Bytes Technology Group Reports 9.1% GII Growth in H1 2025, But Operating Profit Falls 7.0%

Bytes Technology Group H1 FY26: top line up, profit down as Microsoft changes bite

Bytes Technology Group (LSE: BYIT) has posted a mixed set of half-year results to 31 August 2025. Gross invoiced income (GII) rose 9.1% to £1,342.0 million, but operating profit fell 7.0% to £33.1 million as margins tightened and costs rose. Management describes the performance as resilient, helped by strong services growth and sticky customer relationships, while acknowledging a tricky transition period caused by Microsoft’s incentive changes and BTG’s own sales restructure.

The dividend is nudged up, cash remains healthy, and a £25 million share buyback is underway. Guidance is steady: BTG expects to deliver a full-year outcome within market expectations.

Key numbers from BTG’s half-year

Metric	H1 FY26	H1 FY25	YoY change
Gross invoiced income (GII)	£1,342.0m	£1,230.2m	+9.1%
Revenue	£108.1m	£105.5m	+2.5%
Gross profit (GP)	£82.4m	£82.1m	+0.4%
Operating profit	£33.1m	£35.6m	-7.0%
Operating profit/GP	40.2%	43.4%	-320 bps
GP/GII margin	6.1%	6.7%	-60 bps
Basic EPS	12.03p	12.67p	-5.1%
Cash	£82.3m	£71.5m	+15.1%
Cash conversion	34.4%	56.2%	Seasonal low
Interim dividend	3.2p	3.1p	+3.2%

Note on revenue vs GII: under IFRS 15, much software is recognised on a net basis when BTG acts as agent, so revenue can understate activity. GII captures total billed activity and is a better read-through to working capital.

What drove performance: Microsoft incentives and the sales restructure

Two forces shaped this half: Microsoft’s 1 January 2025 cuts to certain Enterprise Agreement (EA) partner incentives, and BTG’s new corporate sales segmentation. Both are largely transitional issues, but they showed up in margins and mix.

• Microsoft shift: BTG pushed more customers from EA to Microsoft’s Cloud Solution Provider (CSP) programme, where BTG invoices and retains a normal margin. That lifted Microsoft GII by 7.6% year-on-year and supported corporate software, but reduced headline GP/GII as EA rebates previously flowed at very high margin.
• Sales realignment: corporate teams moved to a seat-based segmentation. Handovers of around 750 relationships and rebuilding pipelines caused a temporary soft patch. Management says the structure has now settled, with higher quality engagement expected.

Software vs services: margin pressure offset by services growth

• Software GP fell 3.5% to £72.1 million, reflecting the incentive changes and mix.
• Internal services GP jumped 46.3% to £6.0 million, pushing services GP/GII above 30% thanks to mix and cost efficiencies.
• Hardware and external services GP rose to £2.0 million (+25.0%) and £2.4 million (+41.2%) respectively, albeit off small bases.

This is exactly the strategic pivot BTG has been promising: lean into higher margin services, especially around Microsoft cloud, cyber security and AI adoption.

Public sector vs corporate: steady public, adjusting corporate

• Public sector GP rose 1.6%, despite lower Microsoft EA incentives, aided by strong services growth.
• Corporate GP dipped 0.6% due to the sales realignment period and mix.
• Margins compressed: public sector GP/GII fell slightly to 3.3% (H1 FY25: 3.6%), corporate to 12.6% (H1 FY25: 14.0%). Group GP/GII was 6.1% (H1 FY25: 6.7%).

Customer stickiness remains a standout. 98% of GP came from customers that traded with BTG last year, with a 98% renewal rate. That is best-in-class for a reseller and underpins visibility.

Cash, dividends and the £25 million buyback

Closing cash was £82.3 million, up 15.1% year-on-year, even after paying £41.0 million in final and special dividends during the half. Cash conversion for the six months was 34.4% (seasonally low due to large Microsoft cycles), but on a rolling 12 months BTG remains above target at 104.7%.

A £25.0 million share repurchase programme began on 15 August 2025. At period end, £2.75 million had been bought and cancelled in part, with a £12.5 million provision booked for the mandatory close-period purchases through 14 October 2025. The remaining £9.75 million is a contingent outflow post the reporting date. The interim dividend is lifted to 3.2p, consistent with the 40-50% payout policy.

Balance sheet is clean: no debt, an undrawn £30 million revolving credit facility, and net assets of £77.4 million (lower than year-end due to dividends and the buyback provision).

Costs, headcount and operating leverage

Administrative expenses rose 6.9% to £49.7 million, mainly from higher headcount, salaries and national insurance, partly offset by lower variable pay. Headcount is 1,266, up 12.0% year-on-year and 1.7% since February. Operating profit fell 7.0% to £33.1 million, with the operating profit to GP ratio dipping to 40.2% (from 43.4%) but still above BTG’s 38% target.

BTG is also investing in platforms: £2.3 million of capitalised software in the half across a customer marketplace and internal order processing system. The marketplace will start amortising in H2 FY26 at roughly £0.4 million per year. These should improve scalability and the customer experience over time.

Outlook: cloud, cyber and AI tailwinds, but tough comps

Management says H2 FY26 has started well and the pipeline is strong across cloud, cyber security and AI, including demand for Microsoft Copilot-related services. Two points to note:

• Microsoft impact should ease in H2, as the new EA incentives only affect four months of the half, and EA price rises from 1 November 2025 may push more customers toward CSP.
• Comparatives are tough, given an especially strong finish to the prior year, so growth optics may be muted against that base.

Guidance is for a full-year outcome within the range of market expectations. With retention solid, services expanding, and the new sales structure bedding in, the ingredients for re-acceleration are in place.

Investment take: the good, the bad, the watch list

Positives

• Healthy top-line activity: GII up 9.1% with broad-based growth.
• Services doing the heavy lifting: internal services GP up 46.3%, a key margin lever.
• Customer stickiness: 98% GP from existing customers and 98% renewal rate.
• Strong financial footing: £82.3 million cash, no debt, 104.7% rolling cash conversion.
• Capital returns: 3.2p interim dividend and a £25 million buyback underway.

Negatives

• Margin squeeze: GP/GII down to 6.1% and operating profit down 7.0%.
• Cost inflation: wages and NI up; operating leverage weaker in the half.
• Microsoft incentives: still an overhang in mix and margins, especially in public sector.

What I’m watching next

• Corporate margin recovery as the new segmentation matures.
• Services momentum and attach rates on cloud, security and AI projects.
• Cash conversion normalising in H2 with seasonal flows.
• Further customer shifts from EA to CSP after the November EA price change.

Quick jargon buster

• GII: gross invoiced income. The total value billed to customers, adjusted for timing items. A good proxy for activity and working capital.
• GP: gross profit. Revenue minus cost of sales. BTG’s primary sales performance metric.
• GP/GII: a margin proxy that shows gross profit as a percentage of GII.
• EA: Enterprise Agreement. Microsoft’s traditional licensing route, where Microsoft invoices the customer and pays partners rebates.
• CSP: Cloud Solution Provider. Microsoft’s partner-led model where BTG invoices the customer and earns a normal resale margin.
• Cash conversion: free cash flow divided by operating profit. BTG targets around 100% over the cycle, with H1 typically lower due to seasonality.

Bottom line

These are decent numbers in a transition half. BTG absorbed Microsoft incentive changes, pushed services hard, and kept customers close. Margins took a hit and costs are higher, but the balance sheet is strong and cash returns are flowing. If the corporate sales reset delivers and services keep compounding, H2 should look cleaner, with CSP migration and AI-driven projects offering upside over the medium term.