PI | Piauí
RJ | Rio de Janeiro
RN | Rio Grande do Norte
RS | Rio Grande do Sul
RO | Rondônia
RR | Roraima
SC | Santa Catarina
SP | São Paulo
SE | Sergipe
TO | Tocantins
Regions | States & towns included in the regions
1 | SP (City)
2 | SP (Interior)
2' | SP - towns of sector 33 of the GPLG
3 | RJ and ES
4 | MG
4' | MG - towns of sector 3 of the GPLG
5 | PR and SC
5' | PR - towns of sector 20 of the GPLG
6 | RS
6' | RS - towns of sector 30 of the GPLG
7 | AC, DF, GO, MS, MT, RO and TO
7' | GO - towns of sector 25 of the GPLG
7'' | MS - towns of sector 22 of the GPLG
8 | AM, AP, MA, PA and RR
9 | BA and SE
10 | AL, CE, PB, PE, PI and RN
Sectors | GPLG - general plan of the licenses granted (geographic areas that correspond to the sectors)
1 | RJ
2 | MG - except towns included in sector 3
3 | MG - towns of Araporã, Araújo, Campina Verde, Campo Florido, Campos Altos, Canálopis, Capinópolis, Carmo do Paranaíba, Carneirinhos, Centralina, Comendador Gomes, Conceição das Alagoas, Córrego Danta, Cruzeiro da Fortaleza, Delta, Frutal, Gurinhatã, Ibiraci, Igaratinga, Iguatama, Indianópolis, Ipiaçú, Itapagipe, Ituiutaba, Iturama, Lagamar, Lagoa Formosa, Lagoa Grande, Limeira D'Oeste, Luz, Maravilhas, Moema, Monte Alegre de Minas, Monte Santo de Minas, Nova Ponte, Nova Serrana, Papagaios, Pará de Minas, Patos de Minas, Pedrinópolis, Pequi, Perdigão, Pirajuba, Pitangui, Planura, Prata, Presidente Olegário, Rio Paranaíba, Santa Juliana, Santa Vitória, São Francisco de Sales, São José da Varginha, Tupaciguara, Uberaba, Uberlândia, União de Minas & Vazante
4 | ES
5 | BA
6 | SE
7 | AL
8 | PE
9 | PB
10 | RN
11 | CE
12 | PI
13 | MA
14 | PA
15 | AP
16 | AM
17 | RR
18 | SC
19 | PR –except towns included of sector 20
20 | PR – towns of Londrina and Tamarana
21 | MS – except the town integrating of sector 22
22 | MS – town of Paranaíba
23 | MT
24 | TO and GO – except towns included in sector 25
25 | GO – towns of Buriti Alegre, Cachoeira Dourada, Inaciolândia, Itumbiara, Paranaiguara and São Simão
26 | DF
27 | RO
28 | AC
29 | RS
30 | RS – towns of Pelotas, Capão do Leão, Morro Redondo and Turuçu
31 | SP – except the towns included in sector 33
33 | SP – towns of Altinópolis, Aramina, Batatais, Brodosqui, Buritizal, Cajuru, Cássia dos Coqueiros, Colômbia, Franca, Guaíra, Guará, Ipuã, Ituverava, Jardinópolis, Miguelópolis, Morro Agudo, Nuporanga, Orlândia, Ribeirão Corrente, Sales de Oliveira, Santa Cruz da Esperança, Santo Antônio da Alegria and São Joaquim da Barra

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