Franchise deal 'will improve share value'

Structured residential property group Blue Chip Financial Solutions is to put all its New Zealand operations in the hands of a franchise group.

The company, which was founded in New Zealand by Mark Bryers, but is now listed on the ASX, said yesterday the franchise deal would result in a "significant improvement in shareholder value".

Blue Chip lost $2.57 million in the half-year to June and has been reducing its staff numbers in New Zealand in the past year, from about 100 to less than half that number. Its chief financial officer departed recently. The share price slumped from A$1.75 at the start of July to just A47c last week, when the shares were put in a trading halt pending yesterday's announcement. The price rose to A49c after the announcement.

The company distributes tax-effective investments in wealth management products with a residential investment property focus. In New Zealand it has been involved in purchase of about 4000 residential units for its clients, according to chairman Julian Gosse.

The franchise operation that will take up the New Zealand operations is owned by two former senior managers with Blue Chip, Rik Flowerday and Neil Bell, along with Blue Chip's largest New Zealand licensee, Robert Bangerter.

Mr Gosse said the new franchise operation was going to pay Blue Chip $20,000 per property transaction as a franchise fee, and was guaranteeing a minimum annual fee of $20 million for the next three years.

These minimum fees were being guaranteed by Messrs Flowerday, Bell and Bangerter, while an additional guarantee - for an undisclosed fee to be paid to him by the franchise company - was also being provided by Mr Bryers.

Mr Gosse said the new arrangements would ensure Blue Chip met its targeted profit after tax for the 12 months to December of $17.1 million. The company would consider moving to a franchise model for its Australian operations next year.