Bytes Technology Group's share price drops 10% amid profit decline

Bytes Technology Group’s share price slumped over 10% on the JSE Tuesday after it reported a 7% drop in operating profit as it navigated changes to Microsoft partner incentives and adjusted to a new sales structure.

The share price slumped even though the UK software, security, cloud and AI services group raised its interim dividend by 3.2% to 3.2 pence. The share price traded at R85.30 around midday, a price also 22.6% lower than the R110.16 it traded at a year ago.

The London Stock Exchange-listed company with a secondary listing in South Africa said headline earnings (HEPS) a share fell 5.1% in the six months to August 31 to 12.03 cents from 12.67 cents at the same time last year.

Gross invoiced income (GII) increased 9.1% to £1.34 billion, with 8.9% growth in software and 15.1% in services. Gross profit (GP) increased by a relatively small 0.4% to £82.4 million.

“We delivered a resilient performance, building positive momentum as we settled into our new corporate sales structure. Despite the challenging economic climate, and our internal and industry changes, we have maintained our share of wallet among our existing customers,” said the CEO Sam Mudd in a statement.

Segmentally, the public sector GP growth, which was more impacted by Microsoft's partner incentive changes, was 1.6%, and growth in GP in corporate, which adjusted to the new sales structure launched at the start of the year, was -0.6%.

Software GP was down by 3.5%, but this was offset by strong growth in services, which increased over 40% consistent with the objective to grow services income and profit.

Operating profit was down 7%, with higher headcount, salary and national insurance costs only partly mitigated by lower variable remuneration. The headcount was up 12% year-on-year to 1 266, and had increased by 1.7% since February 28, 2025.

“We are particularly pleased that retention has remained very high, consistent with prior periods, among both our sales team and customer base which provides a solid foundation for future growth. We are also pleased with how our teams adapted to the changes to Microsoft’s partner incentives for Enterprise Agreements; successfully transitioning corporate customers to the higher margin Microsoft Cloud Solution Provider program, and broadening our software portfolio and doubling down on services across the business,” said Mudd.

The balance sheet was strong with closing cash of £82.3m, up 15.1% over the previous year.

Mudd said they remain confident of delivering a full-year outcome within the range of market expectations.

A new corporate sales structure had settled after an adjustment period. Customers that traded with the group in the prior year contributed 98% of GP in this half-year.

Multiple vendor awards received included from Axonius, Barracuda, Checkpoint, Sophos, Varonis and VMWare.

“We have a strong pipeline and have started the second half of 2026 well, but are mindful that comparatives will be impacted by the particularly strong trading performance we saw in the last few months of the prior financial year,” the group’s directors said.

BUSINESS REPORT