AOL Time Warner, the world's largest media company, yesterday pared back its forecasts for the coming year and said it assumed there would be no recovery in the advertising market during 2002. The business, which has interests ranging from the Harry Potter movie company Warner Brothers to the Warner Music division and IPC magazines, warned that revenue growth would be between 5-8% during 2002, not the double digit growth previously forecast.

Dick Parsons, chief executive designate of the company, introduced a new conservative approach into the normally aggressively optimistic firm.

"We will try not to over promise," he said. "Our assumptions will be more conservative.

"Advertising continued to weaken and weaken during last year. We are assuming no recovery in the economy and we are not counting on any advertising growth in 2002."

AOL also confirmed it will use cash to fund the $6.7bn acquisition of the 49% in AOL Europe held by Germany's Bertelsmann.

The price was agreed in March 2,000 when internet valuations were still sky high and the stake is now worth as little as $2bn according to analysts.

The company is to take an accounting charge of $40bn-$60bn in the first quarter to account for a drop in market value since the merger of the media and internet firms at the height of the boom in January 2000.

The main drivers for growth were a powerful late run from the movie business which also included Lord of the Rings and subscription revenues from cable TV, AOL and magazines which were 12% higher.

Advertising for the full year was down by 3%. The company warned that the first half of 2002 would show the greatest decline as the full effects of the advertising slowdown were not felt until the second half of last year.

Jerry Levin, the chief executive due to stand down in four months time described 2001 as the "weakest advertising market in memory."