October 20, 2017 / 7:06 AM / in a year

UPDATE 1-Software AG to launch Internet of Things division

* To launch IoT unit in January

* Q3 core profits decline, revenue growth below expectations

* Confirms 2017 guidance

* Shares down 6 pct in early Frankfurt trade (New throughout)

FRANKFURT, Oct 20 (Reuters) - Germany’s Software AG said it would launch a new Internet of Things division, seeking to tap growth after reporting a decline in core profits and lacklustre revenue in the third quarter.

Germany’s No.2 business software maker, like market leader SAP, missed expectations with revenue growth of 2 percent across its digital, database and consulting businesses.

Adjusted earnings before interest, tax and amortisation (EBITA) fell by 5 percent to 63.6 million euros ($75.2 million), missing analysts expectations and sending its shares sharply lower.

The company set up a strategic alliance with a group of manufacturing companies last month that will focus on industrial applications for the Internet of Things and Germany’s Industrie 4.0 digitisation initiative.

Software AG said it would form a separate IoT cloud unit in January.

“All IoT-related revenues are recurring streams that are highly scaleable - they grow with every connected machine and sensor,” Chief Financial Officer Arnd Zinnhardt said.

It had been counting on its Digital Business Platform business, which accounts for over half of its revenue, to drive growth but third quarter revenue again disappointed as licence revenues declined.

The Darmstadt-based company nonetheless confirmed its full-year guidance for core operating margins of 31 to 32 percent which it raised after its second-quarter results. It said its digital business would grow by 5 to 10 percent.

$1 = 0.8460 euros Reporting by Douglas Busvine; editing by Maria Sheahan and Jason Neely

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