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A. Operating Results
Presentation of Financial Information
The information in this section should be read in conjunction with our Consolidated Financial Statements, included elsewhere in this Annual Report. Our Consolidated Financial Statements have been prepared in accordance with IFRS as issued by the IASB.
In 2024 the Telefónica Group is reporting financial information, both internally and externally, according to the following segments: Telefónica Spain, VMO2, Telefónica Germany, Telefónica Brazil and Telefónica Hispam (formed by the Group's operators in Colombia, Mexico, Venezuela, Ecuador, Argentina (sold in February 2025), Chile, Peru and Uruguay).
The segments referred to above include the information related to the fixed, wireless, cable, data, Internet and television businesses and other digital services provided in each related region. Inter-segment transactions are carried out on an arm's-length basis.
In 2024, impairments losses on goodwill of Peru and Chile cash-generating units have been included in the Telefónica Hispam segment, and impairments losses on goodwill of Telefónica Tech UK & Ireland and BE-terna Group have been included in "Other companies" , which is described below (see Note 7 to the Consolidated Financial Statements). Likewise, impairment losses on intangible assets and property, plant and equipment in Argentina and on intangible assets and held for sale assets in Peru, as well as the reversal of deferred tax assets for loss carryforwards, have been included in the Telefónica Hispam segment (see Note 6, 8 and 30 to the Consolidated Financial Statements).
In 2023, impairment losses on goodwill of the Ecuador cash-generating unit were included in the Telefónica Hispam segment (see Note 7 to the Consolidated Financial Statements).
The VMO2 segment information included in this Annual Report is presented under management criteria, and shows 100% of VMO2’s results. In addition, information included in this Annual Report on the accesses of the Group and the VMO2 segment includes 100% of the accesses of VMO2. Telefónica’s actual percentage ownership of VMO2 is 50% and its results are accounted for under the equity method.
Information relating to other Group companies not specifically included in the segments referred to above is reported under "Other companies" (see Appendix I to the Consolidated Financial Statements), which includes Telefónica, S.A. and other holding companies, as well as companies whose main purpose is to provide cross-sectional services to Group companies, and other operations not included in the segments. The Incremental Group and BE-terna Group, acquired in March and June 2022 (see Note 5 to the Consolidated Financial Statements), respectively, are reported within "Other companies". "Other companies" also includes the share of results of investments accounted for by the equity method corresponding to the fiber optic companies in which Telefónica Infra, S.L. ("T. Infra") has ownership interests (see Note 10 to the Consolidated Financial Statements).
The Group centrally manages borrowing activities, mainly through Telefónica, S.A. and other companies included in “Other companies” (see Note 19, Appendix III and Appendix V to the Consolidated Financial Statements), so most of the Group's financial assets and liabilities are reported under “Other companies”. In addition, Telefónica, S.A. is the head of the Telefónica tax group in Spain (see Note 25 to the Consolidated Financial Statements). Therefore, a significant part of the deferred tax assets and liabilities is included under “Other companies”. For these reasons, the results of the segments are disclosed up through operating income.
Revenues and expenses arising from intra-group invoicing for the use of the trademark and management services were eliminated from the operating results of each Group segment. The results of the holding companies also exclude dividends from Group companies and impairments of investments in Group companies. These adjustments have no impact on the Group’s consolidated results. In addition, segment reporting considers the impact of the purchase price allocation to the assets acquired and the liabilities assumed by the companies included
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in each segment. The assets and liabilities presented in each segment are those managed by the heads of each segment, regardless of their legal structure.
Significant Factors Affecting the Comparability of Our Results of Operations in the Periods under Review
The following factors affect the comparability of our results of operations in the periods under review:
Impairment losses on goodwill, held for sale asset and other intangible assets, and reversal of deferred tax assets
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 in Chile (397 million euros), Perú (226 million euros), Telefónica Tech UK & Ireland (192 million euros) and BE-terna Group (51 million euros). Additional 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 amounting to 108 million euros has been recorded, as well as a reversal of deferred tax assets amounting to 13 million euros. The impairments of intangible assets and property, plant and equipment in Argentina resulted mainly from high levels of inflation that generated significant increases in the carrying amount of these assets.
In 2023 Telefónica recognized an impairment of goodwill for 58 million euros with respect to the cash-generating unit in Ecuador.
Collective Bargaining Agreement and Collective Redundancies Plan
On December 28, 2023, certain subsidiaries of Telefónica Spain reached an agreement with the most representative trade unions to sign the III Collective Bargaining Agreement, which runs until December 31, 2026 and can be extended for a further year. The aim of the agreement was to move towards a more digital, flexible company, prepared for future challenges in a highly competitive context. In addition, and in parallel, these subsidiaries agreed to execute the Collective Redundancies Plan, which provided for collective redundancies affecting up to a total of 3,420 employees. Employees who turned 56 years or older in 2024 and with a seniority of more than 15 years were able to adhere to the Collective Redundancies Plan. However, targets were established that resulted in limits on adherence in critical areas or additional redundancies based on business reasons. These agreements were endorsed on January 3, 2024.
In "Personnel expenses" of the consolidated income statement for the year 2023, a provision of 1,320 million euros before taxes corresponding to Telefónica Spain was recorded as of December 31, 2023, with no cash impact as of such date. The provision was mainly based on the present value of the estimated payment flows resulting from the Collective Redundancies Plan (see Note 24 to the Consolidated Financial Statements).
Impairment of goodwill in investments accounted for by the equity method (recorded by VMO2)
VMO2's management carried out the 2023 annual goodwill impairment test after updating its business plans at the end of that year. As a result of this analysis, VMO2 recorded an impairment of goodwill amounting to 3,107 million pounds sterling (about 3,572 million euros) in 2023, mainly due to the decrease in projected cash flows of VMO2 as a consequence of the effects of macroeconomic conditions and the competitive environment in the United Kingdom and the increase in the discount rate (WACC). 50% of this amount (about 1,786 million euros) is reflected in Telefónica's consolidated income statement for the year ended December 31, 2023, as its share in the loss of VMO2 accounted for by the equity method.
No additional impairment was recorded in 2024 as a result of VMO2's management's impairment test for that year.
ICSID Arbitration Telefónica v. Republic of Colombia
On November 12, 2024, Telefónica obtained a favorable award regarding the investment dispute with the Republic of Colombia (ICSID Case No. ARB/18/3) submitted to the International Centre for Settlement of Investment Disputes (“ICSID”) pursuant to the Agreement between the Government of the Republic of Colombia and the Kingdom of Spain for the Promotion and Reciprocal Protection of Investments (APRI). The tribunal determined that Colombia failed to comply with its obligation to grant fair and equitable treatment to Telefónica's investments under Article 2(3) of the APRI, and it ordered Colombia to pay the amount of 380 million U.S. dollars (approximately 358
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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. As of December 31, 2024, accrued interest amounted to 154 million euros. In addition, the tribunal ordered Colombia to pay Telefónica’s attorneys’ fees with respect to the arbitration proceedings, together with the corresponding interest.
The amount owed by the Republic of Colombia was recorded under "Short-term credits" as of December 31, 2024.
On November 27, 2024, the Republic of Colombia filed a request with the ICSID to annul and suspend the award. See “Item 8. Financial Information—Consolidated Financial Statements—Legal Proceedings—ICSID Arbitration Telefónica, S.A. vs. Republic of Colombia”.
Corporate transactions
In 2024 and 2023 no corporate transactions took place that materially affected the results of operations.
The main corporate transactions in 2022 were the acquisition of mobile assets of Oi Group on April 20, 2022, the acquisition of the Incremental Group on March 21, 2022, the acquisition of the BE-terna Group on June 9, 2022 and the creation of Bluevia on December 20, 2022 (see Notes 2 and 5 to the Consolidated Financial Statements).
Foreign Exchange Effects and Hyperinflation in Argentina and Venezuela
Excluding the effects of hyperinflation in Argentina and Venezuela (discussed below), foreign exchange rates generally had a negative impact on our 2024 results, mainly due to the depreciation of various Latin American currencies (in particular the Brazilian real) against the euro.
Excluding the effects of hyperinflation in Argentina and Venezuela (discussed below), foreign exchange rates had a small positive impact on our 2023 results.
Foreign exchange rates generally had a positive impact on our 2022 results, mainly due to the appreciation of
various Latin American currencies (in particular the Brazilian real) against the euro.
For additional information on the impact of exchange rates, see “—Exchange Rate Fluctuations” and Note 2 to the Consolidated Financial Statements.
Our reported results in each of these years have also been impacted by hyperinflation adjustments in Argentina and Venezuela. The exchange rate used to translate inflation-adjusted items denominated in Argentine pesos in the consolidated financial statements as of and for the year ended December 31, 2024 was the closing exchange rate as of December 31, 2024 which was 1,073.18 Argentine pesos per euro (893.45 Argentine pesos per euro as of December 31, 2023). The annual inflation rate in Argentina for 2024 was 117.8% (211.4% in 2023) (see Note 3.a to the Consolidated Financial Statements). As a result of these changes in the exchange and inflation rates, in 2024 Telefónica Argentina contributed 2,226 million euros to the consolidated revenues of the Telefónica Group and a loss of 84 million euros to the operating income (1,237 million euros and a loss of 199 million euros, respectively, in 2023), before the 1,274 million euros impairment losses described above.
Significant Changes in Accounting Policies
Please see Notes 2 and 3.o to our Consolidated Financial Statements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reflected in the Consolidated Financial Statements. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from those estimates under different assumptions or conditions.
We consider an accounting estimate to be critical if:
•it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making our estimate; and
•changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition, results of operations or cash flows.
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The various policies that are important to the portrayal of our financial condition, results of operations and cash flows include:
•accounting for non-current assets, including goodwill;
•deferred taxes;
•provisions;
•revenue recognition; and
•leases.
Non-current assets and goodwill
Property, plant and equipment and intangible assets, other than goodwill, are recorded at acquisition cost. If such assets are acquired in a business combination, the acquisition cost is the estimated fair value of the acquired property, plant and equipment or intangible assets. Property, plant and equipment and intangible assets with definite useful lives are depreciated or amortized on a straight-line basis over their estimated useful lives.
Intangible assets with indefinite useful lives are not amortized, but are, instead, subject to an impairment test on a yearly basis and whenever there is an indication that such assets may be impaired.
Accounting for non-current assets, such as long-lived assets and intangibles, involves the use of estimates for determining: (a) the fair value at the acquisition date in the case of such assets acquired in a business combination, and (b) the useful lives of the assets over which they are to be depreciated or amortized. We believe that the estimates we make to determine an asset’s useful life are “critical accounting estimates” because they require our management to make estimates about technological evolution and competitive uses of assets.
Upon the sale or contribution of a controlled business to an associate or joint venture, the Group measures and recognizes any retained interest at its fair value. The fair value assigned to the retained investment is determined on the basis of the business plan of the relevant associate or joint venture, and involves significant judgments when considering significant assumptions such as regarding the long-term margin of operating results before depreciation and amortization, long-term capital expenditure ratio, discount rate and perpetuity growth rate, each of which could be significantly affected by the future trends in the economic, competitive, regulatory and technological environment.
When an impairment in the carrying amount of an asset occurs, non-scheduled write-downs are made. We perform impairment tests of identifiable intangible and other non-current assets, such as equity method investments, whenever there is reason to believe that the carrying value may exceed the recoverable amount, which is the higher of the asset’s fair value less costs to sell and its value in use. Furthermore, previously recognized impairment losses may be reversed when changes in the estimates used to determine the asset’s recoverable amount indicate that an impairment loss recognized in prior periods no longer exists or may have decreased.
The determination of whether the impairment of non-current assets is necessary involves the use of significant estimates and judgment that includes, but is not limited to, the analysis of the cause of potential impairment in value, the timing of such potential impairment and an estimate of the amount of the impairment, which requires the estimation of the future expected cash flows, discount rates and the fair value of the assets.
Specifically, management has to make certain assumptions in respect of uncertain matters, such as growth in revenues, changes in market prices, operating margins, and technology developments and obsolescence, discontinuance of services and other changes in circumstances that indicate the need to perform an impairment test. Management’s estimates about technology and its future development require significant judgment because the timing and nature of technological advances are difficult to predict.
Certain valuation techniques used for investments, such as the discounted cash flow model, require significant judgment when considering significant assumptions such as revenue growth rate, long-term margin of operating results before depreciation and amortization, long-term capital expenditure ratio, discount rate and perpetuity growth rate. For information on our impairment analysis of our equity method investment in VMO2 at the end of the year, see Note 10 to the Consolidated Financial Statements.
Goodwill arises when the cost of a business combination exceeds the acquirer’s interest in the net fair value of the identifiable assets acquired and liabilities assumed at the acquisition date. Goodwill is not amortized, but is,
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instead, subject to an impairment test on a yearly basis and whenever there is an indication that the goodwill may be impaired.
Non-scheduled write-downs of goodwill are made when an impairment in the carrying amount of goodwill occurs. We review, on a regular basis, the performance of our cash-generating units. We compare the carrying amount of the cash-generating unit to which the goodwill has been allocated with its recoverable amount. The determination of the recoverable amount of the cash-generating unit involves extensive use of estimates and significant management judgment is involved. Methods commonly used by us for valuations include discounted cash flow methods that require substantial judgement when considering significant assumptions about relevant performance metrics and other key variables. For more information on the assumptions used in our impairment tests, see Note 7 to the Consolidated Financial Statements.
A significant change in the facts and circumstances that we relied upon in making our estimates may have a material impact on our operating results and financial condition. For information on the sensitivity to changes in certain significant assumptions, see Note 7 to the Consolidated Financial Statements.
Deferred income taxes
The Group assesses the recoverability of deferred tax assets based on estimates of future earnings, and of all the available options to achieve an outcome, it considers the most efficient one in tax terms within the legal framework the Group is subject to. Such recoverability ultimately depends on the Group’s ability to generate taxable earnings over the period for which the deferred tax assets remain deductible. This analysis is based on the estimated schedule for reversing deferred tax liabilities, as well as estimates of taxable earnings, which are sourced from internal projections that are continuously updated to reflect the latest trends.
The recognition of tax assets and liabilities depends on a series of factors, including estimates as to the timing and realization of deferred tax assets and the projected tax payment schedule. Actual Group company income tax receipts and payments could differ from the estimates made by the Group as a result of changes in tax legislation, the outcome of underway tax proceedings or unforeseen future transactions that could affect tax balances.
Provisions
Provisions are recorded when, at the end of the period, we have a present obligation as a result of past events, whose settlement requires an outflow of resources that is considered probable and can be measured reliably. This obligation may be legal or constructive, arising from, but not limited to, regulation, contracts, common practice or public commitments, which have created a valid expectation for third parties that we will assume certain responsibilities. The amount recorded is the best estimation performed by the management in respect of the expenditure that will be required to settle the obligations, considering all the information available at the closing date, including the advice of external experts, such as legal advisors or consultants.
Because of the inherent uncertainties in this estimation, actual expenditures may be different from the originally estimated amount recognized.
If we are unable to reliably measure the obligation, no provision is recorded and information is then presented in the notes to the Consolidated Financial Statements.
Significant management criteria was involved in the recording of provisions relating to tax and regulatory contingencies in Brazil. See Notes 24, 25 and 29 to the Consolidated Financial Statements.
Revenue recognition
Bundled offers
Arrangements involving the delivery of bundled products or services are assessed to determine whether it is necessary to separate the arrangement into individual component deliverables, each with its own revenue recognition criteria.
Revenue relating to the bundled contracts is allocated to the different deliverables identified, based on their relative standalone selling prices.
Given that the handsets and airtime are price-sensitive and volatile in a competitive marketplace, the determination of standalone selling prices in the mobile phone business is quite complex.
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Additionally, a significant change in the facts and circumstances upon which we based our estimates on standalone selling prices may have an impact on the allocation of revenues among the different deliverables identified and, consequently, on future revenues.
Leases
Accounting for a lessee’s rights and obligations under a lease contract requires the use of estimates for determining the lease term in those contracts that include options to extend the lease or early termination options.
Determining the lease term involves making estimates over the time horizon of the Group's strategic planning process with respect to relevant factors such as expected technological progress, possible regulatory developments, market and competition trends or changes in the business model, among others. The assumptions regarding these variables involve a significant degree of judgment to the extent that the timing and nature of future changes are difficult to anticipate.
Due to the uncertainties inherent to these estimates, changes in the assumptions made in respect of uncertain matters when determining the lease term of a lease contract may have an impact on the amounts of the right of use assets and lease liabilities recognized on the basis of the estimates made by the Group.
Operating Environment
Our results of operations are largely dependent on the level of demand for our services in the countries in which we operate. Demand for services in those countries is affected by the performance of their respective economies, particularly household private consumption, but also gross domestic product (GDP), inflation (CPI), current accounts, and unemployment rates.
After facing in 2020 the worst recession since World War II (-2.7% global GDP contraction), the world economy rebounded in 2021 (6.5% global GDP growth). This recovery continued in 2022 (3.6% global GDP growth) despite adverse events such as broad-based high inflation, the Russian invasion of Ukraine (with the associated volatility in energy markets), bottlenecks in global supply chains (partly because of China’s zero-COVID policy) and extreme weather events that also impacted food-related prices. While some of these factors dissipated during 2023, new ones mounted because of geopolitical tensions and one of the most aggressive cycles of synchronized monetary tightening in history. However, the global economy remained unexpectedly resilient during the disinflationary process, avoiding a global recession (3.3% global GDP growth in 2023). Positive inflation dynamics in 2024 resulted in a higher level of real interest rates which started to dent economic growth. In response, the U.S. Federal Reserve and the European Central Bank each began a loosening cycle, lowering rates by 100 basis points towards a more neutral level during the second part of the year, with current interest rates standing at 4.25% and 3.00%, respectively. The Bank of England also started easing, but the loosening has been more modest (50 basis points) amidst more persistent inflation dynamics in the United Kingdom, with current interest rates at 4.75%. The factors behind the economic resilience in 2024 have been: (i) well capitalized banks, ample liquidity and good risk-management practices; (ii) investment projects (public and private) to recover and foster production capacity in key areas after the pandemic; (iii) continued fiscal support to cushion the impact of inflation on the private sector despite consolidation plans; (iv) solid nominal spending supported by strong labor markets with historical lows in unemployment; and (v) high levels of savings accumulated during the pandemic lockdowns. As a result, the global economy is estimated to have grown 3.2% during 2024 according to Bloomberg Economic Consensus ("BEC"). By regions, the United States grew 2.7%, the eurozone 0.8%, the United Kingdom 0.9%, Latin America and the Caribbean 2.1% and China a modest 4.8%, its lowest rate in 40 years as consequence of a property meltdown that is impacting households’ confidence and consumption, as well as banks balance sheets amid a highly leveraged economy.
Spain
In 2024, the Spanish economy led eurozone growth despite record-breaking rainfall and flash floods that hit eastern Spain at the end of October, which may have subtracted 0.2 p.p. from growth according to different estimates. GDP grew at 3.2%, following an expansion of 2.7% in 2023 and above the 2.8% average annual growth experienced from 2015 to 2019. The acceleration in growth in 2024 is a consequence of the past decade's economic reforms that are feeding back into a stronger external demand, with historical records in the export of both touristic and non-touristic services. Consumption is also displaying a strong momentum supported by public consumption, together with a dynamic labor market that keeps adding workers amid high immigration flows. Notwithstanding this, Spain's average unemployment rate in 2024 was 11.3%, still high by advanced-economy standards but below the 12.2% average unemployment rate in 2023 and the 17.7% average unemployment rate
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from 2015 to 2019. Investment remained below pre-pandemic levels as financing costs increased. At the public level, the execution (around 20%) and disbursement of the “Next Generation EU” funds continue to lag, despite the completion of structural reforms intended to facilitate execution and disbursement of the funds.
Inflation has continued to decline during 2024, falling below the 2.0% target during the second part of the year, with a light increase over this threshold during the last months of the year due to base effects and increases in the volatility of energy prices. Spain’s 12-month inflation rate was 2.8% as of December 2024, below the 3.1% 12-month inflation rate in December 2023, but above the 0.9% average 12-month inflation rate from 2015 to 2019. Due in part to the long average maturity of public debt, the increase in interest rates did not have a marked impact on Spanish debt interest payments, and Spain’s fiscal deficit is expected to have closed the year at 3.1% (BEC), below the 3.5% deficit of 2023 and the 3.7% average between 2015 and 2019. Spain's public debt ratio is expected to close at 102.3% of GDP in 2024 according to the IMF, below the 105.0% of GDP in 2023 but above the 101.3% of GDP average from 2015 to 2019. Thanks to the record dynamism in exports, the current account surplus has increased to 3.3% of GDP in 2024 (BEC), up from 2.7% in 2023 and the 2.7% annual average from 2015 to 2019.
United Kingdom
In the United Kingdom, GDP grew 0.9% in 2024 gaining momentum from the near-to-stagnation 0.4% growth in 2023, but still below the 1.7% annual average GDP growth from 2015 to 2019. Growth resumed despite the high terminal level of interest rates (5.25%) in the economy, which were loosened only twice during the second part of the year, landing at 4.75%. Thus, the differential factors for 2024's growth were an increase in real income derived from wage gains above inflation, and from the resilience of the UK labor market, where unemployment rates stayed at a low 4.3% average in 2024 (BEC), slightly above the 4.1% average in 2023 and below the 4.4% average from 2015 to 2019.
Inflation decreased steadily during 2024. The 12-month inflation rate settled below the Bank of England target of 2.0% in September, and closed the year at 2.5% in December 2024, still below the 4.0% 12-month inflation rate of December 2023, but above the 1.6% average 12-month inflation rate from 2015 to 2019. However, dynamic wage growth is preventing a further decline in inflation since service inflation remains at high levels and has impeded a further loosening by the Bank of England. Interest expenses associated with the government deficit, which improved in 2024 (4.4% of GDP – BEC – down from 5.2% in 2023 and above the 2.9% average annual deficit from 2015 to 2019), were mostly unchanged despite high interest rates in the long-end of the curve. The elevated fiscal deficit amid weak real GDP growth has translated in an increase of the UK public debt ratio to 101.8% of GDP in 2024, above the 100% ratio in 2023 and the 86.2% of GDP average from 2015 to 2019. The favorable interest rate differential vis-à-vis Europe supported the British pound sterling throughout 2024, with an average exchange rate of 0.83 pounds sterling per euro, stronger than the average exchange rate in 2023 (0.87 pounds sterling per euro) and slightly depreciated with respect the average exchange rate of 0.83 pounds sterling per euro from 2015 to 2019. This contributed to a higher current account deficit of 2.8% of GDP in 2024 (BEC), up from the 2.2% deficit in 2023, but below the 4.2% average deficit from 2015 to 2019.
Germany
In 2024 German GDP contracted 0.2%, slightly above the 0.3% contraction in 2023 but significantly below the 1.6% average annual GDP growth from 2015 to 2019, keeping Germany’s GDP around its pre-pandemic level still in 2024. The manufacturing sector in Germany is still impacted by energy prices and the slowdown of Germany's main export destination, China, contributing to the loss of global export shares in some sectors against China's rise in these markets. On top of that, Germany has maintained a stricter fiscal policy than its European peers since the pandemic stemming from the “Debt Brake”, a balanced-budget rule that limits Germany's structural deficit to 0.35% of GDP outside of crisis or emergency scenarios. Despite this gloomy environment, unemployment has remained very low, at an average of 3.4% in 2024, similar to the 3.0% of 2023 and below the 3.5% average rate between 2015 and 2019.
Inflation has closely followed the performance of the eurozone average given Germany’s weak internal demand, and despite somewhat higher wage gains and higher energy prices. The 12-month inflation rate was 2.6% as of December 2024, below the 12-month inflation rate of 3.7% as of December 2023 but above the 1.2% average 12-month inflation rate from 2015 to 2019. The long average maturity of debt incurred during the years of low interest rates has also isolated the public accounts from the effects of monetary policy tightening. Germany’s fiscal deficit is expected to be at 2.0% in 2024 (BEC), below the 2.6% deficit of 2023 but above the 1.8% average annual surplus from 2015 to 2019. According to the IMF, the level of public debt has stayed constant at 62.7% of GDP in 2024,
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below the 65.5% average level of public debt from 2015 to 2019. Finally, the current account showed a surplus of 6.3% in 2024 (BEC), above the 6.0% surplus in 2023 but below the 8.2% average from 2015 to 2019.
Brazil
In 2024, Brazil's GDP grew above expectations at 3.5% according to market expectations in Focus Survey, similar to the 3.4% GDP growth in 2023 and well above the -0.4% average annual growth rate between 2015 and 2019. The result was partly driven by fiscal spending, as well as a monetary policy loosening during the first half of the year, which supported quarterly annualized growth levels around 5.0%. This growth fed into a heated job market where unemployment headed to historical lows, with an average rate of 6.9% during 2024 (below the 8.0% average rate in 2023 and the 11.4% annual average rate between 2015 and 2019).
The 12-month inflation rate was 4.8% as of December 2024, far from the 3.0% target and similar to the 12-month inflation rate of 4.6% as of December 2023 (but below the 5.6% average 12-month inflation rate between 2015 and 2019). Inflation was boosted by adverse weather conditions and exchange-rate depreciation that followed from a lack of fiscal discipline, and which fed into inflation expectations. In this context, the policy rate rose from 11.75% at the end of 2023 to 12.25% at the end of 2024, after a loosening impasse in the first half of the year. The public sector budget deficit closed at 8.0% of GDP in 2024 according to Focus Survey, after recording a 6.6% deficit in 2023. As a result, Brazil's public debt ratio increased to 87.6% of GDP in 2024 according to the IMF, above 84.7% of GDP in 2023 and above the 80.8% of GDP annual average between 2015 and 2019. Accordingly, the current account deficit deteriorated to 2.3% of GDP as of December 2024 according to Focus Survey, well above the 1.1% of GDP deficit in 2023 but below the annual average deficit of 2.5% of GDP between 2015 and 2019. The combination of private and, more significantly, public-sector financial imbalance, contributed to an exchange rate of 6.19 Brazilian reais per U.S. dollar as of December 31, 2024, compared to 4.84 Brazilian reais per U.S. dollar on December 31, 2023, a year-over-year depreciation of 28% and well above the annual average of 3.52 Brazilian reais per U.S. dollar between 2015 and 2019.
Mexico
In 2024, GDP growth slowed down to 1.5% according to Latin Focus Consensus Forecast (CFe), in contrast to 3.3% growth in 2023 and below the annual average GDP growth of 2.0% between 2015 and 2019. Slower domestic demand and weaker external impulses weighed on economic performance. The average unemployment rate declined to 2.7% from 2.8% in 2023, lower than the annual average of 3.6% recorded between 2015 and 2019. Prospective economic growth in Mexico remains subject to significant uncertainty. The policies advocated by the incoming U.S. presidential administration have included greater trade protectionism, including the imposition of significant tariffs on Mexican imports into the United States, greater restrictions on border crossings into the United States and greater restrictions on illegal immigrants present in the United States, among others. These policies, if effectively carried out, may slow economic growth in, or otherwise adversely affect, Mexico in the coming years, including by reducing Mexican exports to the United States and the volume of remittances received in Mexico.
The 12-month inflation rate gradually declined to 4.2% as of December 2024, 0.5 p.p. below the 12-month inflation rate in December 2023 (4.7%). It remains higher than both, the average 12-month inflation rate of 3.8% between 2015 and 2019 and the central bank inflation target of 3.0%. Despite the positive trend, inflationary pressures persisted in some of the consumer basket items, but based on headline inflation, the central bank reduced its key interest rate from 11.25% in December 2023 to 10.00% in December 2024. On the fiscal front, the central government’s deficit increased to 5.7% of GDP in 2024 from 3.3% of GDP in 2023, significantly above the 2015-2019 average (2.8% of GDP). In 2024 government debt reached 51.4% of GDP, increasing from 47.4% of GDP in 2023 and 5.7 p.p. higher than the 2015-2019 average (45.7% of GDP). The current account deficit rose from 0.3% in 2023 to an estimated 0.7% of GDP in 2024 (CFe), in line with the annual average of 0.7% of GDP between 2015 and 2019. The Mexican peso depreciated against the U.S. dollar by 22.9% in 2024 (reaching 20.78 Mexican pesos per U.S. dollar as of December 31, 2024), due to persistent U.S. dollar strength, concerns about the trade and immigration policies referred to above and concerns about fiscal management and the effectiveness of institutional reforms carried out by President Claudia Sheinbaum’s administration.
Venezuela
In 2024 GDP expanded at 4.7% (CFe), 0.1 p.p. above 2023 GDP growth of 4.6% according to CFe (official growth statistics are not released on regular basis). It also contrasts with an annual average GDP contraction of 17.2% from 2015 to 2019. Consumption and public spending accelerated following a substantial recovery in oil
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production, from 800 thousand barrels per day in 2023 to 960 thousand barrels per day in 2024 according to the Organization of the Petroleum Exporting Countries (OPEC). This production level remains far below the levels prevailing before the imposition of the U.S. sanctions, many of which were temporarily lifted in October 2023 in exchange for the promise of the release of political prisoners and free and fair elections in 2024. Incumbent president Nicolás Maduro proclaimed himself winner of those elections despite allegations of fraud by the opposition and international community.
The 12-month inflation rate as of December 2024 is estimated at 39.8% (CFe), which is lower compared to the number recorded at the end 2023 (189.0%) and the annual average in the 2015-2019 hyperinflation period (28,193%). The last official 12-month inflation data corresponds to October 2024 (23.6%). The government abated the hyperinflation by permitting a de-facto partial dollarization of the economy and anchoring inflation expectations to exchange-rate dynamics. In 2024, the Venezuelan bolivar depreciated about 44.7% against the U.S. dollar, reaching 52.03 Venezuelan bolivars per U.S. dollar as of December 31, 2024, mostly during the second half of the year due to the uncertainty about the controversial results of the presidential elections.
Chile
In 2024 GDP growth bounced back at 2.5% after having stagnated in 2023 with 0.2% growth. This stood in line with the 2015-2019 average annual GDP growth rate of 2.4%. Economic activity was supported by domestic demand on the back of declining interest rates and rising employment and real wages, but activity remained lower than its historical trend, especially private investment. The unemployment rate averaged 8.5% in 2024, diminishing 0.1 p.p. against 2023 (8.6%) but above 2015-2019 average (6.9%).
The 12-month inflation rate reached 4.5% as of December 2024, increasing by 0.6 p.p. against the December 2023 12-month inflation rate (3.9%), mostly as a result of a 60% jump in electricity prices, which had been frozen since 2019. Inflation remains well above the 2015-2019 average 12-month inflation rate of 3.0%, which is also the monetary policy inflation target. Despite rising inflation, the central bank loosened its monetary policy by cutting rates throughout the year, from 8.25% to 5.0% in an effort to support economic activity, since elevated copper prices contained depreciation pressures. The fiscal deficit was at 2.9% of GDP in 2024, compared to 2.4% of GDP in 2023 and 2.5% on average in 2015-2019 average. In 2024 government debt reached 42.3% of GDP increasing from 38.9% of GDP in 2023 and 19 p.p. higher than the 2015-2019 average (23.3% of GDP). The current account deficit in 2024 reached 2.4% of GDP (CFe), showing an improvement of 1.1 p.p. against 2023 (3.5% of GDP) and of 1.2 p.p. compared to 2015-2019 average (3.6% of GDP). The Chilean peso depreciated against the U.S. dollar by 12% in 2024, reaching 992.0 Chilean pesos per U.S. dollar as of December 31, 2024, mostly as a result of persistent U.S. dollar strength, concerns about the trade and immigration policies of the new U.S. presidential administration, and declining local interest rates. Copper prices and lower political uncertainty partially offset the weakening of the Chilean currency.
Argentina
In 2024 GDP shrunk by 3.4% (CFe), following a contraction of 1.6% in 2023 and an annual average contraction rate of 0.2% between 2015 and 2019. The economic slump was a consequence of the implementation of a strict economic stabilization program intended to reestablish broken macroeconomic equilibrium. The program included a fiscal adjustment of 5.0 p.p. of GDP among other restrictive measures, all partially compensated by a rebound in agricultural production that was affected in 2023 by a severe drought. The unemployment rate averaged 7.9% in 2024 (CFe), which is 1.8 p.p. higher than in 2023 (6.1%) but 0.4 p.p. lower than the annual average rate between 2015 and 2019 (8.3%).
The 12-month inflation rate as of December 2024 reached 117.8%, reducing sharply against 2023 year-end (211.4%). However, it remains well above the annual average between 2015 and 2019 (38.8%). The central bank reduced its key interest rate from 100% to 32% throughout the year as the stabilization program evolved in line with expectations. The government’s fiscal balance recorded a 0.3% of GDP surplus in 2024, a remarkable turnaround from the 5.9% of GDP deficit in 2023 and the average annual deficit between 2015 and 2019 (4.8% of GDP). In 2024, government debt reached 82.5% of GDP (CFe), declining abruptly from 141.0% of GDP in 2023 (CFe), although remaining 15.1 p.p. higher than the 2015-2019 annual average (67.4% of GDP). The current account is expected to show a surplus of 0.6% of GDP in 2024 (CFe), which contrasts with the 2023 deficit of 3.2% of GDP and the annual average deficit of 3.2% of GDP between 2015 and 2019. The Argentine peso depreciated against the U.S. dollar by 27.7% in 2024, reaching 1,032.5 Argentine pesos per U.S. dollar as of December 31, 2024. As a part of the stabilization program, authorities defined a 2.0% monthly crawling peg devaluation in the official
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exchange rate market to reduce volatility and to anchor inflation expectations. In addition, the progressive loosening of exchange market restrictions generated a reduction in the gap between the official and parallel market exchange rates from 26.5% at end of 2023 to 14.9% at end of 2024. Finally, the Argentine government revived its $44 billion Extended Fund Facility arrangement with the IMF. The new operative fiscal and monetary targets under that arrangement were met, although the foreign reserves target was not.
Colombia
In 2024 GDP expanded by 1.7% (CFe), gaining momentum compared to the 0.6% growth in 2023 but underperforming the annual average GDP growth of 2.3% between 2015 and 2019. Higher dynamism was a result of the effect of declining rates in consumption and investment, fiscal spending and wage increases. The average unemployment rate stood at 10.2% in 2024 (the same 10.2% as in 2023), slightly above the annual average of 9.9% recorded between 2015 and 2019.
The 12-month inflation rate gradually declined to 5.2% in December 2024, 4.1 p.p. below the 12-month rate in December 2023 (9.3%) and closer to the average 12-month inflation rate of 4.7% between 2015 and 2019. However, inflation remained above the central bank inflation target of 3.0%, with inflationary pressures persisting as the prices of public services rose in response to the strong "El Niño" phenomenon in the first eight months of the year, which reduced hydroelectric generation capacity. The central bank lowered its key interest rate from 13.0% in December 2023 to 9.5% in December 2024. On the fiscal front, the central government’s deficit increased to 6.8% of GDP in 2024, up from a deficit of 4.3% of GDP in 2023 and twice the 2015-2019 average deficit (3.2% of GDP). Consequently, the government debt ratio reached 60.4% of GDP in 2024, increasing from 56.7% of GDP in 2023 and higher than the 2015-2019 average (47.2% of GDP). The current account deficit increased from 2.5% in 2023 to 2.6% of GDP in 2024 (CFe), below the annual average deficit of 4.4% of GDP between 2015 and 2019. The Colombian peso depreciated against the U.S. dollar by 15.3% in 2024, reaching 4,409.0 Colombian pesos per U.S. dollar as of December 31, 2024, due to persistent U.S. dollar strength, concerns about the trade and immigration policies of the new U.S. presidential administration, declining oil prices and concerns about local fiscal management.
Peru
In 2024, GDP growth stood at 2.9% (CFe) following a 0.4% contraction in 2023, slightly below the annual average growth rate of 3.2% between 2015 and 2019. The economic recovery was led by consumption, benefiting from higher purchasing power as inflation and interest rates fell, as well as by fiscal spending, increasing consumer confidence and reducing political and social contests. The unemployment rate averaged 6.5% in 2024, in line with the average rate in 2023 (6.9%) and the 2015-2019 period (6.5%).
The 12-month inflation rate as of December 2024 reached 2.0%, below the rate of 3.2% at the end of 2023 and below the average 12-month inflation rate of 2.6% between 2015 and 2019. The central bank cut its benchmark interest rate from 6.75% in December 2023 to 5.0% in December 2024. The fiscal deficit in 2024 is estimated at 3.6% of GDP, worsening by 0.8 p.p. compared to 2023 (2.8% of GDP) and above the annual average deficit of 2.2% of GDP between 2015 and 2019. In 2024 the government debt reached 33.3% of GDP (CFe), increasing from 32.9% of GDP in 2023 and 8.6 p.p. higher than the 2015-2019 average (24.7% of GDP). The current account recorded a surplus of 0.9% of GDP in 2024 (CFe), improving by 0.1 p.p. compared to 2023 (0.8% of GDP) and a positive number compared to an annual average deficit of 2.0% of GDP between 2015 and 2019. S&P downgraded the country’s sovereign rating to BBB-, placing the country at risk of losing its investment-grade rating because of the impact that political instability could have on long-term growth. The Peruvian sol depreciated against the U.S. dollar by 1.6% in 2024, reaching 3,764.0 Peruvian sols per U.S. dollar as of December 31, 2024, as a result of persistent U.S. dollar strength, declining interest rate differentials and concerns about fiscal management.
Exchange Rate Fluctuations
We publish our Consolidated Financial Statements in euros. Because a substantial portion of our assets, liabilities, revenues and expenses are denominated in currencies other than the euro, we are exposed to fluctuations in the values of these currencies against the euro. Currency fluctuations have had and may continue to have a material impact on our financial condition, results of operations and cash flows.
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We estimate that, in 2024, variations in currencies (without considering the impacts of hyperinflationary countries) subtracted approximately 2.2 percentage points from the year-on-year growth in the Group’s consolidated revenues. Currency fluctuations can also have a significant impact on our statement of financial position, particularly equity attributable to equity holders of the parent, and on our statement of cash flows, when translating the financial statements of subsidiaries located outside the eurozone into euro. In 2024 translation differences had a negative impact on equity attributable to equity holders of the parent of 959 million euros. In addition, our cash and cash equivalents decreased by approximately 191 million euros due to the translation of the financial statements of our foreign subsidiaries, principally due to the depreciation of the Brazilian real relative to the euro. If the impacts of hyperinflationary currencies were considered, the adverse impact of variations in currencies on our consolidated results, statement of financial position and statement of cash flows would have been higher.
We estimate that in 2023 variations in currencies (without considering the impacts of hyperinflationary countries) contributed to the year-on-year increase in our consolidated revenues by approximately 0.2 percentage points. In 2023 translation differences had a positive impact on equity attributable to equity holders of the parent of 37 million euros. In addition, our cash and cash equivalents decreased by approximately 258 million euros due to the translation of the financial statements of our foreign subsidiaries, principally due to the depreciation of the Argentine peso relative to the euro.
We estimate that in 2022 variations in currencies (without considering the impacts of hyperinflationary countries) contributed to the year-on-year increase in our consolidated revenues by approximately 4.5 percentage points. In 2022 translation differences had a positive impact on equity attributable to equity holders of the parent of 1,169 million euros. In addition, our cash and cash equivalents increased by approximately 156 million euros due to the translation of the financial statements of our foreign subsidiaries, principally due to the appreciation of the Brazilian real relative to the euro.
Argentina is considered as a hyperinflationary economy since July 2018. The inflation rates used to prepare the financial information included herein are based on the National Consumer Price Index of Argentina (Indice de Precios al Consumidor con Cobertura Nacional de Argentina) published by the Central Bank of Argentina, or where a definitive index is not available, the best estimation. On an annual basis, this rate was 117.8% for 2024, 211.4% for 2023 and 94.79% for 2022. The exchange rate used to convert items denominated in Argentine peso, once adjusted for inflation, in the Consolidated Financial Statements are the closing rates as of December 31, 2024, 2023 and 2022, which were 1,032.5, 808.5 and 177.1 Argentine pesos per U.S. dollar, respectively.
Venezuela is considered as a hyperinflationary economy since 2009. The inflation rates used to prepare the financial information included herein are based on the National Consumer Price Index of Venezuela (Indice Nacional de Precios al Consumidor de Venezuela) published by the Central Bank of Venezuela, or where a definitive index is not available, the best estimation. On an annual basis, these rates are 61.5%, 189.8% and 174.3% for 2024, 2023 and 2022, respectively. The exchange rates used to convert items denominated in Venezuelan bolivar, once adjusted for inflation, in the Consolidated Financial Statements are the closing rates as of December 31, 2024, 2023 and 2022, which were 81.85 bolivar digital per U.S. dollar (synthetic exchange rate), 159.45 bolivar digital per U.S. dollar (synthetic exchange rate) and 45.18 bolivar digital per U.S. dollar (synthetic exchange rate), respectively.
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The table below sets forth the average exchange rates against the euro of the U.S. dollar and the key currencies that impacted our consolidated results of operations for the periods indicated. Positive percentage changes represent a decline in the value of the applicable currency relative to the euro, and negative percentage changes represent increases in the value of the applicable currency relative to the euro.
2022 (1) 2023 (1) 2024 (1) % change 2022 vs 2023 % change 2023 vs 2024
Average Average Average Average Average
Pound Sterling 0.85 0.87 0.85 2.04 % (2.66 %)
U.S. Dollar 1.05 1.08 1.08 2.89 % 0.04 %
Brazilian Real 5.42 5.40 5.81 (0.32 %) 7.54 %
Argentine Peso (2) 189.08 893.45 1,073.18 372.52 % 20.12 %
Peruvian Nuevo Sol 4.03 4.05 4.06 0.39 % 0.31 %
Chilean Peso 916.52 906.50 1,020.41 (1.09 %) 12.57 %
Mexican Peso 21.12 19.16 19.71 (9.30 %) 2.88 %
Venezuelan Bolivar Digital (2) 48.23 176.20 85.07 265.37 % (51.72 %)
Colombian Peso 4,452.39 4,651.42 4,397.76 4.47 % (5.45 %)
Notes:
Source: Central treasury bank of the respective countries, except with respect to the Venezuelan bolivar digital
(1) These exchange rates are used to convert the income statements of our subsidiaries from local currency to euro. The exchange
rates between the euro and the Latin American currencies above are calculated by triangulation, using the U.S. dollar.
(2) As Venezuela and Argentina are considered to be hyperinflationary economies, the income statement from operations in each such country is accounted for pursuant to the closing exchange rate of the relevant local currency to euro.
We describe certain risks related to exchange rate fluctuations in “Item 3. Key Information—Risk Factors,” and we describe our policy with respect to limiting our exposure to short-term fluctuations in exchange rates under “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”
Group Results of Operations
Please see “Item 4. Information on the Company — Business Overview”.
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B. Liquidity and Capital Resources
Cash Flow Analysis
The table below sets forth consolidated cash flow information for the years indicated. Positive figures refer to cash inflows and those in parentheses refer to cash outflows.
2022 2023 2024
(Millions of euros)
Net cash from operating activities 11,763 11,649 10,994
Net cash used in investing activities (5,327) (4,286) (5,223)
Net cash used in financing activities (7,925) (7,186) (4,672)
In 2024, dividends amounting to 425 million pounds (512 million euros) were received from VMED O2 UK Limited compared to dividends of 1,000 million pounds (1,154 million euros) in 2023 and 800 million pounds (909 million euros) in 2022.
For details regarding our cash flows for the years ended December 31, 2022, 2023 and 2024, please see the Consolidated Statements of Cash Flows and Note 28 to our Consolidated Financial Statements.
Anticipated Uses of Funds
Our principal liquidity and capital resource requirements consist of the following:
•costs and expenses relating to the operation of our business;
•debt service requirements relating to our existing and future debt;
•capital expenditures (including spectrum acquisitions) for existing and new operations;
•acquisitions of new licenses or other operators or companies engaged in complementary or related businesses; and
•dividends, other shareholder remuneration, and pre-retirement payments.
In 2025, we expect to continue transforming our networks, evolving them towards all-IP hyper-connected networks, by investing in FTTx in key markets, and by expanding our mobile networks with LTE in most of our operations. We also expect to continue investing in TV and digital services to take advantage of the opportunities in the digital markets. We may also use funds to acquire new licenses engaged in complementary or related businesses in the digital world.
We also have liquidity requirements related to the costs and expenses relating to the operation of our business, financial investments (including investment commitments with joint venture partners), our payment of dividends, shareholder remuneration and pre-retirement payment commitments.
We also have liquidity constraints related to debt service requirements in connection with our existing and future debt. As of December 31, 2024, we had gross financial debt of 38,782 million euros compared with 37,061 million euros as of December 31, 2023. For the amortization schedule of our consolidated gross financial debt as of December 31, 2024 and a further description of financing activity in 2024, see “—Anticipated Sources of Liquidity” below.
Our net financial debt decreased by 188 million euros to 27,161 million euros as of December 31, 2024, compared with 27,349 million euros as of December 31, 2023, due to a (i) positive adjusted free cash flow generation of 2,634 million euros (2,468 million euros if spectrum payments and financed spectrum payments without explicit interest were also included in adjusted free cash flow) and (ii) other factors totaling 850 million euros (highlighting the depreciation of various Latin American currencies, in particular the Brazilian real, against the euro). Factors that increased net financial debt in 2024 were (i) shareholder remuneration of 2,062 million euros, (ii) net financial investments of 1,068 million euros (corresponding mainly to the acquisition of Telefónica Deutschland shares) and (iii) spectrum payments of 166 million euros.
In nominal terms, as of December 31, 2024, 82.5% of the Group's net financial debt had its interest rate set at fixed interest rates for periods of more than one year. The effective cost of debt related interest payments for the last 12 months excluding leases was 3.32% as of December 31, 2024 compared to 3.80% as of December 31, 2023.
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For a reconciliation of net financial debt to gross financial debt, see “—Non-GAAP Financial Information—Net financial debt, net financial debt plus leases, net financial debt plus commitments and net financial debt plus leases plus commitments”.
The following table describes our contractual obligations and commitments with definitive payment terms which may require significant cash outlays in the future. The amounts payable (including accrued interest payments) are as of December 31, 2024. For additional information, see our Consolidated Financial Statements.
Payments Due by Period
Millions of euros Total Less than 1 year 1-3 years 3-5 years More than 5 years
Financial liabilities (1) 38,782 5,590 7,834 5,958 19,400
Lease liabilities (2) 8,303 2,226 2,786 1,828 1,463
Purchases and other contractual obligations (3) 11,548 4,204 4,008 1,441 1,895
Other liabilities (4) 2,189 576 1,613 — —
Total 60,822 12,596 16,241 9,227 22,758
(1)Estimated future interest payments as of December 31, 2024 on our interest-bearing debt (not included above) are as follows: 1,308 million euros in 2025, 1,187 million euros in 2026, 1,045 million euros in 2027, 979 million euros in 2028, 888 million euros in 2029 and 6,932 million euros in subsequent years. With respect to floating rate debt, we estimate future interest payments as the forward rates derived from yield curves quoted for the different currencies on December 31, 2024. This item includes the fair value of derivatives classified as financial liabilities (i.e., those with a negative mark-to-market) and excludes the fair value of derivatives classified as current financial assets (461 million euros), and those classified as non-current (2,605 million euros) (i.e., those with a positive mark-to-market). For a more detailed description of our financial derivative transactions, see Note 19 to our Consolidated Financial Statements. For details of the composition of this item, see “—Anticipated Sources of Liquidity”).
(2)This item includes lease liabilities calculated under IFRS 16. For a more detailed description see Note 20 to our Consolidated Financial Statements.
(3)This item includes definitive payments (non-cancellable without penalty cost) due for agreements to purchase goods (such as network equipment) and services, as well as payments for football broadcast rights. For a more detailed description see Note 26 to our Consolidated Financial Statements.
(4)“Other liabilities” include: (a) long-term obligations that require us to make cash payments, excluding financial debt obligations included in the table under “Financial Liabilities” above and (b) other provisions. Because of the nature of the risks covered by “Other liabilities” such as other provisions, it is not possible to determine a reliable schedule of potential payments, if any. For details of the composition of other provisions, see Note 24 to our Consolidated Financial Statements.
Commitments for short-term leases and low value leases amounted to 58 million euros as of December 31, 2024.
In addition, at December 31, 2024, we had short-term and long-term employee benefits provisions amounting to 1,073 million euros and 4,020 million euros, respectively, not included in the table above (see Note 24 to our Consolidated Financial Statements) and non-current and current account payables, such as trade payables, payables to suppliers of property, plant and equipment and payables for spectrum acquisitions, amounting to 1,850 million euros and 12,640 million euros, respectively (see Notes 21 and 22 to our Consolidated Financial Statements), not included in the table above.
In addition, at December 31, 2024, VMO2 had commitments amounting to 5,744 million euros related to purchase, programming, network and connectivity and other commitments not included in the table above (see Note 10 to our Consolidated Financial Statements).
For details of the composition of, and changes in, our debt, see “—Liquidity and Capital Resources—Anticipated Sources of Liquidity” and Note 18 "Financial Liabilities" to our Consolidated Financial Statements.
For a discussion of our liquidity risk management policy, see Note 19 to our Consolidated Financial Statements.
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Anticipated Sources of Liquidity
Cash flows from operations are our primary source of cash funding for existing operations, capital expenditures, investments, licenses, interest obligations and principal payments, dividends, other shareholder remuneration, and pre-retirement payments. We also rely on external financing, including a variety of short, medium and long-term financial instruments, principally bonds and debentures, undated deeply subordinated securities and borrowings from financial institutions. Cash and cash equivalents are mainly held in euros and euro-denominated instruments.
We hold most of our cash and cash equivalents in demand and in various terms up to three-month time deposits in euro.
In recent years, we raised funds by issuing principally equity instruments (undated deeply subordinated securities and mandatory convertible notes) and debt securities, and we may issue additional equity or debt securities at any time. We have also raised funds through a series of asset divestitures. In 2024, the main sources of funds from divestitures came from the sale of Telefónica's entire stake in the share capital of China Unicom (Hong Kong) Limited.
Financing
The following table shows the amortization schedule of our consolidated gross financial debt at December 31, 2024 as stated in euro, excluding estimated future interest payments. We may have exchange rate financial derivatives as instruments assigned to the underlying debt instruments. The table below includes the fair value of derivatives classified as financial liabilities (i.e., those with a negative mark-to-market) and excludes the fair value of derivatives classified as current financial assets (461 million euros), and those classified as non-current (2,605 million euros) (i.e., those with a positive mark-to-market). For description of the liquidity risk we face, see Note 19 to our Consolidated Financial Statements, and for a description of our financial liabilities, see Note 18 to our Consolidated Financial Statements.
Millions of euros
Current Non-current
Maturity 2025 2026 2027 2028 2029 Subsequent years Non-current total Total
Debentures and bonds 3,559 2,046 4,019 2,006 2,422 17,203 27,696 31,255
Promissory notes & commercial paper 1,276 12 3 19 10 129 173 1,449
Total Issues 4,835 2,058 4,022 2,025 2,432 17,332 27,869 32,704
Loans and other payables 556 389 643 277 565 1,584 3,458 4,014
Derivative instruments 199 160 562 376 283 484 1,865 2,064
Total 5,590 2,607 5,227 2,678 3,280 19,400 33,192 38,782
Notes:
- Estimated future interest payments as of December 31, 2024 on our interest-bearing debt (not included above) are as follows: 1,308 million euros in 2025, 1,187 million euros in 2026, 1,045 million euros in 2027, 979 million euros in 2028, 888 million euros in 2029 and 6,932 million euros in subsequent years. With respect to floating rate debt, we estimate future interest payments as the forward rates derived from yield curves quoted for the different currencies on December 31, 2024.
During 2024, we obtained financing (excluding the refinancing of euro commercial paper and short-term banking loans) totaling 3,868 million euros at the Group level and 2,657 million euros were obtained by VMO2 (the joint venture in the UK with Liberty Global plc). Telefónica's financing activity was focused on maintaining a solid liquidity position, as well as refinancing and maintaining long-term debt maturities.
For a description of our financing, see Note 18 to our Consolidated Financial Statements.
As permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, we have excluded the summarized financial information for Telefónica Emisiones, S.A.U and Telefónica Europe, B.V. because they are both considered to be a "finance subsidiary" (as defined in such Rule) of Telefónica, S.A., the debt securities issued by them are fully and unconditionally guaranteed by Telefónica, S.A., and no other subsidiaries of Telefónica, S.A. guarantee their debt issuances.
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Our borrowing requirements are not significantly affected by seasonal trends.
Availability of funds
At December 31, 2024, we had funds available (including cash and cash equivalents, undrawn lines of credit and current financial assets) totaling 20,868 million euros. This amount included: undrawn lines of credit for an amount of 11,017 million euros (10,634 million euros expiring in more than 12 months); cash and cash equivalents; and certain current financial assets.
We believe that, in addition to internal generation of funds, our working capital, our medium-term note program, our euro commercial paper program, our corporate domestic promissory note program and available lines of credit will allow us to meet our future capital requirements, including (according to our liquidity policy) gross debt maturities in the next 12 months.
For a description of our liquidity and undrawn lines of credit available at December 31, 2024, see Note 18 to our Consolidated Financial Statements, and for a discussion of our liquidity risk management and our capital management, see Note 19 to our Consolidated Financial Statements.
Telefónica, S.A. is the parent company of the Telefónica Group and receives funding from its subsidiaries in the form of dividends and loans. Consequently, certain restrictions on the ability of the Group’s subsidiaries to transfer funds to Telefónica, S.A. in the form of cash dividends, loans or advances, capital repatriation and other forms would negatively affect our liquidity and thus our business.
Certain Latin American economies, such as currently Venezuela or Argentina, have experienced shortages in foreign currency reserves and their respective governments have adopted restrictions on the ability to transfer funds out of the country and/or convert local currencies into U.S. dollars. This may limit our ability to repatriate funds out of certain subsidiaries from such countries. Regarding the net repatriation of funds to Spain, 364 million euros from Latin America companies have been received in 2024.This amount includes aggregate dividend collections of 377 million euros and fees for 266 million euros, partially offset by loans and capital contributions made to subsidiaries in an aggregate amount of 279 million euros.
Credit Ratings
Our ability to use external sources of financing will depend largely on our credit ratings. We believe that we are well-positioned to raise capital in financial markets. However, negative conditions in the financial markets or a downgrade of any of the ratings of our debt or the Kingdom of Spain’s debt by any of Fitch, Moody’s and/or Standard & Poor’s may increase the cost of our future borrowings or may make it more difficult to access the public debt markets. In connection with the credit rating agencies’ review of our debt ratings, the rating agencies may give considerable weight to general macroeconomic and political conditions (including sovereign credit rating prospects), the performance of our businesses in countries where we operate, our financial and shareholder remuneration policy, our shareholder structure, our M&A and divestiture policy, our ability to integrate acquired companies and our ability to refinance debt.
At December 31, 2024, 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 2024, there were no changes in the long-term credit ratings by any of the three agencies. The latest 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 2024, measures taken to protect the credit rating included active portfolio management through the voluntary public acquisition offer, and subsequent public delisting acquisition offer, for shares of Telefónica Deutschland. See “Item 4. Information on the Company—History and Development of the Company—Public Takeover Offers”. These transactions reinforce Telefónica’s strategy to focus on its core geographies and its strong commitment to the German market, one of the most attractive and stable telecom markets in Europe. The transactions also support Telefónica’s efforts to simplify the Group’s structure and are expected to enhance the euro-denominated cash flows generated in the Group.
In addition, Telefónica has undertaken an employee restructuring process, allowing for the capture of savings from 2024 onward. See “Item 6. Directors, Senior Management and Employees—Employees”.
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In November 2024, Telefónica España Filiales reached an agreement with Vodafone España to incorporate a joint venture, whose main activity is the commercialization of a fiber to the home (FTTH) network for both companies in Spain.
Additionally, Telefónica maintains a solid liquidity position and conservative approach to debt refinancing, as the Group took advantage of the historical low refinancing rates in recent years to extend average debt life and smooth its maturity profile in coming years.
Intra-group Loans
We lend funds to our operating subsidiaries, directly or through holding companies that head our different lines of business. At December 31, 2024, companies in the Telefónica Group owed Telefónica, S.A. a total of 2,307 million euros (2,057 million euros at December 31, 2023), including amounts due under intra-group loans and dividends distributed and uncollected at December 31, 2024. Funds provided by Telefónica, S.A. to its subsidiaries are derived from retained cash flows, loans, bonds, issuances of undated deeply subordinated securities and other sources (such as dividends and asset disposals). For additional information, see "Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Intra-Group Loans".
C. Research and Development, Patents and Licenses, etc.
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 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;
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•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 2024, Telefónica’s numerous technological innovation activities were focused on three main areas:
•Telecommunications networks. These activities aim at developing and integrating new assets and components into our networks and systems, with three main pillars: (i) high capacity and high energy-efficiency networks: next generation of mobile network technologies (evolution of 5G and 6G), network slicing, new in-home networks, open and disaggregated technologies (Open RAN, Open Broadband, TIP), Quantum Communications (QKD, PQC) integrating our quantum ring infrastructure and connecting it to the European infrastructure Euro-QCI; (ii) cloud-native and software-based network architectures: which enable us to have a more flexible network that is dynamically adaptable to the new requirements of digital services and customers, with the Telco Cloud (multi-cloud virtualization) initiative, leading ETSI-OSM project, contributing to the European Alliance for Industrial Data, Edge and Cloud, and launching the Spanish IPCEI-CIS project; and (iii) Data and Artificial Intelligence driven operations: leveraging new tools and available network data within every process and every domain (fixed and mobile access, transport and core) and cloud infrastructure, with early deployments in Brazil, Germany and Spain, and exploring the network Digital Twin in a TM Forum project.
•The development of new products and services which are carried out within the framework of the digital services strategy. Products and services for the mass market include: generative Artificial Intelligence solutions, new opportunities in the metaverse and the Web3, with a new cryptoasset management solution (operated by the Bit2Me exchange), and digital identity; in video and entertainment with new applications, advertising and payment capabilities, and digital cognitive marketing, using artificial intelligence preserving consumer privacy and our ethical principles, etc. Products and services for the B2B market include: the further development and promotion of Open Gateway, an industry-wide initiative that seeks to expose network APIs to service developers enabling a Network as a Service model, and UTIQ, a joint venture with three other European telecommunications operators that offers programmatic advertising solutions that do not use third-party cookies, as well as a wide portfolio of cloud and cybersecurity services, IoT platforms and connectivity, Big Data, Artificial Intelligence and blockchain, with vertical services tailored to industry sectors and public administrations, including quantum-safe IoT connectivity.
•Experimental and applied research: With a medium and long-term outlook, Telefónica also has specialized scientific groups whose mission is to research and advance the state of the art of technologies to solve the technological, social and environmental challenges that arise. These activities are carried out in collaboration with public and private, national and international universities and research centers.
The total research and development ("R&D") expense in the Group for 2024 amounted to 647 million euros, 12.63% lower than the 741 million euros incurred in 2023 (656 million euros in 2022). These expenses represented 1.6%, 1.8% and 1.6% of the Group’s consolidated revenues for 2024, 2023 and 2022, respectively. These figures were calculated using guidelines of the Organization for Economic Co-operation and Development ("OECD") manual.
During 2024, Telefónica filed 18 patent applications for new inventions, 16 of which were European applications, and two of which were international applications (PCT). All of them were registered through the Spanish Patent and Trademark Office (OEPM). During 2024 a total of 13 patent applications from former years were granted. These figures represent an increase of 5.9% in the number of patent applications for new inventions compared with the 17 patent applications in 2023 (14 in 2022), and a decrease of 64% in the number of patent applications granted compared with the 37 patent applications in 2023 (21 in 2022).
In addition, Telefónica filed a new utility model application in 2024 at the Spanish Patent and Trademark Office (OEPM).
Moreover, three new industrial design families related to Customer Premises Equipment with European scope were registered in 2024 through the European Union Intellectual Property Office (EUIPO) and in Argentina, Brazil, Chile, Colombia, Peru and the United Kingdom (in 2023 five new industrial designs were registered).
At the end of 2024, the Telefónica Group had a portfolio of 419 active patents, 138 industrial designs and nine utility models, resulting in a portfolio of 566 registered technological intangible assets (497 as of December 31, 2023).
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Open Innovation
Wayra is Telefónica’s main Open Innovation program. It connects Telefónica and technological disruptors around the world. We seek to become their preferred strategic partner, with a view to accelerate their business and ours. Wayra offers a unique and smooth interface between entrepreneurs and our network of corporate, government and other partners, adding value to the ecosystems where we are present.
Wayra has seven physical hubs serving nine countries in Europe and Latin America. Wayra manages its own corporate venture capital fund, investing in partnerships with other startup leaders in startups with a focus on the digital consumer market (digital home, entertainment, eHealth, fintech and energy), the B2B market (Artificial Intelligence, Internet of Things, cybersecurity, cloud and Big Data), next generation connectivity and Web3. Since 2022, Wayra also manages investment funds from other Telefónica Group companies like Vivo Ventures in Brazil and Íope Ventures from Telefónica Seguros y Reaseguros Compañía Aseguradora, S.A.U.
In addition to direct investments, Wayra invests as a limited partner in a network of 14 leading venture funds in key markets, aiming to address the big challenges facing the telecommunications industry and create new businesses leveraging cutting edge technology to build strategic partners fully aligned with the Group’s global strategy. The most relevant of these funds is Leadwind, in which we act as anchor investor, targeting deep tech scale-ups in southern Europe and Brazil.
Telefónica has been engaged in Open Innovation for over 15 years. As of 2024, it has helped create and transform local entrepreneurship ecosystems in Europe and Latin America investing more than 240 million euros (including direct and indirect investments), in more than 1,100 startups, contributing to the creation of more than 10,000 highly skilled jobs.
Wayra invested in 37 startups in Europe and Latin America in 2024 for an aggregate total direct investment amount of 9 million euros, including new investments via Íope Ventures. Telefónica had interests in more than 530 active startups whereof 190 were working with Telefónica by the end of 2024.
Telefónica has invested in more than 1,100 startups, engaging more than 330 startups to work with Telefónica and its customers, generating through some of their solutions more than 520 million euros in revenues for the startups and more than 830 million euros in revenues for Telefónica.
In addition, in 2024 Telefónica Open Future maintained its entrepreneurship spaces in three countries, and continued its participation in Alaian, the Open Innovation initiative from ten major global telecommunication companies with an aggregate customer base of 1.5 billion and presence in 70 countries.
D. Trend Information
In 2024, the Telefónica Group faced negative impacts from foreign exchange movements as results were negatively impacted by the depreciation of currencies in the Latin American countries in which the Group operates, in particular the Brazilian real. Hyperinflationary countries had a positive contribution to year-on-year revenue growth in 2024.
The Group continued its strategic focus on network transformation, continuing to focus on 5G deployment in several segments.
Good B2C revenue performance was the result of the Group’s high-quality services, value propositions, and strong brands across markets. which more than offset the impact of adverse changes in foreign exchange. Wholesale and other revenues decreased y-o-y, mainly impacted by MTRs halving in Spain and Germany since the beginning of 2024 and the effect that changes in 1&1's business model had on Telefónica Germany.
Cost efficiencies were achieved in 2024 as a result of the Collective Redundancies Plan adopted by certain companies in Telefónica Spain in 2023.
In 2025, we expect negative impacts from foreign exchange movements in Latin America to continue and we expect intense market competition to continue as well. The Company has taken several steps designed to address these and other recent trends and to face future uncertainties, such as:
•First, while Telefónica has a long track record of generating cost efficiencies, we continue with the digitalization and automation of sales channels and customer care, process improvements and modernization and rationalization of the network, such as switching from copper to fiber and legacy switch-off. In 2024, Telefónica took steps to hedge through long-term price agreements / power purchase
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agreements (PPAs) and intends to increase the hedged ratio level of consumption for 2025 compared to 2024.
•Second, we expect certain selling price increases to continue in the coming year, partially in response to inflation in several markets and potentially, as a result of the imposition of tariffs by major economies. Telefónica believes telecom spending will be resilient to price increases as digitalization and digital communications remain important for Telefónica's customers. Notwithstanding this, some of the markets in which Telefónica operates have re-configured recently (e.g. Spain and the United Kingdom), due to new entrants, consolidation, or changes in control of existing players, raising risks of eventual price competition among operators, especially in basic connectivity offerings targeted at the lower end of these markets. Aiming at offsetting these potential risks and protecting margins, Telefónica continues to manage its operational cost base (i.e. hedging energy prices) and, overall, is focused on cost efficiencies across all functions.
•Third, Telefónica is facing an intense competition in the markets where it operates, through the entry of new competitors (either new players or providers of OTT Services), mergers of operators in certain markets (e.g., agreed merger of mobile operators Vodafone UK and Three UK in the United Kingdom and the completed merger of Orange and MásMóvil in Spain) and other changes in competitive dynamics in the different markets in Latin America (e.g., aggressive customer acquisition offers, with unlimited data and discounts on certain services). In order to combat this competition, Telefónica is focused on offering the best product and services to its customers, continuing to invest in improvements to its network and diversifying its revenue mix with adjacent businesses. These efforts include:
•Telefónica Empresas in Spain continues to advance in its proposals for the business segment. Positive developments on this front include the collaboration agreement with Microsoft to facilitate the adoption of Copilot+ PCs, Windows devices with integrated AI. This collaboration will allow Spanish companies to upgrade their workstations and improve their productivity through advance digital solutions.
•Energy: GUD Energía is a joint venture created in 2024 to capture the opportunities generated by the opening of the free market with a focus on the sale of personalized renewable energy solutions throughout Brazil, helping consumers to cut their energy bills.
E. Critical Accounting Estimates
Not applicable.
F. Non-GAAP Financial Information
In addition to those expressly defined in the IFRS, the management of the Group uses a series of measures in its decision-making that, it believes, provide additional information useful to assess the Group’s performance, solvency and liquidity. These measures should not be viewed in isolation or as a substitute for the measures presented according to the IFRS.
The non-GAAP financial measures included in this Annual Report are operating results before depreciation and amortization, operating results before depreciation and amortization after leases, net financial debt, net financial debt plus leases, net financial debt plus commitments, net financial debt plus leases plus commitments and adjusted free cash flow. We present below the definition of each of these non-GAAP financial measures together with a reconciliation to the most directly comparable financial measure defined by IFRS.
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In 2024, Telefónica made updates to some of its non-GAAP measures. The purpose of these changes was to simplify and strengthen the alignment of the Group's financial objectives with the reported consolidated results, intending to facilitate the understanding of those results.
Following these changes, we use operating results before depreciation and amortization (previously called operating income before depreciation and amortization, or OIBDA) as the main operating performance measure for assessing the Group's objectives. In addition to operating results before depreciation and amortization, the Company has started to provide objectives related to operating results before depreciation and amortization after leases, as performance measures, in line with sector trends and taking into account the importance of leases in our operations.
Additionally, in 2024 Telefónica modified the definition of its free cash flow measure. The Group’s prior free cash flow measure deducted from net cash flow provided by operating activities (i) (payments on investments)/proceeds from the sale of investments in property, plant and equipment and intangible assets, net, (ii) dividends paid to non-controlling interests, (iii) payments of financed spectrum without explicit interest and (iv) lease principal payments, but it added back to net cash flow provided by operating activities payments for commitments related to employee benefits, which represented payments of principal of the debt incurred by Telefónica with those employees. The Group’s new adjusted free cash flow measure is different because:
–payments for commitments related to employee benefits are no longer added back to net cash flow provided by operating activities;
–spectrum payments are excluded from the deduction for (payments on investments)/proceeds from the sale
of property, plant and equipment and intangible assets, net;
–hybrid instruments coupon payments are deducted from net cash flow provided by operating activities; and
–dividends received from VMO2 not tied to the free cash flow generated by VMO2 are deducted from net cash flow provided by operating activities (so that, among other things, adjusted free cash flow does not include cash inflows from possible recapitalizations of VMO2, which are decided annually based on market conditions).
We believe the adjusted free cash flow measure provides a clearer view of recurring available cash generation compared to our prior definition of free cash flow.
Our definitions of the debt indicators (net financial debt, net financial debt plus leases, net financial debt plus commitments and net financial debt plus leases plus commitments) have not been modified.
Operating results before depreciation and amortization and Operating results before depreciation and amortization after leases
Operating results before depreciation and amortization is calculated by deducting depreciation and amortization from the operating income.
Operating results before depreciation and amortization after leases is calculated by deducting from operating results before depreciation and amortization (i) amortization of rights of use (leases amortization) and (ii) financial expenses on lease liabilities.
The Group uses these measures internally to evaluate business performance, to establish operational and strategic objectives and in the budgeting process. Both measures are commonly reported and widespread measures among analysts, investors and other stakeholders in the telecommunications sector. However they are not financial measures defined in IFRS and may, therefore, not be comparable with other similar financial measures used by other companies. These measures should not be considered as substitutes for operating income.
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The following table provides a reconciliation of our operating results before depreciation and amortization and operating results before depreciation and amortization after leases to the Group's operating income for the year for the periods 2024, 2023 and 2022:
Millions of euros 2024 2023 2022
Operating income 2,395 2,593 4,056
Depreciation and amortization 8,799 8,797 8,796
Operating results before depreciation and amortization 11,194 11,390 12,852
Amortization of rights of use (leases amortization) (Note 20) (2,235) (2,159) (2,064)
Financial expenses on lease liabilities (Note 20) (511) (435) (394)
Operating results before depreciation and amortization after leases 8,448 8,796 10,394
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The following tables provide a reconciliation of operating results before depreciation and amortization and operating results before depreciation and amortization after leases to operating income (loss) for the Group and for each of the Group's segments for the years 2024, 2023 and 2022:
2024
Millions of euros Telefónica Spain Telefónica Germany Telefónica Brazil Telefónica Hispam Other companies Elimina-tions Total Group
Operating income (loss) 2,412 539 1,642 (2,051) (247) 100 2,395
Depreciation and amortization 2,202 2,226 2,474 1,651 281 (35) 8,799
Operating results before depreciation and amortization 4,614 2,765 4,116 (400) 34 65 11,194
Amortization of rights of use (leases amortization) (577) (688) (594) (370) (26) 20 (2,235)
Financial expenses on lease liabilities (51) (66) (281) (112) (4) 3 (511)
Operating results before depreciation and amortization after leases 3,986 2,011 3,241 (882) 4 88 8,448
2023
Millions of euros Telefónica Spain Telefónica Germany Telefónica Brazil Telefónica Hispam Other companies Elimina-tions Total Group
Operating income (loss) 1,029 317 1,617 (47) (289) (34) 2,593
Depreciation and amortization 2,200 2,323 2,511 1,557 244 (38) 8,797
Operating results before depreciation and amortization 3,229 2,640 4,128 1,510 (45) (72) 11,390
Amortization of rights of use (leases amortization) (510) (673) (621) (350) (26) 21 (2,159)
Financial expenses on lease liabilities (36) (36) (258) (104) (3) 2 (435)
Operating results before depreciation and amortization after leases 2,683 1,931 3,249 1,056 (74) (49) 8,796
2022
Millions of euros Telefónica Spain Telefónica Germany Telefónica Brazil Telefónica Hispam Other companies Elimina-tions Total Group
Operating income (loss) 2,431 263 1,363 159 (124) (36) 4,056
Depreciation and amortization 2,157 2,295 2,369 1,799 218 (42) 8,796
Operating results before depreciation and amortization 4,588 2,558 3,732 1,958 94 (78) 12,852
Amortization of rights of use (leases amortization) (410) (636) (563) (454) (22) 21 (2,064)
Financial expenses on lease liabilities (15) (16) (238) (123) (2) — (394)
Operating results before depreciation and amortization after leases 4,163 1,906 2,931 1,381 70 (57) 10,394
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Net financial debt, net financial debt plus leases, net financial debt plus commitments and net financial debt plus leases plus commitments
As calculated by us, net financial debt includes:
(A) adding the following liabilities:
i. Current and non-current financial liabilities in our consolidated statement of financial position (which includes the negative mark-to-market value of derivatives),
ii. Other liabilities included in "Payables and other non-current liabilities", "Payables and other current liabilities" (mainly corresponding to payables for deferred payment of radio spectrum that have an explicit financial component and supplier financing for customer financing of terminal sales) and "Current tax payables", and
iii. Financial liabilities included in "Liabilities associated with non-current assets and disposal groups held for sale".
(B) subtracting the following amounts from the resulting amount of the preceding step:
i. "Cash and cash equivalents",
ii. "Other current financial assets" (which include short-term derivatives),
iii. Cash and other current financial assets included in "Non-current assets and disposal groups held for sale",
iv. The positive mark-to-market value of derivatives with a maturity beyond one year,
v. Other interest-bearing assets (included in "Financial assets and other non-current assets", "Receivables and other current assets" and "Tax receivables" in our consolidated statement of financial position). "Financial assets and other non-current assets" includes derivatives, installments for long-term sales of terminals to customers and other long-term financial assets, and "Receivables and other current assets" includes the customer financing of terminal sales classified as short-term.
vi. Mark-to-market adjustment by cash flow hedging activities related to debt, and
vii. Fair value of derivatives adjustment used for the economic hedging of gross commitments related to employee benefits.
We calculate net financial debt plus leases by adding lease liabilities calculated under IFRS 16 (including those corresponding to the companies held for sale) to net financial debt and deducting assets from subleases.
We calculate net financial debt plus commitments by adding gross commitments related to employee benefits and the fair value of the derivatives used for the economic hedging of such commitments to net financial debt, and deducting the value of long-term assets associated with those commitments related to employee benefits and the tax benefits arising from the future payments of those commitments related to employee benefits. Gross commitments related to employee benefits are current and non-current provisions recorded for certain employee benefits such as termination plans, post-employment defined benefit plans and other benefits.
We believe that net financial debt, net financial debt plus leases, net financial debt plus commitments and net financial debt plus leases plus commitments are meaningful for investors and analysts because they provide an analysis of our solvency using the same measures used by our management. We use them to calculate internally certain solvency and leverage ratios. Nevertheless, none of them as calculated by us should be considered as a substitute for gross financial debt as presented in the consolidated statement of financial position.
The following table presents a reconciliation of net financial debt, net financial debt plus leases, net financial debt plus commitments and net financial debt plus leases plus commitments as of December 31, 2024 and 2023 to the Telefónica Group’s gross financial debt as indicated in the consolidated statement of financial position.
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Millions of euros 12/31/2023 12/31/2024
Non-current financial liabilities 33,360 33,192
Current financial liabilities 3,701 5,590
Gross financial debt 37,061 38,782
Cash and cash equivalents (7,151) (8,062)
Other current financial assets (1,066) (1,789)
Cash and other current financial assets included in "Non-current assets and disposal groups held for sale" (see Note 30 to the Consolidated Financial Statements) (13) (11)
Positive mark-to-market value of long-term derivative instruments (1,940) (2,605)
Other liabilities included in "Payables and other non-current liabilities" 1,750 1,818
Other liabilities included in "Payables and other current liabilities" and "Current tax payables" 446 532
Other assets included in "Financial assets and other non-current assets" (1,481) (1,093)
Other assets included in "Receivables and other current assets" (711) (794)
Mark-to-market adjustment by cash flow hedging activities related to debt 659 505
Fair value of derivatives adjustment used for the economic hedging of gross commitments related to employee benefits (205) (122)
Net financial debt 27,349 27,161
Net lease liabilities 8,920 8,275
Net financial debt plus leases 36,269 35,436
Gross commitments related to employee benefits and associated economic hedging 6,159 5,215
Value of associated long-term assets (114) (120)
Tax benefits (1,535) (1,306)
Net commitments related to employee benefits 4,510 3,789
Net financial debt plus commitments 31,859 30,950
Net financial debt plus leases plus commitments (*) 40,779 39,225
(*) Includes assets and liabilities considered to be Net financial debt plus leases plus commitments related to employee benefits for companies classified as held for sale (see Note 30 to the Consolidated Financial Statements).
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Adjusted free cash flow
The Group’s adjusted free cash flow is calculated starting from “Net cash flow provided by operating activities” as indicated in the consolidated statement of cash flows (see Note 28 to the Consolidated Financial Statements) and deducting: (i) dividends received from VMO2 not tied to the free cash flow generated by VMO2, (ii) (payments on investments)/proceeds from the sale of investments in property, plant and equipment and intangible assets, net (excluding spectrum payments), (iii) dividends paid to minority shareholders, (iv) hybrid instruments coupon payments and (v) lease principal payments.
VMO2 adjustment:
As stated above, our adjusted free cash flow does not include, among other things, cash inflows from recapitalizations of VMO2, as we exclude from our “Net cash flow provided by operating activities” dividends received from VMO2 not tied to the free cash flow generated by VMO2. We calculate “Dividends received from VMO2 not tied to the free cash flow generated by VMO2” by first calculating VMO2’s free cash flow (deducting from VMO2’s net cash provided by operating activities (i) capital expenditures, net, (ii) principal payments on vendor financing and (iii) principal payments on leases, and adding back operating-related vendor financing additions). We then deduct from the VMO2 dividends received by Telefónica Group (i) the VMO2 free cash flow attributable to Telefónica’s shareholding (50% of the VMO2 free cash flow) and (ii) the impact of exchange rates on the VMO2 dividends received by the Telefónica Group to determine the dividends received from VMO2 not tied to the free cash flow generated by VMO2.
The dividends received from VMO2 not tied to the free cash flow generated by VMO2, which, as explained above,
are excluded from our calculation of adjusted free cash flow, are detailed in the table below:
Millions of euros 2024 2023 2022
Net cash provided by operating activities 3,577 3,080 3,466
Capital expenditures, net (1,775) (1,652) (1,786)
Operating-related vendor financing additions 3,771 2,886 2,072
Principal payments on vendor financing (4,756) (3,232) (2,738)
Principal payments on leases (232) (252) (232)
VMO2 free cash flow (100% VMO2) 585 830 782
of which: VMO2 free cash flow attributable to Telefónica’s shareholding 50% 292 415 391
VMO2 dividends received by Telefónica Group 512 1,154 909
less: VMO2 free cash flow attributable to Telefónica’s shareholding 50% (292) (415) (391)
less: Impact of exchange rates (*) (6) (3) 11
Dividends received from VMO2 not tied to the free cash flow generated by VMO2 214 736 529
(*) Difference between the average exchange rate in the relevant period and the exchange rate as of the date of the dividend payment.
We believe that adjusted free cash flow is a meaningful measure for investors and analysts because it provides an analysis of the cash flow available to protect solvency levels and to remunerate the parent company’s shareholders. The same measure is used internally by our management. Nevertheless, adjusted free cash flow as calculated by us should not be considered as a substitute for the various flows of cash as presented in the consolidated statements of cash flows.
The following table presents the reconciliation between the Telefónica Group’s Net cash flow provided by operating activities as indicated in the consolidated statement of cash flows (see Note 28 to the Consolidated Financial
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Statements) and adjusted free cash flow according to the new definition explained above for the periods 2024, 2023 and 2022:
Millions of euros 2024 2023 2022
Net cash flow provided by operating activities (Note 28) 10,994 11,649 11,764
except: Dividends received from VMO2 not tied to the free cash flow generated by VMO2 (214) (736) (529)
(Payments on investments)/Proceeds from the sale of property, plant and equipment and intangible assets, net (Note 28) (5,521) (5,851) (5,508)
except: Spectrum payments (Note 28) 46 128 27
Dividends paid to minority shareholders (Note 28) (167) (439) (438)
Hybrid instruments coupon payments (Note 28) (361) (329) (268)
Lease principal payments (Notes 20 and 28) (2,143) (2,114) (1,996)
Adjusted free cash flow 2,634 2,308 3,052