CRH PUBLIC LTD CO 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk CRH is exposed to market risks relating to fluctuations in foreign exchange risks, interest rates, and commodity prices. Changes in those factors could impact the Company’s results of operations and financial condition. Financial risk management at the Company seeks to minimize the negative impact of foreign exchange, interest rate and commodity price fluctuations on the Company’s earnings, cash flows and equity. Management provides oversight for risk management and derivative activities, determines certain of the Company’s financial risk policies and objectives, and provides guidelines for derivative instrument utilization. To manage these risks, CRH uses various derivative financial instruments, including interest rate swaps, foreign exchange forwards and swaps, and commodity contracts. CRH only uses commonly traded and non-leveraged instruments. These contracts are entered into primarily with major banking institutions and utility companies, while CRH actively monitors its exposure to counterparty risk through the use of counterparty approvals and credit limits, thereby minimizing the risk of counterparty loss. The following discussion presents the sensitivity of the market value, earnings and cash flows of the Company’s financial instruments to hypothetical changes in interest and exchange rates assuming these changes occurred at March 31, 2024. CRH Form 10-Q 33 Interest Rate Risk CRH may be impacted by interest rate volatility with respect to existing debt and future debt issuances as well as cash balances. For fixed rate debt instruments, interest rate changes affect the fair market value but do not impact earnings or cash flows. Conversely, for floating rate debt instruments, interest rate changes generally do not affect the fair market value of the instrument but impact future earnings and cash flows, assuming that other factors are held constant. Cash balances are held on short-term deposits and changing interest rates will impact deposit interest income earned. The Company uses interest rate swaps to convert a portion of its fixed rate debt to floating rate debt and these may be designated and qualify as fair value hedges. Under these arrangements, the Company agrees to exchange, at specified intervals, the difference between fixed and benchmark floating interest rates calculated by reference to an agreed-upon notional principal amount. At March 31, 2024, the Company had fixed rate debt of $8.3 billion and floating rate debt of $4.6 billion, representing 65% and 35%, respectively, of total debt, including overdrafts, finance leases and the impact of derivatives. At March 31, 2023, the Company had fixed rate debt of $7.8 billion and floating rate debt of $2.2 billion, representing 78% and 22%, respectively, of total debt, including overdrafts, finance leases and the impact of derivatives. The Company’s interest rate swaps at March 31, 2024, was $1.4 billion, compared to $1.8 billion as at March 31, 2023. Cash and cash equivalents at March 31, 2024, were $3.3 billion, compared to $4.7 billion at March 31, 2023, which was all held on short-term deposits and investments. Sensitivity to interest rate moves At March 31, 2024, the before-tax earnings and cash flows impact of a 100bps increase in interest rates, including the offsetting impact of derivatives, on the variable rate cash and debt portfolio would be approximately $13 million unfavorable ($25 million favorable at March 31, 2023). Foreign Exchange Rates Risk CRH’s exchange rate exposures result primarily from its investments and ongoing operations in countries outside of the United States and other business transactions such as the procurement of products and equipment from foreign sources. Fluctuations in foreign currency exchange rates may affect (i) the carrying value of the Company’s net investment in foreign subsidiaries; (ii) the translation of foreign currency earnings; and (iii) the cash flows related to foreign currency denominated transactions. Where economically feasible, the Company maintains Net Debt* 6 in the same relative ratio as capital employed to act as an economic hedge of the underlying currency assets. Where it is not feasible to do so, the Company may enter into foreign exchange forward contracts to hedge a portion of the net investment against the effect of exchange rate fluctuations. These transactions are designated as net investment hedges. The Company also enters into foreign exchange forward contracts to hedge against the effect of exchange rate fluctuations on cash flows denominated in foreign currencies. These transactions are designated as cash flow hedges. In addition, the Company may enter into foreign currency contracts that are not designated in hedging relationships to offset, in part, the impacts of changes in value of various non-functional currency denominated items including certain intercompany financing balances. The U.S. Dollar equivalent gross notional amount of the Company’s foreign exchange forward contracts was $4.5 billion at March 31, 2024, compared to $1.6 billion at March 31, 2023. Holding all other variables constant, if there was a 10% weakening in foreign currency exchange rates versus U.S. Dollar for the portfolio, the fair market value of foreign currency contracts outstanding at March 31, 2024, would decrease by approximately $135 million, which would be largely offset by a gain on the foreign currency fluctuation of the underlying exposure being hedged. In comparison, the fair market value of foreign currency contracts outstanding at March 31, 2023, would increase by approximately $4 million, largely offset by a loss on the underlying exposure being hedged. Commodity Price Risk Some of the Company’s products contain significant amounts of commodity-priced materials, predominantly fuel oil, carbon credits, coal, and electricity, which are subject to price changes based upon fluctuations in the commodities market. This price volatility could potentially have a material impact on our financial condition and/or our results of operations. Where feasible, the Company manages commodity price risks through negotiated supply contracts and forward contracts to manage operating costs. The Company monitors commodity trends and where possible has alternative sourcing plans in place to mitigate the risk of supplier concentration and passing commodity-related inflation to customers or suppliers. Where appropriate, the Company also has a number of derivative hedging programs in place to hedge commodity risks, with the aim of the programs being to neutralize variability arising from changes in associated commodity indices. The timeframe for such programs can be up to four years.