Telefónica, S.A (Form 6-K)

Telefónica, S.A. and its subsidiaries and investees ('Telefónica', 'the Company', the 'Telefónica Group' or 'the Group') make up an integrated and diversified telecommunications group operating mainly in Europe and Latin America. The Group's activity is centered around services of wireline and wireless telephony, broadband, internet, data traffic, Pay TV and other digital services.

The parent company of the Group is Telefónica, S.A., a public limited company incorporated on April 19, 1924 for an indefinite period. Its registered office is at calle Gran Vía 28, Madrid (Spain).

As a multinational telecommunications company which operates in regulated markets, the Group is subject to different laws and regulations in each of the jurisdictions in which it operates, pursuant to which permits, concessions or licenses must be obtained in certain circumstances to provide the various services.

In addition, certain wireline and wireless telephony services are provided under regulated rate and price systems.

The condensed consolidated interim financial statements for the six-month period ended June 30, 2021 (hereinafter, the 'interim financial statements') have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting and Article 12 of Royal Decree 1362/2007, of October 19. Therefore, they do not contain all the information and disclosures required in complete annual consolidated financial statements and, for adequate interpretation, should be read in conjunction with the consolidated financial statements (Consolidated annual accounts) for the year ended December 31, 2020.

The accompanying interim financial statements were approved by the Company's Board of Directors at its meeting of July 28, 2021.

The figures in these interim financial statements are expressed in millions of euros, unless otherwise indicated, and may therefore be rounded.

Comparison of information

Comparisons in the accompanying interim financial statements refer to the six-month periods ended June 30, 2021 and 2020, except in the consolidated statement of financial position, which compares information at June 30, 2021 and at December 31, 2020.

The main changes in the consolidation scope are described in Appendix I.

With respect to seasonality, the historical performance of consolidated results does not indicate that the operations of the Group, taken as a whole, are subject to significant variations between the first and second halves of the year.

Agreement between Telefónica and Liberty Global plc to combine their operating businesses in the UK

On May 7, 2020, Telefónica reached an agreement with Liberty Global plc to combine into a 50-50 joint venture their operating businesses in the UK (O2 Holdings Ltd. and Virgin Media UK, respectively).

This move is fully aligned with the Telefonica strategy to focus on improving market positioning in its core markets. It will enable Telefónica to reinforce its presence and continuity in this market through the creation of an integrated communications provider in the United Kingdom. Accordingly, the operations in the United Kingdom remain as a reportable segment (see Note 4).

In accordance with IFRS 5, at December 31, 2020 the companies included in the transaction were classified as a disposal group held for sale (see Note 25). The non-current assets of Telefónica United Kingdom ceased to be amortized for accounting purposes from the date they started being classified as non-current assets held for sale in May 2020 (see Note 4).

On June 1, 2021 after obtaining the relevant regulatory approvals, consummation of the necessary recapitalisations and satisfaction of other closing conditions, the closing of the transaction has been carried out, resulting in the combination of both businesses into the joint venture called VMED O2 UK Ltd. The constitution of the joint venture resulted in a contribution of 5,439 million pounds sterling (equivalent to 6,307 million euros at the transaction day) for Telefonica, of which 2,686 million pounds correspond to the cash payment to Telefónica to equalise ownership in the joint venture (subject to adjustment at the date of preparation of these financial statements) and 2,754 million pounds correspond to proceeds from recapitalisation.

As a consequence of this transaction, the Group recognized a gain amounting to 4,434 million euros in 'Other income' (see Note 22), as follows:

Millions of euros
Cash received	6,307
Fair value of 50% of VMED O2 UK Ltd (Note 8)	11,932
Less: carrying amount of Telefonica United Kingdom at June 1, 2021	(10,937)
Liabilities assumed and other costs (see Note 24)	(460)
Result before reclassification of translation differences and gains on hedges	6,842
Reclassification of translation differences included in equity	(3,135)
Reclassification of gains on hedges included in equity	727
Result of the transaction: gain	4,434

In addition, the accumulated actuarial losses of Telefonica United Kingdom amounting to 392 million euros were reclassified to retained earnings, with no effect in net equity.

Telefonica United Kingdom, which was fully consolidated within the Group, is excluded from the scope of consolidation from June 1, 2021 (Note 4). From that date, VMED 02 UK Ltd is registered under the equity method (see notes 4 and 8).

Agreement between Telxius Telecom and American

Tower Corporation for the sale of its

telecommunications towers divisions in Europe and

Latin America

On January 13, 2021 Telxius Telecom, S.A. (a company of the Telefónica Group minority-owned, directly or indirectly, by KKR and Pontegadea), signed an agreement with American Tower Corporation ('ATC') for the sale of its telecommunications towers divisions in Europe (Spain and Germany) and in Latin America (Brazil, Peru, Chile and Argentina), for an amount of 7.7 billion euros, payable in cash.

The agreement established the sale of a number of approximately 30,722 telecommunication tower sites and comprises two separate and independent transactions (on one hand, the Europe business and, on the other hand, the Latin American business).

The agreement included the transfer to ATC of the towers that Telxius agreed to acquire from Telefónica Germany GmbH & Co. under the agreement signed on June 8, 2020, including the towers acquired in the first phase on September 1, 2020 and the towers that will be acquired in the second phase by August 2021 (see Note 25).

In accordance with IFRS 5, the companies of the Telxius Group included in the transaction were recognized as a disposal group held for sale in the consolidated statement of financial position at December 31, 2020 (see Note 25) and the non-current assets ceased to be amortized and depreciated for accounting purposes from that date.

On June 1, 2021, once the relevant regulatory approvals had been obtained in Spain and Germany, the closing of the sale of the telecommunication towers division located in Europe was carried out, with Telxius receiving payment of 6,185 million euros.

On June 3, 2021, the closing of the sale of the telecommunication towers division located in Latin America was carried out, with Telxius receiving payment of approximately 909 million euros.

The consolidated carrying amount in the Telefónica Group of the net assets corresponding to the companies sold amounted to 1,300 million euros. These transactions have generated a gain of 5,761 million euros registered in 'Other income' (see Note 22) that includes the reclassification of negative translation differences amounting 37 million euros to the income statement. The result of this transaction attributed to non-controlling interests of Telxius, which considers the effect of previous transactions with these shareholders, amounts to 2,166 million euros (see Note 10).

After the closing of these transactions, the companies of the Europe and Latin América towers divisions were excluded from the consolidation perimeter, therefore rights of use and lease liabilities with these companies emerged, amounting to 2,137 million euros and 2,279 million euros, respectively, at the date of the transaction (see Note 20).

COVID-19: impact and response in Telefónica

The comparison between the first half of 2021 and the same period of the previous year continues to be affected by the pandemic, mainly during the first months of the year, when the impact in 2020 was less significant.

The COVID-19 crisis contributed to the depreciation of Latin American currencies against the euro. The negative effect of the exchange rates evolution is perceived in the average exchange rates (used to translate to euros the income statement) of the first half of 2021 in comparison with the same period of 2020, mainly the Brazilian real.

Variation of average exchange rate
First half (2020 vs 2019)	First half (2021 vs 2020)
Brazilian real	(18.8	%)	(17.5	%)
Pound sterling	(0.0	%)	0.7	%
New peruvian sol	(0.2	%)	(16.2	%)
Chilean peso	(14.7	%)	3.1	%
Colombian peso	(11.1	%)	(7.3	%)
Mexican peso	(8.4	%)	(2.8	%)

However, on June 30, 2021 there is an appreciation of some of the main currencies of the countries where the Group operates with respect to the closing rates of 2020, mainly the Brazilian real and the pound sterling, which resulted in an increase in equity due to translation differences (see Note 10).

Variation of closing exchange rate
06/30/20 vs 12/31/19	06/30/21 vs 12/31/20
Brazilian real	(26.2	%)	7.2	%
Pound sterling	(6.7	%)	4.7	%
New peruvian sol	(6.0	%)	(3.2	%)
Chilean peso	(8.6	%)	0.8	%
Colombian peso	(12.5	%)	(5.5	%)
Mexican peso	(18.1	%)	3.2	%

The evolution of the measures in the first half of 2020 led to indication of impairment of goodwill. As a consequence, the Group updated the impairment test. As a result of the analysis made, an impairment loss was recognised on the goodwill assigned to Telefónica Argentina, amounting to 109 million euros (see Note 6). At the closing of fiscal year 2020, these analysis were updated, based on the latest business plan of the different cash generating units. As a result of the analysis, an impairment of the total goodwill assigned to Telefónica Argentina was registered, amounting to 519 million euros, as well as a correction for impairment of intangible assets amounting to 106 million euros and a correction for impairment of property, plant and equipment amounting to 269 million euros. Due to the impairment record of these assets, the deferred tax liabilities associated with the non-deductibility of the inflation adjustment in Argentina, were partially reversed,

amounting to 94 million euros. In the first half of 2021 no impairment of goodwill have been registered.

Since the beginning of the crisis, Telefónica implemented measures aimed at:

•Protecting the health and safety of its employees and customers at all times.

•Providing critical infrastructure and technology services to governments and health authorities.

•Donating goods and services to hospitals and vulnerable customers

•Making the Group's high-tech buildings available for public use.

•Providing customers with free mobile data and additional entertainment services at no extra cost.

•Accelerating payments to suppliers with liquidity problems and offering flexible payments terms.

•Maintaining the dividend for shareholders; with enhancing financial flexibility with a voluntary scrip dividend (see Note 10).

In addition, the governments of the countries in which the Group operates, imposed several temporary measures on telecommunications operators, some of which remains (see Appendix II). Likewise, in various jurisdictions our operators reached an agreement with the governments to offer minimum connectivity services at a reduced price or for free, including free access to specific platforms (healthcare, emergencies, education, information).

Telefónica's state-of-the-art networks enabled the Group to facilitate record growth in traffic driven by remote working and increased consumption of entertainment services while maintaining high levels of customer experience and service quality.

Alternative measures not defined in IFRS

The Management of the Group uses a series of measures in its decision-making, in addition to those expressly defined in the IFRS, because they provide additional information useful to assess the Group's performance, solvency and liquidity. These measures should not be viewed in isolation or as a substitute for the measures presented according to the IFRS.

Operating income before depreciation and amortization (OIBDA)

Operating income before depreciation and amortization (OIBDA) is calculated by excluding solely depreciation and amortization from operating income. OIBDA is used to track the performance of the business and to establish operating and strategic targets of the Telefónica Group companies. OIBDA is a commonly reported measure and is widely used among analysts, investors and other interested parties in the telecommunications industry,

although not a measure explicitly defined in IFRS, and therefore, may not be comparable to similar indicators used by other companies. OIBDA should not be considered as a substitute for operating income.

Furthermore, the Group management uses the measure OIBDA margin, which is the result of dividing the OIBDA by the revenues.

The following table presents the reconciliation of OIBDA to operating income for the Telefónica Group for the six-months periods ended June 30, 2021 and 2020:

Millions of euros	January - June 2021	January - June 2020
Operating Income Before Depreciation and Amortization (OIBDA)	16,886	7,075
Depreciation and amortization	(4,139)	(4,951)
Operating income	12,747	2,124

The OIBDA of 'Other companies' for the first half of 2021 includes gains on the sale of the tower division of Telxius, amounting to 5,761 million euros and from the constitution of VMED O2 UK Ltd, amounting to 4,434 million euros, both are explained in previous sections.

The following table presents the reconciliation of OIBDA to operating income for each business segment for the six-months periods ended June 30, 2021 and 2020:

January - June 2021
Millions of euros	Telefónica Spain	Telefónica United Kingdom	Telefónica Germany	Telefónica Brazil	Telefónica Hispam	Other companies	Elimina-tions	Total Group
Operating Income Before Depreciation and Amortization (OIBDA)	2,352	919	1,172	1,479	769	10,382	(187)	16,886
Depreciation and amortization	(1,071)	-	(1,192)	(927)	(984)	(128)	163	(4,139)
Operating income	1,281	919	(20)	552	(215)	10,254	(24)	12,747

January - June 2020
Millions of euros	Telefónica Spain	Telefónica United Kingdom	Telefónica Germany	Telefónica Brazil	Telefónica Hispam	Other companies	Elimina-tions	Total Group
Operating Income Before Depreciation and Amortization (OIBDA)	2,436	1,012	1,095	1,666	863	223	(220)	7,075
Depreciation and amortization	(1,108)	(402)	(1,118)	(1,050)	(1,219)	(187)	133	(4,951)
Operating income	1,328	610	(23)	616	(356)	36	(87)	2,124

OIBDA-CapEx and OIBDA-CapEx excluding spectrum acquisitions

OIBDA-CapEx is defined as operating income before depreciation and amortization, reduced by accrued capital expenditures, and OIBDA-CapEx excluding spectrum acquisitions is defined as operating income before depreciation and amortization, reduced by accrued capital expenditures excluding those related to spectrum acquisitions.

We believe that it is important to consider capital expenditures, and capital expenditures excluding spectrum acquisitions, together with OIBDA in order to have a more complete measure of the performance of our telecommunications businesses. We use these measures internally to track the performance of our business, to establish operating and strategic targets of the businesses of the Group and in our internal budgeting process.

Neither OIBDA-CapEx nor OIBDA-CapEx excluding spectrum acquisitions are measures expressly defined in IFRS, and therefore they may not be comparable to similar indicators used by other companies. In addition, neither OIBDA-CapEx nor OIBDA-CapEx excluding spectrum acquisitions should be considered substitutes for operating income, the most comparable financial measure calculated in accordance with IFRS, or any measure of liquidity calculated in accordance with IFRS.

Furthermore, the Group management uses the measures OIBDA-CapEx margin and OIBDA-CapEx excluding spectrum acquisitions margin, which is the result of dividing these measures by the revenues.

In the table below we provide a reconciliation of our OIBDA-CapEx and OIBDA-CapEx excluding spectrum acquisitions to operating income for the periods indicated.

Millions of euros	January-June 2021	January-June 2020
Operating income	12,747	2,124
Depreciation and amortization	(4,139)	(4,951)
OIBDA	16,886	7,075
Capital expenditures in intangibles assets (Note 5)	(1,271)	(545)
Capital expenditures in property, plant and equipment (Note 7)	(2,129)	(2,176)
CapEx	(3,400)	(2,721)
OIBDA-CapEx	13,486	4,354
Spectrum acquisitions (Note 5)	674	-
OIBDA-CapEx excluding spectrum acquisitions	14,160	4,354

Debt indicators

As calculated by us, net financial debt includes:

(A) adding the following liabilities:

i. current and non-current financial liabilities in our consolidated statement of financial position (which includes the negative mark-to-market value of derivatives),

ii. other liabilities included in 'Payables and other non-current liabilities' and 'Payables and other current liabilities' (mainly corresponding to payables for deferred payment of radio spectrum that have an explicit financial component), and

iii. financial liabilities included in 'Liabilities associated with non-current assets 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 financial assets included in 'Non-current assets and disposal groups classified as 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), and

vi. mark-to-market adjustment by cash flow hedging activities related to debt.

With respect to step (B)(v), 'Financial assets and other non-current assets' includes derivatives, installments for the long-term sales of terminals to customers and other long-term financial assets, and 'Receivables and other current assets' includes the customer financing of terminal sales classified as short-term.

The indicator net financial debt plus leases is calculated by adding lease liabilities calculated under IFRS 16 (including those corresponding to 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 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 June 30, 2021 and December 31, 2020 to the Telefónica Group's gross financial debt as indicated in the consolidated statement of financial position:

Millions of euros	06/30/2021	12/31/2020
Non-current financial liabilities	38,141	42,297
Current financial liabilities	7,512	8,123
Gross financial debt (Note 15)	45,653	50,420
Cash and cash equivalents	(14,522)	(5,604)
Other assets included in 'Other current financial assets'	(2,733)	(2,489)
Cash and other financial assets included in 'Non-current assets and disposal groups classified as held for sale'	(7)	(958)
Positive mark-to-market value of long-term derivative instruments (Note 11 and 16)	(2,965)	(3,666)
Other liabilities included in 'Payables and other non-current liabilities'	379	304
Other liabilities included in 'Payables and other current liabilities'	29	60
Other assets included in 'Financial assets and other non-current assets'	(1,722)	(1,471)
Other assets included in 'Receivables and other current assets'	(309)	(320)
Other current assets included in 'Tax receivables'	(357)	-
Financial liabilities included in 'Liabilities associated with non-current assets held for sale'	-	-
Mark-to-market adjustment by cash flow hedging activities related to debt	(294)	(1,048)
Net financial debt	23,152	35,228
Lease liabilities	7,874	6,469
Net financial debt plus leases	31,026	41,697
Gross commitments related to employee benefits	5,407	5,841
Value of associated long-term assets	(85)	(122)
Tax benefits	(1,402)	(1,513)
Net commitments related to employee benefits	3,920	4,206
Net financial debt plus commitments	27,072	39,434
Net financial debt plus leases plus commitments (*)	34,946	45,903
(*) Includes assets and liabilities considered to be 'net financial debt plus leases plus commitments' for companies classified as held for sale (see Note 25).

The evolution of the Net financial debt in the first half of 2021 is strongly impacted by the proceeds received as a result of the constitution of VMED O2 UK and the sale of the towers divisions of Telxius described before.

The payment to the non-controlling shareholders of Telxius related to this sale is expected to be made in the second half of the year (see detail of equity attributable to

non-controlling interests of Telxius in Note 10). Considering this estimated distribution, the Net financial debt of the Group at June 30, 2021 would be 26.2 billion euros.

Free Cash Flow

The Group's free cash flow is calculated starting from 'Net cash flow provided by operating activities' as indicated in the consolidated statement of cash flows; deducting (Payments on investments)/Proceeds from the sale of investments in property, plant and equipment and intangible assets, net, adding the cash received from government grants and deducting dividends paid to minority interests. The cash used to cancel commitments related to employee benefits (originally included in the Net cash flow provided by operating activities) is added as it represents the payments of principal of the debt incurred with those employees.

We believe that free cash flow is a meaningful measure for investors and analysts because it provides an analysis of the cash flow available to protect solvency levels and to remunerate the parent company's shareholders and other equity holders. The same measure is used internally by our management. Nevertheless, free cash flow as calculated by us should not be considered as a substitute for the various flows of cash as presented in the consolidated statements of cash flows.

The following table presents the reconciliation between Telefónica Group's Net cash flow provided by operating activities as indicated in the consolidated statement of cash flows and the free cash flow for the six-months periods ended June 30, 2021 and 2020:

Millions of euros	January - June 2021	January - June 2020
Net cash flow provided by operating activities	5,112	5,288
(Payments on investments)/Proceeds from the sale of property, plant and equipment and intangible assets, net	(3,550)	(3,493)
Dividends paid to minority shareholders	(181)	(175)
Payments related to cancellation of commitments	466	493
Payments of financed spectrum without explicit interest	(21)	-
Free cash flow excluding lease principal payments	1,826	2,113
Lease principal payments	(916)	(891)
Free cash flow	910	1,222

Effect of the incorporation of the joint venture between Telefónica and Liberty Global in the UK

Telefónica UK, which was fully consolidated, was removed from the consolidation perimeter on June 1, 2021. On the same date, the joint venture VMED O2 UK Ltd started to be accounted for by the equity method. The effect on the

Group's alternative performance measures described above is as follows:

•OIBDA/OIBDA-CapEx: Telefónica UK ceased to consolidate in Group OIBDA on June 1. The OIBDA of VMED O2 UK does not compute in the Group's consolidated OIBDA.

•Debt indicators: Telefónica UK's debt is no longer consolidated in the Group as of June 1. The debt of VMED O2 UK is not consolidated in the Telefónica Group debt.

•Free cash flow: Telefónica UK ceases to be consolidated in the Group's free cash flow on June 1. From that date, dividends received from VMED O2 UK will be included in the Group's Free Cash Flow (there were not dividends received from VMED O2 UK Ltd in the period from June 1 to June 30, 2021).

The accounting policies applied in the preparation of the interim financial statements for the six-month period ended June 30, 2021 are consistent with those used in the preparation of the Group's consolidated annual financial statements for the year ended December 31, 2020, except for the following new standards and amendments to standards published by the International Accounting Standards Board (IASB) and endorsed by the EU for use in Europe, which are effective for annual periods beginning on or after January 1, 2021.

Interest Rate Benchmark Reform - Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

The amendments provide practical expedients which address the financial reporting effects when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the ongoing reform of inter-bank offered rates (IBOR) and other interest rate benchmarks. The main temporary reliefs are as follows:

•Changes to contractual cash flows-an entity will not have to derecognise or adjust the carrying amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate.

•Hedge accounting: if a hedge meets other hedge accounting criteria, an entity will not have to discontinue its hedge accounting solely because it makes changes that are required by the reform.

In preparing the interim consolidated financial statements, the Group uses these practical expedients to the extent that they are applicable, as the process to replace the different benchmark rates it is exposed to progresses. In addition to this, the Group will consider the disclosure requirements about new risks arising from the reform and how it manages the transition to alternative benchmark rates in the preparation of the annual consolidated financial statements.

New standards and amendments to standards issued but not effective as of June 30, 2021

At the date of preparation of the interim consolidated financial statements, the following IFRSs and amendments had been published, but their application was not mandatory:

Standards and amendments	Mandatory application: annual periods beginning on or after
Amendments to IAS 37	Cost of Fulfilling a Contract	1 January 2022
Amendments to IFRS 3	Reference to the Conceptual Framework	1 January 2022
Annual Improvements 2018 - 2020 Cycle	1 January 2022
Amendments to IAS 16	Proceeds before Intended Use	1 January 2022
Amendments to IAS 1	Classification of Liabilities as Current and Non-Current	1 January 2023
IFRS 17	Insurance Contracts	1 January 2023
Amendments to IAS 1	Disclosure of Accounting Policies	1 January 2023
Amendments to IAS 8	Definition of Accounting Estimates	1 January 2023
Amendments to IAS 12	Deferred Taxes related to Assets and Liabilities arising from a Single Transaction	1 January 2023

Based on the analyses conducted to date, the Group estimates that the adoption of these new pronouncements will not have a significant impact on the consolidated financial statements in the initial period of application.

In 2021 the Telefónica Group is reporting financial information, both internally and externally, according to the following segments: Telefónica Spain, Telefónica United Kingdom (from June 1, 2021 replaced by VMED O2 UK, accounted for under the equity method), Telefónica Germany, Telefónica Brazil and Telefónica Hispam (formed by the Group's operators in Colombia, Mexico, Venezuela, Ecuador, Argentina, Chile, Peru and Uruguay).

After the agreement with American Tower Corporation for the sale of the telecommunications towers divisions in Europe and Latin America (see Note 2), in 2021 Telxius Group ceased to be a reportable segment and it is included in 'Other companies'. As a consequence, the comparative results of 'Other companies' and 'Eliminations' for the first half of 2020 and the corresponding comparative segmentation of assets and liabilities as of December 31, 2020 were restated. These changes have had no impact on the consolidated results of the Group.

The result obtained for the sale of the telecommunications towers divisions of Telxius Group amounting to 5,761 million euros (see notes 2 and 22) is shown in 'Other companies'.

On May 7, 2020 Telefónica reached an agreement with Liberty Global plc to unite its businesses in the United Kingdom and form a joint venture 50% owned by both companies. On June 1, 2021 the closing of the transaction has been carried out, resulting in the combination of both businesses into the joint venture called VMED O2 UK Ltd (see Note 2). This move is fully aligned with the Telefonica strategy to focus and improve market positioning in its core markets. As a result, VMED O2 UK is considered a reportable segment, as Telefónica UK was until June 1st, while VMED O2 UK is a joint venture and as such it is registered by the equity method (see note 8).

Gains registered on the constitution of VMED O2 UK Ltd amounting to 4,434 million euros (see note 2 and 22) are shown in 'Other companies'.

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 country. Inter-segment transactions are carried out at market prices.

Information relating to other Group companies not specifically included in these segments is reported under 'Other companies' (see Appendix I to the Consolidated Financial Statement for 2020), 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 Group centrally manages borrowing activities, mainly through Telefónica, S.A. and other companies included in 'Other companies', 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. 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 to 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 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.

Note 6. Goodwill

The movement in goodwill assigned to each Group segment was as follows:

January-June 2021
Millions of euros	Balance at 12/31/2020	Additions	Transfers	Exchange rate impact and other	Balance at 06/30/2021
Telefónica Spain	4,299	-	(8)	-	4,291
Telefónica Brazil	6,258	-	(36)	448	6,670
Telefónica Germany	4,558	-	(171)	-	4,387
Telefónica Hispam	1,778	-	(145)	(19)	1,614
Others	151	8	-	3	162
Total	17,044	8	(360)	432	17,124

January-June 2020
Millions of euros	Balance at 12/31/2019	Additions	Derecognition	Transfers	Exchange rate impact and other	Balance at 06/30/2020
Telefónica Spain	4,299	-	-	-	-	4,299
Telefónica Brazil	8,814	-	-	-	(2,307)	6,507
Telefónica Germany	4,819	-	-	-	-	4,819
Telefónica United Kingdom	4,847	-	-	(4,750)	(97)	-
Telefónica Hispam	2,530	-	(109)	-	(164)	2,257
Others	94	1	-	-	(1)	94
Total	25,403	1	(109)	(4,750)	(2,569)	17,976

The goodwill assigned to the second phase of the contract dated June 8, 2020 between Telefónica Germany and Telxius was transferred to Non-current assets held for sale in the first half of 2021. It is expected that the towers identified in this second phase will be acquired by ATC in August 2021 (see Note 25).

The amount under 'Transfers' of Telefónica Hispam in the first half of 2021 corresponds to the goodwill assigned to the agreement for the sale of 60% of InfraCo, SpA by Telefónica Chile, that was transferred to Non-current assets held for sale (see Note 25).

The amount under 'Transfers' of Telefónica Brasil in the first half of 2021 corresponds to the goodwill assigned to the agreement with Caisse de dépôt et placement du Québec, for the construction, deployment and commercialization of a fiber-to-the-home (FTTH) network in Brazil, through a joint venture (see Note 25).

Following the agreement between Telefónica and Liberty Global plc to combine their businesses in the United

Kingdom (see Note 2), the goodwill allocated to Telefónica United Kingdom was reclassified as an asset held for sale.

In the first half of 2020 impairment of goodwill of 109 million euros allocated to Telefónica Argentina was registered, with a counterparty in 'Other expenses' (see Note 22).

The gross cost, accumulated depreciation and impairment losses of property, plant and equipment in the first half of 2021 and December 31, 2020 are as follows:

Balance at June 30, 2021
Millions of euros	Gross cost	Accumulated depreciation	Impairment losses	PP&E
Land and buildings	8,424	(5,760)	(50)	2,614
Plant and machinery	88,042	(69,265)	(270)	18,507
Furniture, tools and other items	4,755	(4,148)	(14)	593
PP&E in progress	1,461	-	(12)	1,449
Total PP&E	102,682	(79,173)	(346)	23,163

Balance at December 31, 2020
Millions of euros	Gross cost	Accumulated depreciation	Impairment losses	PP&E
Land and buildings	8,735	(5,861)	(45)	2,829
Plant and machinery	85,230	(66,289)	(265)	18,676
Furniture, tools and other items	4,573	(3,938)	(12)	623
PP&E in progress	1,654	-	(13)	1,641
Total PP&E	100,192	(76,088)	(335)	23,769

'Transfers and others' in 2021 mainly include the transfers to 'Non-current assets and disposal groups held

for sale' of property, plant and equipment amounting to 395 million euros (see notes 2 and 25).

Additions of CapEx by segment are detailed in Note 4.

The breakdown of items related to associates and joint ventures recognized in the consolidated statements of financial position and income statements is as follows:

Millions of euros	06/30/2021	12/31/2020
Investments accounted for by the equity method	12,406	427
Credits from associates and joint ventures	1	1
Receivables from associates and joint ventures for current operations (Note 13)	134	25
Financial debt, associates and joint ventures	31	-
Payables to associates and joint ventures (Note 18)	52	11
Other current liabilities with associates	46	-

Millions of euros	January - June 2021	January - June 2020
Share of income (loss) of investments accounted for by the equity method	(68)	5
Revenue from operations with associates and joint ventures	136	129
Expenses from operations with associates and joint ventures	13	21
Financial expenses with associates and joint ventures	-	-

The detail of investments accounted for by the equity method is as follow:

Million of euros	06/30/2021	12/31/2020
VMED O2 UK Ltd	11,970	-
Prosegur Alarmas España, S.L.	266	265
Internet para Todos S.A.C.	54	58
Others	44	51
Total	12,406	427

The detail of the movement in investments accounted for by the equity method in the first six months of 2021 is as follows:

Investments accounted for by the equity method	Millions of euros
Balance at 12/31/2020	427
Additions	11,991
Disposals	(5)
Translation differences and other comprehensive income (loss)	69
Income (loss)	(68)
Dividends	(6)
Transfers and others	(2)
Balance at 6/30/2021	12,406

The additions for the period mainly include the fair value assigned to the 50% stake in VMED O2 UK Ltd at the date of constitution (see Note 2), amounting to 11,932 million euros.

Main assumptions used in calculating the fair value of VMED O2 UK

The fair value calculation for VMED O2 UK was based on a discounted cash flows valuation, using the methods of multiples of comparable companies and multiples of transactions as a cross-check.

The valuation emanates from the business plan of the joint venture for the 2021-2023 period that resulted from the aggregation of the individual business plans of O2 and Virgin Media approved by Telefónica and Liberty Global, respectively, extended to 2030 and the synergies plan prepared by the strategy teams of both groups. The following is a description of the main variables considered in the fair value calculation, according to the primary method:

•Revenues: the valuation scenario assumes growth rates between 0% and 3% over the period, in line with the estimations of analysts and supported in the revenues synergies expected for the transaction.

•EBITDA margin: the forecasted EBITDA was based on the stand-alone plans with a normalized margin in the range of 36% to 40% (post-IFRS 16 and adjusted to consider the impact of annual payments of spectrum licenses once expired).

•Synergies: were considered taking into account management's analysis performed at the individual workstream level and benchmarked with analyst estimates of probability of achievement.

•Long-term capital expenditure ratio: it is expected to be in a range of 16% to 22%, aligned with the historical level of comparable companies.

•The discount rate applied to the cash flow projections is the weighted average cost of capital (WACC), the expected return appropriate for the expected risk level.

A modified version of the Capital Asset Pricing Model ('CAPM') was used to estimate the required return on equity. To relever the beta it was considered the intrinsic leverage of the joint venture. In addition, it was considered a specific premium or alpha, which includes additional risks.

For the cost of debt, in line with the leverage assumption considered, the bonds issued by the joint venture were analysed and their spreads were compared to a comparable risk free rate (with a similar maturity, in the same currency and issued in the same country, so that there is not distortion due to the risk premia by country). A return after taxes was used because the interests on the financial debt are tax deductible.

In conclusion, the discount rate applied for the valuation is 6.9%.

•Perpetuity growth rate: revenues from 2028 are normalized to the perpetuity growth rate (g), considering the analysts' consensus for the companies of the sector in the United Kingdom, contrasting with the estimations of long-term inflation rates and with the assumptions made by companies of the sector in their impairment tests. The perpetuity growth rate considered is 1.0%.

Detail of the main items on the statements of financial position and income statements of VMED O2 UK Ltd

Million of euros	30/06/2021
Non current assets	48,386
Current assets	3,146
Cash and cash equivalents	553
Total Assets	51,532
Non current liabilities	19,971
Non current financial liabilities	18,648
Other non current liabilities	1,323
Current liabilities	7,687
Current financial liabilities	1,460
Other current liabilities	6,227
Total Liabilities	27,658
Equity	23,874
50% Telefónica Group	11,937
Acquisition costs	33
Investments accounted for by the equity method	11,970

Million of euros	June 1 - June 30 2021
Revenues	993
Other operating income	36
Operating expenses	(676)
OIBDA	353
Amortizations	(345)
Operating income	8
Financial income	2
Financial expenses	(66)
Exchanges differences	(84)
Result before taxation	(140)
Taxes	9
Result for the period	(131)
Other comprehensive income	8

Significant shareholders

The significant shareholders of the Company are Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), CaixaBank, S.A. and BlackRock, Inc.

Based on the information provided by CaixaBank, S.A. as at December 31, 2020 for the 2020 Annual Report on Corporate Governance, the shareholding of CaixaBank, S.A. in Telefónica's share capital were 4.70%.

Based on the information provided by BBVA as at December 31, 2020 for the 2020 Annual Report on Corporate Governance, the shareholding of BBVA in Telefónica's share capital were 4.96% (in accordance with the Company's share capital as of such date). Likewise, and according to the aforementioned information provided by BBVA, the percentage of economic rights attributed to Telefónica, S.A. shares owned by BBVA amounts to 5.27% of the Company's share capital. In addition, on February 26, 2021, BBVA notified the CNMV that its shareholding in Telefónica's share capital was 4.84%.

Based on the information notified by Blackrock, Inc to the CNMV on March 31, 2020, the shareholding of Blackrock, Inc in Telefónica's share capital were 4.68% (in accordance with the Company's share capital as of December 31, 2021). Likewise, on October 10, 2020, Blackrock, Inc. notified with the SEC that its shareholding in Telefónica's share capital was 4.9%.

During the first six months of 2021 and 2020 the Group did not carry out any significant transactions with Blackrock, Inc., other than the dividends paid corresponding to its stake.

A summary of significant transactions between the Telefónica Group and the companies of BBVA and those of

la Caixa, carried out at market prices, is as follows:

Millions of euros	January-June	January-June
2021	2020
Finance costs	6	14
Receipt of services	15	10
Purchase of goods	69	28
Other expenses	2	2
Total costs	92	54
Finance income	4	9
Dividends received(1)	3	7
Services rendered	46	37
Sale of goods	39	34
Other income	3	-
Total revenue	95	87
Finance arrangements: loans, capital contributions and others (borrower)	424	852
Guarantees	326	254
Commitments	94	68
Finance arrangements: loans and capital contributions (lessee)	1,496	1,155
Dividends paid	77	-
Factoring operations	255	250
Other transactions	1	3

(1)At June 30, 2021, Telefónica holds a 0,66 % stake (0.66% at June 30, 2020) in the share capital of Banco Bilbao Vizcaya Argentaria, S.A.

In addition, the nominal value of outstanding derivatives held with BBVA and la Caixa in the first half of 2021 amounted to 9,667 and 555 million euros, respectively (13,513 million euros held with BBVA and 538 million million euros held with la Caixa in the first half of 2020). This figure is inflated by the use in some cases of several levels of derivatives applied to the nominal value of a single underlying. The net fair value of these same derivatives in the statement of financial position as of June 30, 2021 is 265 and 6 million euros, respectively (717 and 28 million euros, respectively, as of June 30, 2020).

At June 30, 2021 there were collateral net guarantees (liabilities) of certain derivatives with BBVA amounting to 74 million euros (456 million euros in the same period of 2020), no import with Caixa at that time (44 million euros in the same period of 2020), included in 'Finance arrangements: loans, capital contributions and others (borrower)'.

Other related parties

Certain Telefónica Group subsidiaries performed during the first half of 2021 transactions with Global Dominion

Access Group, entity related to Director Mr. José Riberas Mera, derived from the Group´s ordinary course of business amounting to 15 million euros (22 million euros in the first half of 2020).

Directors' and Senior Executives' compensation and other information

Pursuant to the disclosure established in Circular 3/2018, of June 28, of the Comisión Nacional del Mercado de Valores (the Spanish National Securities commission, or 'CNMV'), on periodic reporting by issuers, the compensation and benefits paid to members of the Company's Board of Directors in the first six months of 2021 and 2020 are as follows:

Directors	January- June	January- June
Thousands of euros	2021	2020
Remuneration for belonging to the Board of Directors and/or Board Committees	1,823	1,776
Salary	1,762	1,762
Variable Remuneration in cash (1)	2,931	2,931
Remuneration Systems based on shares (2)	-	-
Compensation	-	-
Long-Term Savings Systems	530	526
Other Concepts	40	34
Total	7,086	7,029

(1) The proportional amount of the target variable remuneration for the period January-June 2021 has been recorded. However, the final amount of this variable remuneration for the 2021 financial year will be that resulting from the degree of compliance with the goals established, as approved by the Company's Board of Directors at its February 2022 meeting, following a favourable report from the Nominating, Compensation and Corporate Governance Committee.

(2) Performance Share Plan (PSP) approved by the 2018 General Shareholders' Meeting. In the first cycle of the Plan (commenced on 1 January 2018, with delivery of the corresponding shares in 2021) a maximum number of 421,000 shares was assigned to the Executive Chairman and 312,000 shares to the Chief Operating Officer. In the second cycle of the Plan (commenced on 1 January 2019, with delivery of the corresponding shares in 2022) a maximum number of 468,000 shares was assigned to the Executive Chairman and 347,000 shares to the Chief Operating Officer. In the third cycle of the Plan (commenced on 1 January 2020, with delivery of the corresponding shares in 2023), a maximum number of 267,000 shares was assigned to the Executive Chairman and 198,000 shares to the Chief Operating Officer.

In relation with the vesting of the first cycle of the Long-Term Incentive Plan 2018-2023, the target measurement period ended on 31 December 2020. In light of the Relative TSR and Free Cash Flow outcomes, the weighted payout coefficient would be 50%. However, at the meeting held by the Nominating, Compensation and Corporate Governance Committee on 23 February 2021, the Executive Chairman propose to waive his incentive, which he deems appropriate, as a gesture of responsibility towards the society, customers, shareholders and employees of Telefónica and as a prudential measure due to the economic impact derived by COVID-19. The Chief Operating Officer stated the same position. It is hereby stated that no shares were delivered to the Executive Directors under the second and third cycle of the PSP, reflecting only the figures indicated: the maximum number of shares potentially deliverable in the event of maximum compliance with the TSR and FCF objective.

In addition, the total amounts accrued to Senior Executives of the Company, excluding those that are also members of the Board of Directors, for all items in the first

six months of 2021 and 2020 are as follows.

Senior Executives	January- June	January- June
Thousands of euros	2021	2020
Total compensation paid to Senior Executives(1)	4,320	3,643

(1) The 'Total compensation paid to Senior Executives' section includes the total amount accrued for all items during the first six months of fiscal years 2021 and 2020, including the amount corresponding to the shares delivered under the first cycle of the Long-Term Incentive Plan (Performance Share Plan - PSP) approved by the General Shareholders' Meeting in 2018.

Share Capital

The Board of Directors of Telefónica, S.A. at its meeting held on April 23, 2021, has resolved to carry out the implementation of the share capital reduction through the cancellation of own shares approved by the Annual General Shareholders' Meeting held on April 23, 2021.

The share capital of Telefónica, S.A. has been reduced in the amount of 82,896,466 euros, through the cancellation of 82,896,466 own shares of the Company held as treasury stock, with a nominal value of one euro each. The share capital of the Company resulting from the reduction has been set at 5,443,534,596 euros corresponding to 5,443,534,596 shares with a nominal value of one euro each. Related to the capital reduction the share premium have been reduced in 305 million euros.

The reduction does not entail the return of contributions to the shareholders since the Company is the owner of the cancelled shares. The reduction has been carried out with a charge to unrestricted reserves, through the provision of a reserve for cancelled share capital in an amount equal to the nominal value of the cancelled shares (i.e. for an amount of 82,896,466 euros), which may only be used in compliance with the same requirements as those established for the reduction of share capital, by application of the provisions of section 335. c) of the Spanish Companies Act. Accordingly, as laid down in such section, the creditors of the Company will not have the right to oppose the reduction mentioned in section 334 of the Spanish Companies Act in connection with the share capital reduction.

On 5 May, 2021, the deed relating to the share capital reduction was registered in the Commercial Registry of Madrid.

On June 22, 2021 the deed of capital increase amounting to 194,518,911 euros, divided into 194,518,911 ordinary shares, with a nominal value of 1 euro each, and issued against reserves as part of the scrip dividend, was filed in the Madrid Commercial registry. Following the share capital increase, the share capital was set up at 5,638,053,507 euros.

Dividends

Approval was given at the General Shareholders' Meeting of April 23, 2021 to pay a scrip dividend amounting to approximately 0,35 euros per share in two tranches, consisting of the assignment of free allotment rights with an irrevocable purchase commitment by the Company, and a subsequent capital increase by means of the issue of new shares to fulfill said allotments, following a specific calculation mechanism which might result in variations of the amount.The distribution of the first tranch, amounting approximately 0.20 euros per share, took place in June of

2021 and the second tranch amounting approximately 0.15 euros per share is envisaged will take place in December 2021, after the adoption of the corresponding corporate resolutions.

At its meeting held on May 26, 2021, the Executive Commission of Telefónica, S.A. Board of Directors agreed to carry out the execution of the increase in paid-up capital, related to the shareholders compensation by means of a scrip dividend. Thus, each shareholder received one free allotment right for each Telefónica share held. Such free allotment rights were traded on the Continuous Market in Spain during a period of 15 calendar days. Once this trading period ended, the shareholders of 28.53% of the free-of-charge allotment rights accepted the irrevocable purchase commitment assumed by Telefónica, S.A. Cash payment to these shareholders was made on June 17, 2021. The gross impact of this dividend amounts to 308 million euros.

On the other hand, the shareholders of 71.47% of the free-of-charge allotment rights were entitled, therefore, to receive new shares of Telefónica, S.A. So the final number of shares issued on June 22, 2021 in the capital increase was 194,518,911 shares with a nominal value of 1 euro each.

Approval was given at the General Shareholders' Meeting of June 12, 2020 to pay a scrip dividend amounting to approximately 0.40 euros per share in two tranches, consisting of the assignment of free allotment rights with an irrevocable purchase commitment by the Company, and a subsequent capital increase by means of the issue of new shares to fulfill said allotments, following a specific calculation mechanism which might result in variations of the amount.The distribution of the first tranch, amounting approximately 0.2 euros per share, took place in June of 2020 and the second tranch amounting approximately 0.2 euros took take place in December 2020, after the adoption of the corresponding corporate resolutions.

At its meeting held on June 12, 2020, the Board of Directors agreed to carry out the execution of the increase in paid-up capital, related to the shareholders compensation by means of a scrip dividend. Thus, each shareholder received one free allotment right for each Telefónica share held. Such free allotment rights were traded on the Continuous Market in Spain during a period of 15 calendar days. Once this trading period ended, the shareholders of 36.99% of the free-of-charge allotment rights accepted the irrevocable purchase commitment assumed by Telefónica, S.A. Cash payment to these shareholders was made on July 3, 2020, representing an gross impact of 371 million euros.

On the other hand, the shareholders of 63.01% of the free-of-charge allotment rights were entitled, therefore, to receive new shares of Telefónica, S.A. So the final number of shares issued after June 30, 2020 in the capital increase was 136,305,986 shares with a nominal value of 1 euro each.

The Executive Commission of Telefónica, S.A. Board of Directors meeting of December 4, 2020 agreed the implementation of the second capital increase with charge to reserves related to the shareholder compensation by means of a scrip dividend. The shareholders of 33.12% of the free-of-charge allotment rights accepted the irrevocable purchase commitment assumed by Telefónica, S.A. Cash payment was made on December 30, 2020 and had an impact in equity amounting to 342 million euros.

On the other hand, the shareholders of 66.88% of the free-of-charge allotment rights were entitled, therefore, to receive new shares of Telefónica, S.A. So the final number of ordinary shares with a nominal value of 1 euro issued in the capital increase was 197,993,390 corresponding to 3.72% of the share capital.

Other equity instruments

In February 2021, Telefónica Europe, B.V. announced several transactions on its hybrid capital: (a) a new issue amounting to 1,000 million euros, guaranteed by Telefónica, S.A. (b) a tender offer on a hybrid instruments, denominated in euros, with first call dates in March 2022. The issuer accepted the purchase in cash of the tendered securities in a principal amount of 758 million euros

The characteristics of the undated deeply subordinated securities, the detail of the tender offer and the amounts repurchased in the operation and the amounts amortized in advance, are the following (millions of euros):

Issue date	Annual Fix	Variable	Exercisable from issuer	12/31/2019	Tender Offer	Amount repurchased	Amortization	06/30/2020
02/12/2021	2.376	%	from 05/12/2029 rate SWAP + spread incremental	2029	-	-	-	-	1,000
02/05/2020	2.502	%	from 05/05/2027 rate SWAP + spread incremental	2027	500	-	-	-	500
09/24/2019	2.875	%	from 09/24/2027 rate SWAP + spread incremental	2027	500	-	-	-	500
03/14/2019	4.375	%	from 03/14/2025 rate SWAP + spread incremental	2025	1,300	-	-	-	1,300
03/22/2018	3	%	from 12/04/2023 rate SWAP + spread incremental	2023	1,250	-	-	-	1,250
3.875	%	from 09/22/2026 rate SWAP + spread incremental	2026	1,000	-	-	-	1,000
12/07/2017	2.625	%	from 06/07/2023 rate SWAP + spread incremental	2023	1,000	-	-	-	1,000
09/15/2016	3.75	%	from 03/15/2022 rate SWAP + spread incremental	2022	1,000	1,000	(758)	-	242
03/31/2014	5.875	%	from 03/31/2024 rate SWAP + spread incremental	2024	1,000	-	-	-	1,000
7,550	7,792

The undated deeply subordinated securities have been issued by Telefónica Europe B.V. unless specified otherwise.

In the first half of 2021, the payment of the coupons related to the undated deeply subordinated securities issued in previous years, impacted by the tender offer, amounted to an aggregate amount, net of tax effect, of 164 million euros, with a balancing entry on 'Retained earnings' in the consolidated statements of changes in equity (267 million euros in the first half of 2020). The payments in 2021 have been impacted by the premium of the tender offer amounting to 39 million euros (the impact in 2020 amounted to 27 million euros).

Translation differences

The breakdown of the accumulated contribution of translation differences attributable to equity holders of

the parent at the end of the indicated period is as follows:

Millions of euros	06/30/2021	12/31/2020
Brazilian real	(14,653)	(15,365)
Bolivar fuerte	(3,756)	(3,754)
Sterling pound	54	(3,344)
Argentine peso	(1,984)	(2,178)
Other currencies	(1,364)	(1,339)
Total Group	(21,703)	(25,980)

The negative translation differences of Telefónica UK accumulated in equity at June 1, 2021 have been reclassified to the income statement as a result of the constitution of VMED O2 UK Ltd (see Note 2), for an amount of 3,135 million euros.

Likewise, the negative translation differences associated with the sale of the Telxius Group tower divisions have also been reclassified to the income statement for the amount of 37 million euros.

Excluding these reclassifications, in the first half of 2021 net equity attributable to equity holders of the parent increased by 1,105 million euros for translation differences, mainly due to the appreciation of the Brazilian real (see Note 2).

Treasury shares

The following transactions involving treasury shares were carried out in the six months ended June 30, 2021 and 2020:

Number of shares
Treasury shares at 12/31/2020	98,231,380
Acquisitions	23,848,648
Capital amortization	1,536,656
Employee share option plan	(2,279,620)
Other movements	(82,896,466)
Treasury shares at 06/30/2021	38,440,598

Number of shares
Treasury shares at 12/31/2019	77,562,635
Acquisitions	1,707,651
Employee share option plan	(2,563,503)
Otros movimientos	(49,545,262)
Treasury shares at 06/30/2020	27,161,521

On February 28, 2020, after obtaining the relevant regulatory approvals, Telefónica de Contenidos, S.A.U. acquired 50% of the shares in Prosegur Alarmas España, S.L. in exchange of 49,545,262 shares of Telefónica, S.A.

Treasury shares in portfolio at June 30, 2021 are directly held by Telefónica, S.A. and represent 0.682% of its share capital.

The Company maintains derivative financial instruments subject to net settlement on a notional equivalent of 185 million of Telefónica shares at June 30, 201 (158 million shares at June 30, 2020).

Equity attributable to non-controlling interests

'Equity attributable to non-controlling interests' represents the share of non-controlling interests in the equity and income or loss for the year of fully consolidated Group companies. The movements in the six months ended June 30, 2021 and 2020 are as follows:

The breakdown of financial assets and other non-current assets of the Telefónica Group at June 30, 2021 and December 31, 2020 is as follows:

Millions of euros	06/30/2021	12/31/2020
Non-current financial assets (Note 14)	6,443	6,639
Investments	522	457
Long-term receivables for indirect taxes	253	187
Other long-term credits	389	252
Deposits and guarantees	1,819	1,633
Trade receivables	613	551
Receivables for subleases	17	15
Impairment of trade receivables	(135)	(122)
Derivative financial assets (Note 16)	2,965	3,666
Other non-current assets	740	631
Contractual assets	156	145
Deferred expenses	424	331
Prepayments	160	155
Total	7,183	7,270

The detail of receivables and other current assets of the Telefonica Group at June 30, 2021 and December 31, 2020 is as follows:

Millions of euros	06/30/2021	12/31/2020
Receivables (Note 14)	6,506	6,220
Trade receivables	8,585	8,334
Impairment of trade receivables	(2,552)	(2,549)
Receivables from associates and joint ventures (Note 8)	134	25
Other receivables	339	410
Other current assets	1,531	1,303
Contractual assets	101	104
Capitalized costs	605	580
Prepayments	825	619
Total	8,037	7,523

In the first half of 2021 the impact of impairment of trade receivables in the consolidated income statement (see Note 22) amounted to 346 million euros, lower than 514 million euros registered in the first half of 2020, affected by the most significant impacts of the COVID-19 pandemic in 2020 (mainly Telefónica Hispam).

The detail of the age of the accounts receivable balances from customers and their corrections for impairment at June 30, 2021 and December 31, 2020 is as follows:

06/30/2021
Millions of euros	Trade receivables	Impairment
Trade receivables pending billing	2,377	(24)
Amount not overdue invoiced	2,638	(117)
Less than 90 days	823	(136)
Between 90 and 180 days	351	(135)
Between 180 and 360 days	420	(327)
More than 360 days	1,976	(1,813)
Total	8,585	(2,552)

12/31/2020
Millions of euros	Trade receivables	Impairment
Trade receivables pending billing	2,098	(15)
Amount not overdue invoiced	2,538	(117)
Less than 90 days	903	(126)
Between 90 and 180 days	350	(146)
Between 180 and 360 days	474	(326)
More than 360 days	1,971	(1,819)
Total	8,334	(2,549)

Note 15. Financial liabilities

The composition of issues, loans and other payables, and derivative instruments, by category at June 30, 2021 and December 31, 2020 is as follows:

June 30, 2021
Fair value through profit or loss	Measurement hierarchy (1)
Millions of euros	Held for trading	Fair value option	Hedges	Level 1	Level 2	Level 3	Liabilities at amortized cost	Total carrying amount	Total fair value
Issues	-	-	-	-	-	-	38,198	38,198	42,910
Loans and other payables	-	-	-	-	-	-	4,178	4,178	4,189
Derivative instruments (Note 16)	914	-	2,363	18	3,259	-	-	3,277	3,277
Total	914	-	2,363	18	3,259	-	42,376	45,653	50,376

The movement of rights of use in the first half of 2021 and 2020 is as follows:

Millions of euros	Rights of use
Balance at 12/31/2020	4,982
Additions (*)	977
Amortization	(733)
Disposals	(82)
Translation differences and hyperinflation	134
Transfers and others	1,998
Balance at 06/30/2021	7,276

(*)Total additions of rights of use in the first half of 2021, including the additions corresponding to companies held for sale and sold companies, amounted to 1.428. Additions of rights of use are detailed in Note 4.

Millions of euros	Rights of use
Balance at 12/31/2019	6,939
Additions (*)	674
Amortization	(851)
Disposals	(68)
Translation differences and hyperinflation	(616)
Transfers and others	(664)
Balance at 06/30/2020	5,414

(*)Total additions of rights of use in the first half of 2020, including the additions corresponding to companies held for sale and sold companies, amounted to 720. Additions of rights of use are detailed in Note 4.

'Transfers and others' in the first half of 2021 mainly include the rights of use that the Group had with the companies of Telxius that were sold to ATC (see Note 2), that emerge after the sale, amounting to 2,137 million euros. This was partially offset with the transfers to 'Non-current assets held for sale' of the rights of use of Telefónica Germany related with the second phase of the

The detail by nature of the rights of use at June 30, 2021 and December 31, 2020 is as follows:

Millions of euros	06/30/2021	12/31/2020
Rights of use on land and natural properties	648	762
Rights of use on buildings	3,926	2,819
Rights of use on plant and machinery	2,506	1,238
Other rights of use	196	163
Total	7,276	4,982

The movement of lease liabilities in the first half of 2021 and 2020 is as follows:

Millions of euros	Lease liabilities
Balance at 12/31/2020	5,294
Additions	994
Principal and interests payments	(864)
Disposals	(140)
Accrued interests	110
Translation differences	130
Transfers and others	2,151
Balance at 06/30/2021	7,675

Millions of euros	Lease liabilities
Balance at 12/31/2019	7,726
Additions	701
Principal and interests payments	(923)
Disposals	(86)
Accrued interests	80
Translation differences	(671)
Transfers and others	(644)
Balance at 06/30/2020	5,683

'Transfers and others' in the first half of 2021 mainly include the lease liabilities that the Group had with the companies of Telxius that were sold to ATC (see Note 2), that emerge after the sale, amounting to 2,279 million euros. This was partially offset with the transfers to 'Liabilities associated with non-current assets and disposal groups held for sale' of the lease liabilities of Telefónica Germany related with the second phase of the tower sale agreement with ATC, amounting to 126 million euros (see Note 25).

The average number of Group employees in the first six months of 2021 and 2020 is as follows:

Average number of employees	January - June 2021	January - June 2020
Males	69,062	70,481
Females	42,428	43,140
Total	111,490	113,621

These figures include the average number of employees of Telefónica United Kingdom amounting to 5,768 people in the first half of 2021 (6,669 people in the same period of 2020) and the average number of employees of the towers divisions of Telxius amounting to 222 and 185 people in the first half of 2021 and 2020, respectively. As

explained in Note 2, Telefónica United Kingdom and the telecommunications towers division of Telxius located in Europe are excluded from the scope of consolidation of the Group from June 1, 2021, and the telecommunications towers division of Telxius located in Latin America is excluded from the scope of consolidation of the Group from June 3, 2021.

Other income

The breakdown of 'Other income' is as follows:

Millions of euros	January - June 2021	January - June 2020
Own work capitalized	405	410
Gain on disposal of companies	10,201	-
Gain on disposal of other assets	113	104
Government grants	7	9
Other operating income	149	160
Total	10,875	683

'Gain on disposal of companies' in the first half of 2021 includes mainly the gain from the sale of the towers divisions of Telxius amounting to 5,761 million euros, and the gain generated in the constitution of VMED O2 Ltd amounting to 4,434 million euros (see Note 2).

Other expenses

The breakdown of 'Other expenses' is as follows:

Millions of euros	January - June 2021	January - June 2020
Leases included in 'Other expenses' (1)	35	48
External services	4,428	4,918
Taxes other than income tax	250	475
Impairment of trade receivables (Note 13)	346	514
Losses on disposal of fixed assets and changes in provisions for fixed assets	25	15
Goodwill impairment (Note 6)	-	109
Other operating expenses	249	202
Total	5,333	6,281

(1) Since the entry into force of IFRS 16, only short term leases and leases of low-value or intangible assets are included.

'Goodwill impairment' in the first half of 2020 corresponded to the impairment loss recognised on the goodwill allocated to Telefónica Argentina (see Note 6).

'Taxes other than income tax' includes the outstanding credits related to the court decisions in favour of Telefónica Brasil which recognized the right to deduct the ICMS from the calculation base of the PIS and COFINS. The impact was 239 million euros reducing 'Taxes other than income tax' in the first half of 2021 (see Note 23)

The deviation in the first six months of 2021 and 2020 with respect to the income tax expense that would result from applying the statutory tax rates prevailing in each country where the Telefónica Group operates is due to the existence of tax incentives and non-deductible expenses in accordance with the rulings of the various tax authorities, and the recognition of the tax effects identified in the Group's regular evaluation of the recoverability of deferred tax assets. The realization of deferred tax assets and liabilities is conditioned, in most of the cases, by the future development of the activities carried out by its companies, the fiscal regulation in the different countries where they operate and strategic decisions to which can be subjected.

As explained below, the corporate income tax of the first half of 2021 is mainly affected by the estimated effect of the closing of the 2014-2017 tax inspection of the tax group in Spain, the update of the provision for tax risks in Peru, and the impact of the change in the corporate income tax rate in Argentina and the United Kingdom.

In Argentina the Law 27,630 of June 16, 2021 of the Corporation Tax established an increase in the nominal tax rate from 30% to 35% with retroactive effect from January 1st, 2021. In addition, on May 24, 2021 a change in the nominal tax rate from 19% to 25% was substantially enacted in the United Kingdom, which will begin to apply on April 1st, 2023. As a result of these changes in tax rates, there was an increase of deferred tax liabilities, with a counterpart in income tax, amounting to 111 million euros.

Deferred tax assets

Deferred tax assets in the accompanying consolidated statements of financial position include the tax loss carryforwards, unused tax credits recognized and deductible temporary differences recognized at the end of the reporting period.

Millions of euros	06/30/2021	12/31/2020
Tax credits for loss carryforwards	2,618	2,741
Unused tax deductions	1,254	1,448
Deferred tax assets for temporary differences	1,875	2,227
Total deferred tax assets	5,747	6,416

The Group assesses the recoverability of deferred tax assets based on the future activities carried out by the different companies, on tax regulations in the different countries in which these companies operate, and on the strategic decisions affecting the companies. As a result of the crisis caused by the COVID-19 pandemic, at 30 June 2020 the assumptions made and the estimate of the realisation of deferred tax assets were reassessed and it was concluded that there was no need to reverse any of the amounts recognised in the Consolidated Financial Statement.

Tax payables and receivables

Current tax payables and receivables at June 30, 2021 and December 31, 2020 are as follows:

Millions of euros	06/30/2021	12/31/2020
Current income taxes payable	1,019	813
Indirect taxes payable	410	380
Other current income taxes payable	660	539
Total	2,089	1,732

Millions of euros	06/30/2021	12/31/2020
Current income taxes receivable	407	334
Indirect taxes receivable	860	484
Other current income taxes receivable	92	84
Total	1,359	902

On May 13, 2021 the Supreme Court of Brazil concluded the judgment of one of the most important tax disputes in Brazil, related to the exclusion of the ICMS tax (a tax similar to VAT, levied on telecommunications services) in the PIS/COFINS (Contribuição para Financiamento da Seguridade Social) tax base. The decision has effect from March 15, 2017, except in judgments presented before this date. Taking into account this Judgment and that all the claims of Telefónica Brasil had been filed before March 15, 2017, 2,122 million Brazilian reals (equivalent to 357 million euros at the closing exchange rate as of June 30, 2021) have been registered in 'Long-term receivables for indirect taxes' at June 30, 2021. The impact in the consolidated income statement of the first half of 2021 amounts to 1,549 million Brazilian reals (equivalent to 239 million euros at the average exchange rate for the semester) reducing 'Taxes other than income tax' within 'Other expenses' (see Note 22), and to 573 million Brazilian reals (equivalent to 88 million euros at the average exchange rate for the semester) in 'Finance income'.

Inspections of the tax group in Spain

As of June 30, 2021, the Company has made its best estimation of the 2014-2017 tax inspection accounting effect whose closing is expected to take place in the second half of 2021. The estimated impact is a tax expense of 379 million euros, mainly due to the tax treatment of the exchange differences generated for assets denominated in Venezuelan bolivares. However, no significant cash out is expected since the Group has tax credits, the use of which is considered in the estimation, and that would mainly offset this impact.

Tax litigation in Telefónica del Perú

On February 23, 2021 Telefónica del Perú was notified electronically of the Judgment of the Constitutional Court in relation with the second of the judicial appeals filed against the aforementioned default interests applicable in the administrative phase. The Judgment considered inadmissible the calculation of default interest in the administrative phase for the time exceeded in resolving on what is established in the Law. On the first half of 2021 and once the annulment appeals were presented, again favorable to the Company, it was possible to quantify the effects on the provision registered and an amount of 477 million Peruvian soles (108 million euros) was reversed for the aforementioned concept of non-applicable default interest.

Subsequently, on June 23, 2021 an unfavorable Judgment was received from the Supreme Court in relation to the positive balance usable in the Corporate Tax declaration for the year 2000, registering therefore for this concept an additional provision in the financial statements as of June 30, 2021, amounting to 939 million Peruvian soles (209 million euros).

The balance of the provision as of June 30, 2021, including accrued interests and the aforementioned impacts, amounts to 2,895 million Peruvian soles, equivalent to 631 million euros at the exchange rate of June 30, 2021 (2,407 million Peruvian soles as of December 31st, 2020, equivalent to 542 million euros).

Litigation

With regard to ongoing litigation, the main developments in litigation reported in Note 29.a) to the consolidated annual financial statements for the year ended December 31, 2020, from that date to the date of authorization for issue of these interim financial statements are as follows:

ICSID Arbitration Telefónica, S.A. vs Republic of Peru

On February 5, 2021, Telefónica, S.A. filed a request for arbitration against the Republic of Peru at the International Centre for Settlement of Investment Disputes ('ICSID'), which was formally registered on March 12, 2021.

Telefónica's request for arbitration bases its claims on the Agreement for the Promotion and Reciprocal Protection of Investments between the Kingdom of Spain and the Republic of Peru ('APRPI') signed on November 17, 1994. Telefónica's claim argued that the Peruvian tax administration (called Superintendencia Nacional de Aduanas y de Administración Tributaria, known as 'SUNAT') and other state bodies fail to comply with the obligations established in the APRPI, including arbitrary and discriminatory actions.

It is requested that the defendant be ordered to fully compensate Telefónica for all damages suffered.

In an early procedural situation, the Arbitration Court is currently being constituted.

ICSID Arbitration Telefónica, S.A. vs. Republic of Colombia

After the hearing held in April 2021, it was established on July 27, 2021 for closing argument hearing.

Appeal against the ANATEL resolution on the calculation of amounts for the renewal of radio frequencies in Brazil associated with the provision of the Personal Mobile Service

In 2013, Telefónica Brasil filed a lawsuit against the resolution of ANATEL (National Telecommunications Agency of Brazil) regarding the Company's income that must be considered to calculate the payment of the amounts caused by the renewal of radio frequencies in Brazil associated with the provision of the Personal Mobile Service, granted to Telefónica Brasil for a period of fifteen years.

According to ANATEL the renewals, that must be done every two years, would be charged with a 2% based on the calculation of all income from the Personal Mobile Service, while Telefónica Brasil understands that the calculation must be made on the income of the voice service, which would exclude data service and interconnection revenues that should not be considered in the calculation of the charge.

In February 2020, Telefónica Brasil filed an appeal before the Regional Federal Court of Brasilia after obtaining an unfavorable ruling in the Court of First Instance, which considered that the criteria defended by ANATEL was the one to be followed.

In June 2021 the amount of the litigation was 762 million Brazilian reais (128 million euros).

Other proceedings

As of the date, the Group is currently cooperating with governmental authorities (and, where appropriate, conducting the relevant internal investigations) regarding requests for information potentially related, directly or indirectly to possible violations of applicable anti-corruption laws. Telefónica believes that, considering the size of the Group, any potential penalty as a result of matters relating to those specific information requests would not materially affect the Group's financial condition.

Commitments

The main developments with regard to commitments and information reported in this connection in Note 29.c) to the consolidated financial statements for the year ended December 31, 2010, from that date to the date of authorization for issue of these interim financial statements are as follows:

Agreement for the sale of the shares of Telefónica Gestión de Servicios Compartidos España, S.A.U., Telefónica Gestión de Servicios Compartidos Argentina, S.A. and T-Gestiona Servicios Contables y Capital Humano, S.A.C.

On March 31, 2021 and amendment of the master services agreement with IBM for the outsourcing of economic-financial and HR activities and functions to be provided to the Telefónica Group was subscribed. By virtue of this amendment the term may be extended for those adhered companies that decide to extend their services beyond the initial term.

Agreements for the sale by Telxius of its telecommunications tower divisions in Europe and Latin America

On June 1 and 3, 2021 respectively, the sales of the telecommunication towers divisions located in Europe (Spain and Germany) and Latin America (Brazil, Peru, Chile and Argentina) took place. The transfer to American Tower International, Inc of the towers that Telxius Telecom, S.A. agreed to acquire from Telefónica Deutschland in the second phase under the agreement signed on June 8, 2020, will take place on August 2021.

50:50 JV with Liberty Global for the combination of both groups' businesses in the United Kingdom

On May 7, 2020, Telefónica agreed to enter into a 50:50 joint venture with Liberty Global plc ('Liberty Global') (the

'Joint Venture'). The terms of the Joint Venture are agreed pursuant to a contribution agreement dated May 7, 2020 between Telefónica, Telefonica O2 Holdings Limited, Liberty Global, Liberty Global Europe 2 Limited and a newly formed entity named VMED O2 UK Limited (as amended, the 'Contribution Agreement' and 'VMO2', respectively).

After having obtained the clearance from the Competition and Market Authority (the antitrust authority in the UK) to complete this transaction and having fulfilled all the other pre-closing conditions included in the Contribution Agreement, the transaction was completed on June 1, 2021. As of such date, Telefónica and Liberty Global each holds an equal number of shares in VMO2, after: (i) Telefónica having contributed to VMO2 its O2 mobile business in the United Kingdom; and (ii) Liberty Global having contributed its Virgin Media business in the United Kingdom to VMO2.

The corporate governance of the Joint Venture is regulated by a shareholders' agreement, which was entered into by the parties to the Contribution Agreement on the closing date of the transaction (the 'Shareholders' Agreement'). The Shareholders' Agreement provides that each of Telefónica and Liberty Global will designate four of the eight members of the Board of Directors of the Joint Venture, contains provisions regulating the management of the Joint Venture, the procedure to pass resolutions on certain reserved matters and distributions to shareholders, and customary non-solicitation, non-compete and information sharing provisions. Likewise, the Shareholders' Agreement provides that each of Telefónica or Liberty Global will have the right to initiate an initial public offering of the Joint Venture after the third (3rd) anniversary of the closing of the transaction, with the opportunity for the other shareholder to sell shares in the initial public offering on a pro rata basis. The Shareholders' Agreement also includes general restrictions on transfers of interests in the Joint Venture until the third (3rd) anniversary of the closing of the transaction, subject to certain limited exceptions. After that moment, any of the shareholders may send a notice to the other shareholder to initiate an IPO process as set forth in the Shareholders' Agreement, and after the fifth (5th) anniversary of the closing of the transaction, each shareholder will be able to initiate a sale of its stake in the Joint Venture to a third party in accordance with certain drag procedures, subject to a right of first offer in favour of the other shareholder.

Additionally, as part of the deal, the parties agreed that the Telefonica Group will provide or continue to provide certain services, in both transitional or ongoing basis (the 'Joint Venture Services') and have granted certain trademark license agreements to the Joint Venture (the 'Joint Venture Trademark Licenses').

Pursuant to the terms of the Joint Venture Services agreements, transitional services shall be provided for a term from 7 to 24 months while the ongoing services will be provided for a period of two to six years, depending on

the service. The Joint Venture Services provided by the Telefonica Group consist primarily of technology and telecommunication services that will be used by or will otherwise benefit the VMED O2 JV. Additionally to the Joint Venture Services, the mobile operators of the Telefonica Group and the Joint Venture will maintain their roaming commercial relationships in order to reciprocally provide roaming services for the respective customers.

Pursuant to the Joint Venture Trademark Licenses, Telefonica Group licensed the use of Telefónica and O2 Brand Rights to the Joint Venture.

In addition, at the date of closing of this transaction, Telefónica UK Limited entered into a recovery plan together with the trustee of the Telefonica UK pension plan. Such recovery plan and the Contribution Agreement set forth the obligation by Telefónica UK Limited to carry out certain payments during 2021 and 2022 in respect of agreed deficit-repair pension contributions due to the Telefonica UK Pension Plan (see note 2).

The detail of non-current assets and disposal groups classified as held for sale and liabilities associated with non-current assets held for sale at June 30, 2021 and December 31, 2020 are as follows:

Millions of euros	06/30/2021	12/31/2020
Telefónica United Kingdom	-	13,053
Telecommunication towers divisions	430	1,912
Telefónica de Costa Rica	457	420
Telefónica Brasil	74	-
Telefónica Chile	351	-
Telefónica Spain	72	-
Other assets	33	28
Non-current assets and disposal groups classified as held for sale	1,417	15,413
Telefónica United Kingdom	-	3,704
Telecommunication towers divisions	171	866
Telefónica de Costa Rica	222	221
Other liabilities	2	-
Liabilities associated with non-current assets held for sale	395	4,791

Telefónica United Kingdom

On May 7, 2020, Telefónica has reached an agreement with Liberty Global plc to combine their operating businesses in the UK into a 50-50 joint venture.

On June 1, 2021 after obtaining the relevant regulatory approvals, consummation of the necessary recapitalisations and satisfaction of other closing conditions, the closing of the transaction has been carried out, resulting in the combination of both businesses into the joint venture called VMED O2 UK Ltd (see note 2), and as such it is registered by the equity method (see note 8).

Telecommunication towers divisions

On January 13, 2021 Telxius Telecom, S.A. (Telefónica subsidiary), signed an agreement with American Tower Corporation ('ATC') for the sale of its telecommunications towers divisions in Europe and in Latin America (see note 2).

On June 1, 2021, once the relevant regulatory approvals had been obtained in Spain and Germany, the closing of the sale of the telecommunication towers division located in Europe was carried out, with Telxius receiving payment of 6,185 million euros.

On June 3, 2021, the closing of the sale of the telecommunication towers division located in Latin America (Brasil, Perú, Chile and Argentina) was carried out,

with Telxius receiving payment of approximately 909 million euros.

The agreement between Telxius Telecom and ATC (see Note 2), included the transfer to ATC of the towers that Telxius agreed to acquire from Telefónica Germany GmbH & Co. under the agreement signed on June 8, 2020, including the towers acquired in the first phase on September 1, 2020 (therefore sold to ATC on June 1, 2021) and the towers that will be acquired in the second phase by August 2021.

FiBrasil

On March 2, 2021 Telefónica Brasil, S.A. and Telefónica Infra, S.L., reached an agreement with Caisse de dépôt et placement du Québec for the construction, deployment and commercialization of a fiber-to-the-home (FTTH) network in Brazil, through a joint venture called FiBrasil Infraestrutura e Fibra Ótica S.A. ('FiBrasil'). The transaction was closed on July 2, 2021 (see note 26). Telefónica Brasil, S.A. will contribute approximately 1.6 million real estate units passed by FTTH fiber.

Infraco

On February 22, 2021 Telefónica Chile, S.A. reached an agreement to sell 60% of the shares of InfraCo, SpA. The contract provides selling over two million real estate units passed by FTTH fiber from Telefónica Chile to InfraCo. On July 1, 2021 the transaction was closed (see note 26).

Data centers in Spain and Chile

On May 7, 2021, Asterion Industrial Partners ('Asterion') and Telefónica Infra, reached an agreement for the contribution to Nabiax (a subsidiary of Asterion) of four data centers owned by Telefónica Group (two of them located in Spain and two in Chile). In exchange for the contribution of these four data centers, T. Infra would receive a 20% equity stake in Nabiax. Once the relevant authorizations and other conditions precedent to the contribution of the two data centers located in Spain were obtained, the partial closing of the transaction took place as of July 21, 2021 (see note 26).

The detail of non-current assets held for sale and liabilities associated to non-current assets held for sale of Telefónica de Costa Rica, Telefónica Germany (towers) and Telefónica Chile at June 30, 2021 is as follows:

Million euros	Telefónica de Costa Rica	Telecommunication towers divisions	Telefónica Chile
Non-current assets	370	430	319
Intangible assets	67	-	-
Goodwill	-	171	145
Property, plant and equipment	114	124	174
Rights of use	137	133	-
Financial assets and other non-current assets	20	2	-
Deferred tax assets	32	-	-
Current assets	87	-	32
Inventories	6	-	-
Receivables and other current assets	71	-	32
Tax receivables	3	-	-
Cash and cash equivalents	7	-	-
Non-current liabilities	163	146	-
Non-current lease liabilities	79	101	-
Payables and other non-current liabilities	-	1	-
Deferred tax liabilities	80	-	-
Non-current provisions	4	44	-
Current liabilities	59	25	-
Current lease liabilities	16	25	-
Payables and other current liabilities	32	-	-
Current tax payables	11	-	-

The following events regarding the Telefónica Group took place between the reporting date and July 28, 2021:

Financing

•On July 2, 2021 Telefónica Emisiones, S.A.U., issued a notice of redemption with respect to its USD 750 million notes, guaranteed by Telefónica, S.A., with a coupon of 4.570% and due in 2023. The notes will be redeemed on August 2, 2021.

•In June and July 2021, Telefónica Emisiones, S.A.U. announced a repurchase offer on the following outstanding securities: (i) EUR 1,400 million at 0.75% of the April 2022 instruments; (ii) EUR 1,250 million at 2,242% of the May 2022 instruments; (iii) EUR 1,500 million at 3.987% of the instruments of January 2023; (iv) EUR 1,250 to 1,528% of instruments from January 2025; (v) EUR 1,000 million at 1,495% of the instruments of September 2025 and/or (vi) EUR 1,350 million at 1.460% of the instruments of April 2026,

together the values mentioned in sections (i) to (vi) , the 'EMTN Instruments'. In addition, Telefónica Europe, B.V. announced a repurchase offer on the issue called 'EUR 1,000,000,000 Undated 5.5 Year Non-Call Deeply Subordinated Guaranteed Fixed Rate Reset Securities' the 'Hybrid Instruments'. Both issuers accepted the cash purchase of all the securities that participated in the repurchase offer for an aggregate nominal amount of EUR 838.6 million, in the case of EMTN Instruments, and EUR 114.9 million in the case of Instruments Hybrids. The buyback was settled on July 12, 2021.

•On July 6, 2021 Colombia Telecomunicaciones S.A. E.S.P. signed a sustainability linked bilateral loan for COP 500,000 million and maturing in 2025.

•On July 14, 2021 Telefónica Germany GmbH & Co. OHG drawdown EUR 150 million of its European

investment bank financing (Tranche B) signed on January 14, 2020.

FiBrasil Investment Agreement

On March 2, 2021 Telefónica Brasil, S.A. ('Vivo') and Telefónica Infra, S.L., the infrastructure unit of Telefónica Group ('T. Infra'), reached an agreement with Caisse de dépôt et placement du Québec ('CDPQ') for the construction, deployment and commercialization of a fiber-to-the-home (FTTH) network in Brazil, in medium-sized cities outside the State of São Paulo, through a joint venture called FiBrasil Infraestrutura e Fibra Ótica S.A. ('FiBrasil'). Once the relevant authorizations were obtained, the transaction was closed on July 2, 2021. Grupo Telefónica and CDPQ will each own a 50% stake in FiBrasil, under a co-control governance model. Grupo Telefónica's stake is distributed equally between Vivo and T. Infra.

The economic terms of the transaction include a total investment by CDPQ amounting to 1.8 billion reais (approximately 267 million euros at the exchange rate at the date of the agreement), including payments to Vivo and FiBrasil for 50% of FiBrasil's equity, as well as certain payments made by T. Infra in equivalent economic terms for 25% of FiBrasil. CDPQ's equity contributions, together with external financing to be obtained by FiBrasil, will provide the funds necessary to undertake FiBrasil's business plan and achieve its deployment targets.

Vivo is FiBrasil's first wholesale customer, with a 10-year contract, but, as a wholesale neutral operator, FiBrasil will provide access to its network to other telecommunications companies.

Sale by Telefónica Chile, S.A. of 60% of the shares of InfraCo, SpA.

On July 1, 2021, the transaction regarding the stock purchase agreement entered into between Telefónica Chile, S.A. ('Telefónica Chile') and KKR Alameda Aggregator L.P. for the sale of 60% of the shares of InfraCo, SpA ('InfraCo') was completed.

The transaction values InfraCo at approximately 1,000 million dollars (approximately 850 million euros).

Agreement on fiber assets in Colombia

On July 16, 2021 Colombia Telecomunicaciones S.A. ESP BIC ('Telefónica Colombia') entered into a sale and purchase agreement on certain fiber assets owned by Telefónica Colombia with a Colombian company controlled by Kohlberg Kravis Roberts - KKR ('InfraCo'). Telefónica Colombia will receive, as consideration, 0.2 billion dollars and 40% of the shares of a Spanish company controlled by KKR ('HoldCo'), which will be the sole shareholder of InfraCo.

Likewise, as part of the transaction, certain agreements will be signed for the provision of wholesale connectivity services by InfraCo to Telefónica Colombia, the development of activities of deployment of fiber network, and other associated services.

The transaction is subject to obtaining the corresponding regulatory authorizations.

Nabiax Investment Agreement

On May 7, 2021, Asterion Industrial Partners ('Asterion') and Telefónica Infra, the infrastructure unit of Telefónica Group ('T. Infra'), reached an agreement for the contribution to Nabiax (a subsidiary of Asterion) of four data centers owned by Telefónica Group (two of them located in Spain and two in Chile). Nabiax is a colocation and housing services provider and operates eleven data centers sold by Telefónica. In exchange for the contribution of these four data centers, T. Infra would receive a 20% equity stake in Nabiax.

Once the relevant authorizations and other conditions precedent to the contribution of the two data centers located in Spain were obtained, the partial closing of the transaction took place as of July 21, 2021, whereby Telefónica Group contributed those data centers to Nabiax, with T. Infra receiving in exchange at this stage a 13.94% stake in Nabiax. The agreement is complemented by the signing of a contract for the provision of housing services under terms and conditions equivalent to those established in the transaction executed in 2019, for an initial period of ten years.

The fulfillment of the conditions related to the contribution of the two data centers located in Chile is expected to occur at the beginning of 2022. By the time that contribution is executed, T. Infra's stake in Nabiax will reach 20%. In this case, the contribution will also be complemented by the signing of a contract for the provision of housing services on similar terms to those indicated for the centers located in Spain.

Spectrum auction in Spain

On July 21, 2021, Telefónica Móviles España. S.A.U. ('Telefónica España') obtained 1 block of 2x10 MHz in the paired band of 700MHz, in the auction held by the Ministry of Economic Affairs and Digital Transformation.

The investment commitment by Telefónica España for these new frequencies is 310 million euros.