Bytes Technology returns to growth as Microsoft incentive hit begins to fade

Bytes Technology Group (BTG) has reported an 11.5% increase in gross invoiced income (GII) to £2 341.0 million for the financial year ended 28 February 2026, navigating what leadership described as a year of “adaptation and evolution”.

Despite a challenging market and significant structural changes to Microsoft’s partner incentives, the group delivered double-digit growth in its core software and services divisions. However, investor sentiment remained cautious during this transition period, as evidenced by the group’s share price declining by approximately 45% over the past year.

Overcoming the ‘Microsoft effect’

The group’s gross profit (GP) grew by 2.5% to £167.3 million, a result heavily influenced by a temporary decline in the first half of the year. This dip was attributed to Microsoft’s transition towards consumption-based and services-led funding, which reduced certain transactional enterprise agreement incentives.

However, momentum improved significantly in the second half of the year, reaching 4.6% GP growth as the adverse effects of these incentive changes ended in January 2026.

Read: Bytes plunges a third after warning of slower 1st half profit

“This has been a year of adaptation and evolution against a more challenging market backdrop,” said Sam Mudd, CEO of BTG. “We focused on optimising our business for continued growth… managing Microsoft’s transition of incentives… and increasing our services portfolio and associated profits, in line with our strategy.”

ADVERTISEMENT

CONTINUE READING BELOW

The AI frontier and services surge

A standout performer for the year was the services division, which saw gross profit jump by 38.4%. BTG is positioning itself as a “Microsoft Frontier Partner” to capitalise on the rise of Agentic AI, autonomous AI agents that require complex integration and deep domain expertise.

Mudd emphasised that the deployment of AI is driving customers toward an integrated delivery model.

Read: Why Bytes Technology is now offering opportunity

“As Agentic AI and associated technologies continue to be deployed, our customers need an integrated delivery model,” Mudd stated. “We are well positioned, as a Microsoft Frontier Partner, to be the partner for our customers on this journey.”

Operational realignment for FY27

To support its next phase of growth, the group announced a strategic split of the currently combined CFO and COO roles. Andrew Holden, who has served as CFO for five years, will transition into the role of COO once a successor is appointed.

ADVERTISEMENT:

CONTINUE READING BELOW

Furthermore, BTG is sharpening its go-to-market approach for the 2027 financial year by focusing its Bytes brand solely on the private sector and the Phoenix brand solely on the public sector. This move is intended to remove internal competition and simplify engagement for vendors who typically maintain separate sales teams for these sectors.

Shareholder returns and outlook

BTG remains highly cash-generative, reporting a cash conversion ratio of 105.1% and a closing cash balance of £98.6 million. During the year, the group returned £74 million to shareholders, including a £25 million share buyback.

The board has proposed a final dividend of 7.0p per share, bringing the full-year dividend to 10.2p, and announced a new £25 million share repurchase programme.

Looking ahead to FY27, the board expects to deliver high single-digit to low double-digit percentage growth in gross profit, supported by the conclusion of the Microsoft incentive transition and strong early-weeks momentum in the new financial year.

Read: Microsoft’s massive R25.8bn SA investment

#Bytes #Technology #returns #growth #Microsoft #incentive #hit #begins #fade