Watson Farley targets improved leverage ratio

Top 50 firm Watson Farley & Williams is aiming to increase dramatically its leverage ratio in a bid to boost its profitability.

The 59-partner firm, which had a relatively low leverage ratio of 1.9 in 2004-05, has deliberately increased its lawyer numbers at a greater rate than it is growing its partnership.

Managing partner Michael Greville said: “The greater the leverage ratio the more profitable a firm will be, as long as it can do the work.”

Lawyer numbers increased from 101 to 109 during the last financial year, but equity was held tightly, with just one promotion, allowing the number of equity partners to inch up from 52 to 53. In contrast, in January 2004 Watson Farley reported that it had increased its partner numbers by 12 in the same number of months. This disproportionate rise in lawyer numbers has boosted the firm’s leverage ratio to 2.

The firm wants its leverage ratio to be around the 2.5 mark over the next three years, which should help to improve a profit margin that stood at a healthy 43 per cent during the last financial year.

As first reported on www.thelawyer.com (26 May), Watson Farley’s revenue for 2005-06 passed £50m for the first time. Gross fees reached £53.3m, a rise of 9.5 per cent. Average profit per equity partner at the shipping, energy and finance firm also beat a benchmark figure, breaking £400,000 to reach £419,000.

The year saw Watson Farley increase its share of international matters with a major mobile phone financing in Nigeria, the conclusion of the Indian Dhabol project arbitration and the establishment of an office in Hamburg. The new German office has now grown to 14 fee-earners.