Bytes Technology Rebounds as Microsoft Incentive Impact Starts to Diminish

Bytes Technology Group (BTG) has announced an 11.5% rise in gross invoiced income (GII), reaching £2,341.0 million for the fiscal year ending 28 February 2026, as it navigated a period of “adaptation and evolution,” according to company leadership.

In spite of a tough market environment and major changes to Microsoft’s partner incentives, the group achieved double-digit growth in its key software and services segments. Nonetheless, investor sentiment has been cautious during this transition, reflected in a 45% drop in the group’s share price over the last year.

Conquering the ‘Microsoft challenge’

The group’s gross profit (GP) increased by 2.5% to £167.3 million, influenced by a temporary downturn in the first half of the fiscal year. This decline was linked to Microsoft’s shift towards consumption-based and service-oriented funding, which altered certain transactional enterprise agreement incentives.

However, there was a notable recovery in the second half of the year, resulting in a 4.6% GP growth as the unfavorable impacts of these incentive changes dissipated in January 2026.

Read: Bytes tumbles a third following a profit warning for the first half

“This past year has involved adaptation and evolution amid a more challenging market,” remarked Sam Mudd, CEO of BTG. “We concentrated on optimizing our business for ongoing growth… managing Microsoft’s transition of incentives… and expanding our services portfolio along with associated profits, as per our strategy.”

The AI landscape and services boom

A notable highlight for the fiscal year was the services division, which experienced a gross profit increase of 38.4%. BTG is asserting itself as a “Microsoft Frontier Partner” to leverage the growth of Agentic AI, autonomous AI agents requiring intricate integration and extensive domain expertise.

Mudd emphasized that the rise of AI is shifting customers toward an integrated delivery model.

Read: Why Bytes Technology is now presenting opportunities

“As Agentic AI and related technologies are increasingly deployed, our customers are looking for an integrated delivery model,” Mudd noted. “As a Microsoft Frontier Partner, we are well equipped to support our customers on this journey.”

Operational restructuring for FY27

To facilitate the next stage of growth, the group revealed a strategic separation of the currently unified CFO and COO roles. Andrew Holden, who has served as CFO for five years, will move into the COO position once a successor is appointed.

Additionally, BTG is refining its go-to-market strategy for the 2027 financial year, focusing the Bytes brand exclusively on the private sector and the Phoenix brand exclusively on the public sector. This strategy aims to eliminate internal competition and streamline engagement for vendors that commonly have separate sales teams for these sectors.

Returns to shareholders and future outlook

BTG continues to be highly cash-generative, reporting a cash conversion ratio of 105.1% and a closing cash balance of £98.6 million. Throughout the year, the group returned £74 million to shareholders, which included a £25 million share buyback.

The board has suggested a final dividend of 7.0p per share, increasing the total annual dividend to 10.2p, and has also announced a new £25 million share repurchase program.

Looking forward to FY27, the board anticipates achieving high single-digit to low double-digit percentage growth in gross profit, bolstered by the completion of the Microsoft incentive transition and strong momentum in the early weeks of the new fiscal year.

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