BERLIN: 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 business grew.

Fourth-quarter revenue declined by 2% at constant currency at the database and middleware group, while operating profit fell by 26%.

Under CEO Sanjay Brahmawar, 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 hitting 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.

Issuing its outlook for 2021, Software AG said it expected growth in total product revenue of between zero and 5% and an operating margin of 16-18%.

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%.