Strategic English for Roadshow Messaging: How to Discuss Leverage Targets with Investors

1) Roadshow Context and Messaging Architecture

In an investor roadshow, your goal is to create confidence and predictability. Investors listen for a consistent, credible story that connects strategy, risk management, and financial discipline. Leverage targets are a key part of that story because they explain how much debt you choose to carry, why that level supports your strategy, and how you will keep risk within acceptable limits. When you discuss leverage, you are not only reporting numbers; you are signaling your approach to resilience across the cycle, your capacity for investment, and your commitment to shareholder returns without jeopardizing solvency or ratings.

To deliver this effectively, use a clear messaging architecture. Think of it as a hierarchy that keeps your message crisp and repeatable across slides and Q&A:

• Headline: A single sentence that states your leverage target, its purpose, and the implied financial policy. The headline should capture the essence: what you target, why it matters, and the comfort you can offer investors.
• Definitions: A precise explanation of what you mean by “leverage,” “coverage,” and related terms. Define the numerator and denominator, the adjustments you include (especially leases under IFRS 16), and whether you are using a covenant, rating-agency, or management definition.
• Guardrails: The risk boundaries that reassure investors. Guardrails include headroom to covenants, minimum coverage thresholds, liquidity buffers, and a defined rating ambition. State these guardrails numerically and explain how they hold in downside scenarios.
• Proof: Concrete evidence that demonstrates feasibility: current metrics, trajectory to target, sensitivity analysis, stress cases, and back-testing through past cycles or shocks. Proof should be transparent, specific, and consistent with your financial statements and external frameworks.

This architecture helps you avoid two common pitfalls. First, it prevents ambiguity: when terms are undefined, investors assume the most conservative interpretation or doubt your transparency. Second, it prevents overpromising: guardrails and proof discipline your story so it does not rely on optimistic assumptions. In a roadshow, clarity and consistency often matter more than the absolute level of a leverage target, because investors can price risk if they understand it well.

2) Nailing the Definitions and IFRS 16 Treatment

Leverage and coverage metrics vary by stakeholder. A core skill is to state exactly which definition you are using and why. Differences usually arise in three dimensions: scope (which obligations are counted), adjustments (standardizing for non-cash items, leases, or exceptional items), and period basis (LTM vs. forward). Below are the common definitions you must distinguish in clear English:

• Covenant Leverage: The ratio defined in your debt agreements. Often it is net debt to EBITDA with specific add-backs or caps. Covenants can exclude certain leases or exceptional costs depending on contract language. You must verify the exact definition in your loan documentation and avoid paraphrasing. Investors want to understand how much headroom you have to this legally binding threshold.
• Rating-Agency Leverage: Agencies (e.g., S&P, Moody’s, Fitch) use their own adjusted metrics to compare issuers consistently. These often include lease capitalization and standardize EBITDA. For example, agencies may treat leases as debt-like and add back reported lease expenses to build an adjusted EBITDA that reflects an imputed interest and depreciation profile. This definition supports your rating ambition and influences your funding cost.
• Management Leverage: The internal metric you use to run the business. Management definitions often align with strategic goals and investor communication, but they should not obscure risk. If your management definition excludes certain items, you must explain the rationale and the magnitude of the difference versus covenant and agency metrics.

Similarly, coverage ratios (such as EBITDA/interest or EBITDAR/fixed charges) differ by definition:

• Covenant Coverage: Defined by loan agreements, often focused on EBITDA-to-interest or fixed-charge coverage with specific adjustments.
• Rating-Agency Coverage: Agencies may use funds from operations (FFO) or EBITDAR measures to assess interest and rent coverage. Their approach converts lease costs into a debt service proxy.
• Management Coverage: The metric you monitor for comfort. It should be explained in parallel to your leverage definition to ensure consistency.

The treatment of leases under IFRS 16 is a frequent source of confusion, so address it explicitly. Under IFRS 16, most leases appear on the balance sheet as a right-of-use asset and a lease liability. In profit and loss, lease expense is split into depreciation of the right-of-use asset and interest on the lease liability, rather than a single operating lease expense. For leverage and coverage, this leads to a key question: do you treat lease liabilities as debt, and do you adjust EBITDA to reflect pre-IFRS-16 comparability?

Investors often want consistency across periods and peers. To provide this:

• State whether your leverage is lease-adjusted or lease-excluded. If lease-adjusted, confirm that you add lease liabilities to net debt, and that you adjust EBITDA (e.g., to EBITDAR) to maintain comparability with rent-like obligations. If lease-excluded, explain why this better reflects your business risk and how you bridge to rating-agency treatment.
• Clarify the numerator precisely (net financial debt including or excluding lease liabilities; treatment of pensions; treatment of off-balance sheet factoring or receivables sales) and the denominator (EBITDA vs. EBITDAR; adjustments for exceptional items; the time period).
• Explain coverage mechanics under IFRS 16: if you include lease interest in your interest measure, then coverage should compare the correct earnings measure (e.g., EBITDA vs. interest plus leases, or EBITDAR vs. interest plus rent). The objective is an apples-to-apples ratio where operating earnings are compared to all fixed charges.

By making these definitions exact, you prevent misinterpretation and facilitate mapping across frameworks. Also, be transparent about reconciliations: provide a simple bridge from reported IFRS figures to each metric you reference. Investors appreciate discipline: when they see a clear reconciliation, they infer reliable governance.

3) Stating Targets with Headroom and Sensitivities

When you announce a leverage target, specify the level, the range, and the rationale. A range communicates flexibility for seasonality and macro shocks. A single point can look fragile; a well-justified range looks realistic. Then, demonstrate how you preserve headroom to your most binding constraint—usually the tightest covenant or targeted rating category.

To build credibility, articulate the following elements:

• Target Range: Provide a numerical band, for example “x–y turns of net debt/EBITDA” under your management definition. Explain why this range suits your business model: asset intensity, cash flow visibility, cyclicality, and growth plans.
• Headroom to Covenants: State the covenant threshold, your current metric, and the expected distance at mid-cycle and in a reasonable downside. Headroom should be expressed both in ratio turns and in absolute debt capacity, so investors can visualize buffer in stressful conditions.
• Alignment with Rating Ambition: If you target a specific rating band, link your leverage and coverage targets to the agency’s published ranges. Show how your chosen metrics map to FFO-based or lease-adjusted calculations so there is no gap between policy and rating criteria.
• Trajectory and Timing: Indicate how and when you will reach or maintain the range. Present a time path that includes near-term steps (e.g., post-transaction deleveraging, integration synergies, or asset disposals) and medium-term cash generation. Avoid aspirational timelines; emphasize actions under your control.
• Sensitivities: Provide numeric sensitivities to key drivers: revenue growth, margin change, working capital, capex intensity, and interest rates. Sensitivities allow investors to translate macro views into your leverage outcome.
• Downside Cases: Offer a defined stress case and show your ratio outcome under that case, together with the levers you would use (cost containment, capex pacing, dividend flexibility, or portfolio actions). Stress testing is evidence that you are managing risk proactively, not reactively.

Ensure the presentation includes a cash flow framework that connects earnings to debt movement: EBITDA to operating cash flow (after working capital), to free cash flow (after capex and lease payments), to net debt after dividends, interest, lease repayments, and any M&A. If you are using lease-adjusted leverage, reflect lease principal payments in your fixed charges. This cash flow logic shows how you will maintain the target range in practice, not only at a single reporting date.

Finally, state the triggers for rebalancing within the range. For example, explain how you would prioritize debt reduction versus investment when leverage approaches the upper bound. Investors value clarity on capital allocation rules because it removes uncertainty about how you trade off growth and balance sheet strength.

4) Handling Investor Q&A and Negotiation Language

Investor Q&A tests the resilience of your message. The best approach is diplomatic, precise, and transparent. Anticipate four common areas of challenge: methodology differences, timing to target, capital allocation trade-offs, and triggers for policy review. For each area, prepare concise language that addresses the concern without defensiveness.

• Methodology Differences: Investors may use their own definitions or prefer rating-agency metrics. Acknowledge the difference, map your numbers to their framework, and confirm the implication for risk. The tone should be collaborative: the goal is common understanding, not persuading them to adopt your metric. If there is a material gap between management and agency calculations, quantify it and explain the drivers (leases, pensions, exceptional items) so the investor can adjust their model.

• Timing to Target: Questions often focus on whether your timeline is realistic, especially after acquisitions or downturns. Respond by connecting timing to specific actions you control, supported by numbers. Clarify interim checkpoints and contingency actions if macro conditions worsen. Acknowledge uncertainty without undermining the plan: investors accept that macro factors are not fully controllable, but they expect contingency planning.

• Capital Allocation Trade-offs: Investors will probe how you balance deleveraging, investment, and shareholder returns. Offer your decision sequence: which uses of cash come first when leverage is above the range, and how you relax constraints when leverage is comfortably below the midpoint. State priority rules in simple, numeric terms where possible. Consistency across cycles builds trust.

• Triggers for Policy Review: Policies should be stable but not rigid. Explain what could lead you to revisit the range: structural changes in cash flow visibility, business mix, or external rating criteria. Make it clear that any review would be data-driven and disclosed proactively, rather than opportunistic.

Diplomatic language is essential. Use formulations that show you are listening, that you respect alternative approaches, and that you welcome scrutiny. Keep sentences short, avoid jargon when possible, and repeat your definitions when the discussion becomes technical. If you are uncertain about a specific technical point (for example, a detailed lease adjustment in a rating model), commit to follow up with a written reconciliation. This honesty strengthens credibility more than an improvised answer would.

Finally, maintain alignment between slides, spoken remarks, and Q&A. Investors quickly notice inconsistencies between a headline target and off-the-cuff comments. Before the roadshow, rehearse transitions: move from headline to definitions, from definitions to guardrails, and from guardrails to proof. In Q&A, return to the architecture: restate the headline, reference the definition that applies to the question, point to the guardrail implicated, and provide the proof that supports your answer. This consistent structure helps even complex, lease-adjusted discussions feel organized, and it ensures that each answer reinforces the same, single narrative: disciplined leverage, clear definitions, measurable headroom, and a thoughtful plan to navigate uncertainty.