AOL Time Warner shaves forecasts

AOL TimeWarner is the biggest media group in the US

Media giant AOL Time Warner has cut its financial forecasts for the second time since 11 September, saying its business plan assumes no recovery in the economy

The media giant confirmed it would buy out German media company Bertelsmann's 49% stake in internet portal AOL Europe for $6.75bn.

It also unveiled a huge asset write-down of at least $40bn.

AOL Time Warner is the biggest media group in the United States with interests spanning films, magazines, cable TV, the internet and recorded music.

It owns Time Magazine and the America Online internet portal, while its film companies put the wizards-and-magic blockbusters Harry Potter and Lord of the Rings on celluloid.

Cautious view

AOL Time Warner had previously said it expected double-digit profit growth in 2002.

But its latest forecast is for an increase of between 8% and 12% in earnings before interest, taxes, depreciation and amortization (known as EBITDA).

Earnings measured by this yardstick will be flat in the first quarter of 2002.

Revenues for 2002 will be between 5% and 8% stronger than the previous year.

The group said it would continue to outperform its competitors "whatever the state of the economy" due to its subscription relationships, strong content and disciplined cost control.

AOL's subscriber base has buffered it against the advertising slowdown.

Record write-down

The group revealed it would make a one-off write-down of between $40bn and $60bn of goodwill in its accounts for the three months to March 2002.

It said the huge write-down reflected "overall market declines" since early 2000, when the merger of AOL and Time Warner was announced.

However, it said, the write down was to comply with new accounting rules on mergers and would not affect its operations.

Analysts said the sum involved beat the record charge of $38.7bn taken by semiconductor firm JDS Uniphase last year.

Weak advertising

AOL Time Warner also gave guidance on what its 2001 accounts will show when they are published at the end of this month.

The last year was a difficult one that included "the weakest advertising market in memory," the group said.

EBITDA for 2001 looks set to be just under $10bn, up about 18% on the previous year, while revenues expected to climb about 5% to just over $38bn, it said.

The trading update came after the New York stock markets closed. AOL Time Warner's shares closed the session up at $32.68.