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UPDATE 1-Software AG reports lower Q4 profit and revenue, but confirms goals

* Q4 revenue down 2%, op. profit falls 26%

* Says quarterly growth in bookings accelerated to 31%

* Confirms 2023 target for revenue of 1 bln euros

* Shares opened up 1.5% (Adds CEO comments on hacking incident)

BERLIN, Jan 27 (Reuters) - Germany’s Software AG on Wednesday reported declines in fourth-quarter revenue and profit, but said its business transformation was on track as the share of its recurring revenues grew.

Fourth-quarter revenue declined by 2% at constant currency at the database and middleware group, while operating profit fell by 26%. Its shares rose by 1.5% after the results release.

Under CEO Sanjay Brahma war, Darmstadt-based Software AG is looking to increase the share of subscription-based revenues, which increased last year to 85% of the total from 69% - already touching the company’s 2023 target.

Companies making the transition to providing such software as a service typically experience a temporary squeeze in profitability as up-front licence fees drop out of the equation and are replaced by payments spread out over time.

Brahmawar noted, however, that last year’s operating margin, at 21.2%, was still in line with guidance. Growth in bookings accelerated to 31% in the fourth quarter, even as Software AG dealt with the fallout from a malware attack.

“We were able to keep our focus on customers and operations,” Brahmawar said in an interview, adding the attack was quickly contained and the company’s business and cloud services were not affected.

The coronavirus pandemic is leading businesses to speed up the process of making their businesses run digitally, said Brahmawar, adding that the typical sales process was now being compressed to a few months as deals are done remotely.

Issuing its outlook for 2021, Software AG said it expected growth in total product revenue of between zero and 5% and a compression of operating margins to 16-18%. These should rebound from 2022, Brahmawar said.

It confirmed its 2023 ambition of achieving revenue of 1 billion euros ($1.2 billion), up from 835 million last year, and an operating margin of 25-30%. ($1 = 0.8221 euros) (Reporting by Douglas Busvine Editing by Caroline Copley)

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