Software fourth-quarter sales drop as licence sales, A&N unit drag

BERLIN (Reuters) - Germany's Software AG <SOWGn.DE> on Wednesday posted a 5% drop in fourth-quarter revenue to 255 million euros (£215 million) as license sales declined and revenues at the business software company's A&N database unit fell.

Operating profit at Germany's oldest listed tech company fell 23% in the fourth quarter to 65.9 million euros, below the mean forecast of 71.6 million euros in a poll of analysts posted on the company's website.

Shares in Software AG dropped 2% in premarket trade at Lang & Schwarz.

The Darmstadt-based firm said it saw 2020 operating margin between 20% to 22%, compared to 29.2% last year, as CEO Sanjay Brahmawar invests in shifting the business from a 'lumpy' license revenue model to software subscriptions.

Brahmawar, a former IBM executive, has purged the executive board as he pushes forward with the business transformation, dubbed project Helix, in pursuit of achieving annual revenue of 1 billion euros by 2023.

Software had warned that the quick shift towards a subscription-based model could squeeze margins for 2020. That's because license fees are paid up-front, while subscriptions are spread over time.

Fourth-quarter sales at Digital Business Platform (DBP), Software AG's largest unit, declined 2%, while its Adabas & Natural database division fell 16% and licenses dropped 11% in the same period.

Software AG revised its mid-term target for operating margin to 25%-30% from its previous forecast of 30%.

(Reporting by Riham Alkousaa; Editing by Michelle Martin and Douglas Busvine)