Bytes Technology Group shares tumble as profit falls amid Microsoft changes

Investing.com - Bytes Technology Group plc (LSE:BYIT, JSE: BYI) shares fell 8.7% on Tuesday after the UK software and services specialist reported a 7% drop in operating profit for the first half of its fiscal year, as the company navigated changes to Microsoft’s partner incentives and adjusted to a new sales structure.

For the six months ended August 31, Bytes reported operating profit of £33.1 million, down from £35.6 million in the same period last year, despite gross invoiced income rising 9.1% to £1.34 billion. Gross profit edged up just 0.4% to £82.4 million, while revenue increased 2.5% to £108.1 million compared to the prior year period.

The company’s performance was significantly impacted by Microsoft’s reduction of certain Enterprise Agreement incentives, which took effect in January 2025. This change particularly affected Bytes’ public sector business, though the company has been working to transition corporate customers to Microsoft’s higher-margin Cloud Solution Provider program.

"We delivered a resilient performance, building positive momentum through the period as we settled into our new corporate sales structure," said Sam Mudd, Chief Executive Officer. "Despite the challenging economic climate, and our internal and industry changes over the past six months, we have maintained our share of wallet amongst our existing customers."

The company’s services business showed strong growth, with services gross profit increasing over 40% YoY, helping to offset the 3.5% decline in software gross profit. Bytes maintained its customer retention rate at 98%, consistent with prior periods.

The company declared an interim dividend of 3.2 pence per share, up 3.2% from last year’s interim payout. Bytes also noted that it has started the second half of fiscal 2026 well and remains "confident of delivering a full year outcome within the range of market expectations."

Bytes ended the period with £82.3 million in cash, up 15.1% from £71.5 million a year earlier, though down from £113.1 million at the end of February 2025 following dividend payments totaling £41.0 million during the period.

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