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(generated from captions) essentially export based and again,

make the argument of what these

impacts will do to their marks.

I also think you will find that if impacts will do to their marks. And

you impose carbon taxes people and

companies are very creative and

ingenious and they will find ways companies are very creative and very

reducing the amount of CO2 per unit ingenious and they will find ways of

of production so they will take

less of an economic hit than Mr of production so they will take much

Howard is suggesting. So I really

think these projections are very

overblown and given a lot of

economic models and given some past

experiments, what we've normally

found is that as penalties,

penalties are introduced, companies found is that as penalties, economic

and individuals find ways of

adapting, accommodating and very

very much minimising the amount of

loss that they really Bosch. So I

think this is a case of hyperbole

and political overstatement - I

certainly don't know what the Prime

Minister's motivations are - but I

certainly think it's a kind of

overstatement that really inflames

fears when, in fact, what we're

really trying to do by this is to

unleash a new wave of creativity

that would be forthcoming from

citizens, companies and governments

themselves. Ross Gelbspan it's

interesting to get your perspective

on what's happening in this country.

It will be received I'm sure, with

mixed reactions. But we thank you

very much for joining us tonight.

Tony thank you so much, I

subject, thank you. you guys giving the air time to this you guys giving the air time to Tony thank you so much, I appreciate

paramilitary officers The trial of seven Bosnian Serb Muslim men and boys in Srebrenica charged with massacring thousands of resumed today in The Hague. crimes tribunal slammed Serbia The chief prosecutor at the war the former Serbian army chief, for failing to arrest General Ratko Mladic. Radovan Karadzic He and former Serbian leader are still on the run. killed in the massacre in 1995. 8,000 Muslim men and boys were

have pleaded not guilty. All seven men at today's trial Now, to the weather. thunderstorm in Perth, Showers and the risk of an early a few showers also for Melbourne, a shower or two in Hobart, from Adelaide and early drizzle clearing in the other capital cities. but fine tomorrow And thats all from us. in just a moment. 'Lateline Business' coming up at tonight's interview If you'd like to look back with Ross Gelbspan, or re-play our entire program, view individual stories, abc.net.au/lateline just go to our website at functions are available. where download and 'streaming' with Ali Moore. And now 'Lateline Business' Thanks, Tony. Tonight - the bad news continues for Telstra profit downgrade. with its much anticipated A warning from Roger Corbett of Woolworths. for anyone planning a takeover And in our feature story tonight, factory - the Macquarie Bank millionaire are cracks starting to appear?

Le The world is a finite size. You

can't keep growing forever and debt

funding those distributions forever. It ultimately is This program is captioned live. It ultimately is not sustainable. Straight to the markets now. And they're up a shade was negated by a slide in Telstra. although a good Woolworths result The All Ords closed up 12 points. The ASX200 ending 11 points higher. chips like Honda had risen too far. In Japan investors decided blue Their selling pulled the Nikkei down. Hong Kong's Hang Seng also slid. biggest one-day fall in two months. Its near 2% drop was the in about 20 minutes, And the Dow Jones opens of 11,381. starting at Friday night's close has begun its trading week London though, from Seven Investment Management and George Winter has been following the day so far. I spoke to him earlier.

George Winter, thanks for talking

us. How's the UK started the week? George Winter, thanks for talking to

Well, it's been a quiet start here

in the UK. It's August a lot of

people on holiday, so a lot of low

levels across the board. However,

UK FTSE 100 is up 20 points trading

just over 5,900. And basically

is down to some strength in the just over 5,900. And basically this

mining and oil stocks and also more

bid and merger activity going on

there. Lots of rumours today. bid and merger activity going on out

Before we get to those rumours,

how's Europe looking? Europe is

opened slightly lower, flat across

is the board. France, Germany and

the Dutch markets all down slightly.

A lot of profit-making we've seen

following profit-taking from the

Nikkei in Japan overnight. Anglo

American seems to be the subject of

a bit of talk? Yeah, this is all

the back of the Observer a Sunday a bit of talk? Yeah, this is all off

newspaper here in the UK which says

that it has proof that there is a

?80 billion bid out there for Anglo

American from Rio Tinto and Xstrata.

Both companies have been doing

with booming commodities and Both companies have been doing well

apparently they are cash rich.

Whether this is true or not we

know. Rio Tinto has already bought Whether this is true or not we don't

falcon Bridge recently and is it

going to go in for another deal?

We're not sure, not convinced, but

Anglo American shares are up 3%

today. So there is some strength

the share price. It will be today. So there is some strength in

interesting to see what happens

when bhpd reports on Wednesday. interesting to see what happens here

Thank you very much for talking to us. us. Thank you. went from bad to worse today. The news for Telstra shareholders

hit a 9-year low this morning The embattled telco's share price after Telstra went ex-dividend issued a profit downgrade. and then the company for shareholders But the glimmer of hope won't be cutting its dividend - is that the company at least for now. Neal Woolrich reports.

2006 has been a year that Telstra

shareholders might rather forget.

It's been dominated by a fight with

the ACCC that saw the telco scrap

its high-speed broadband plans. To

rub more salt into the woun last

week Telstra reported a 26% plunge

in profit. This morning, its share

price hit a 9-year low after the

company started trading without its

end of year dividend. Now Telstra

has confirmed that underlying

earnings will dip between 2 and 4%

this financial year. Despite being

revision down in guidance the this financial year. Despite being a

accepted that that was coming. If revision down in guidance the market

anything this is a relatively

minimal change to guidance to where

the market was informed a week or

og. Telstra has revised down profit the market was informed a week or so

forecast after a ruling by the ACCC

cut the amount the telco could

charge competitors for access to

charge competitors for access to its network. The bright spot for

investors today came with

confirmation that Telstra would

maintain its 28 cents per share

dividend in 2007. We cannot give

guidance on ordinary dividends for

the fiscal 2008 year owing

the fiscal 2008 year owing primarily to the continuing n certainty

attached to regulatory outcomes and

impacts. I think they'd still like

to pay 28 cents beyond that. I

think I'd like to demonstrate that

the transformation is bearing fruit.

I wouldn't see the dividend going

down. The board's right to remain

cautious about what might happen

that far out. Ian Martin says most

of Telstra's big regulatory issues

are now out of the way. But he

warns that the ACCC will start

looking more closely at Telstra's

cost modelling. I think there's a

fairly straightforward path now.

fairly straightforward path now. We know the ACCC follows when it goes

through pricing determinations.

through pricing determinations. You can expect that price, those access

prices to slide down over time.

Some of them may go up depending on

how costs are allocated. While some

investors are happy Telstra is

keeping its 28 cent dividend, the

decision will put more pressure on

the company's credit rating.

Standard & Poor's says the dividend

is unsustainable in the medium term

and likely to be well in excess of

net profit. And that's just one

more issue for the Government to

weigh up when it considers

weigh up when it considers Telstra's future at tomorrow's Cabinet Neal Woolrich reporting. Retiring Woolworths boss Roger Corbett is going out in style with the retail giant's first billion dollar profit. Full-year earnings were up 24% to just over a billion with second-half profit rising 27%. Continued strong performances from food and liquor, as well as petrol, were the key drivers. Woolworths has lifted its full-year dividend by 16% to $0.59 a share. I spoke to Woolworths CEO Roger Corbett earlier this evening.

Roger Corbett, thanks for talking

Roger Corbett, thanks for talking to Lateline Business. Profit over $1

billion, does it get any better, or

is this it? Is this the top of the

current cycle? Oh no, it's got to

get better every year. That's what

business is all about. So we'll

grow next year and the year after

and we've got plans to do so, so no,

this is just another step along the

way. If we look first at the

way. If we look first at the economy you've noted your experience with

Big W across the country being very

different. Western Australia and

Queensland pretty good, the Eastern

Seaboard subdued. Together what

does that add up to? Well it adds

does that add up to? Well it adds up to an economy being driven very

strongly by the minerals boom and,

of course, States are enjoying the

best part of that are Western

Australia and Queensland. But the

economy in NSW is very poor

economy in NSW is very poor relative to the rest of Australia and that

would have to be a matter of

concern. What's the outlook for the

Eastern Seaboard for the weaker

States? In the immediate future I

think it's got a great danger of

remaining subdued. Well if we can

look on the competition front, what

if Coles Myer is sold and you're

faced with a tougher competitor?

Well, who knows? There's a lot of

conjecture. Will it be sold? Will

it be rationalised? Ali, this looks

dramatic at the present moment, but

if you set this in the history of

retail changes over the years I've

been in retailing, it's just

been in retailing, it's just another change. Whoever buys the assets of

Coles Myer is going to have to

compete in this market and

Woolworths has spent a lot of money

on its logistics and its IT to

ensure that we are an efficient

operator. Would it effect your

forecast, your profit forecast?

I don't think so. Even though that

was a qualification, changed

competitive environment? We'd have

to see what changes Ali, but it

won't affect it in the immediate

future. There's obviously plenty of

talk of private equity players

wanting a stake in Coles Myer, but

there's also talk of Wal-Mart or

Tesco potentially wanting a role.

You're very close to Wal-Mart, why

would a company of the size of

Wal-Mart or Tesco want a stake in

Australia? Well let me say that -

we've got good relationships with

both, but those relationships are

not such that they share any plans

of this nature with us. I doubt

very much whether Tesco or Wal-Mart

would be interested in buying Coles

Myer with its PE at the present

Myer with its PE at the present time and their own PEs. It doesn't

actually seem to be shareholder

accretive to their shareholders.

Could Woolworths be next? Our

greatest protection against being

taken over by someone else is to

taken over by someone else is to run a world standard business. And, of

course, Woolworths PE at the

course, Woolworths PE at the present time is amongst the highest PEs of

any retailers anywhere in the world.

So someone would have to see an

advantage on the current share

advantage on the current share price at its current PE, plus obviously

at its current PE, plus obviously an enormous premium - I'm sure

Woolworths' shareholders wouldn't

allow Woolworths to go without an

enormous premium. Any purchasers

would have to be sure that they

could get a return on that type of

hurdle. I think that's pretty

doubtful. You've priced yourself

doubtful. You've priced yourself out of the market? No, we've priced

ourself into the mark. One

ourself into the mark. One potential black spot, Woolworths has been

found guilty in the Federal Court

found guilty in the Federal Court of breaching the Trade Practices Act

over liquor licence applications.

You could be fined $40 million?

Well, we'll have to wait and see

what the court believes. We take

very seriously our compliance with

the ACCC. The practice that we've

been held guilty of before Justice

Olsen - and we respect His Honour's

decision and decision - has been

widespread practice. We had legal

advice and our defendants had legal

advice and this process was

conducted by the licensing court

conducted by the licensing court and so our legal advisers on both sides

and the court did not believe the

practice was illegal. So, it is a

new situation and an interpretation

of the law by Justice Olson which

of the law by Justice Olson which we respect. That doesn't sound like

contrition which is what the ACCC

boss Graeme Samuel has been urging?

I accept, of course, Mr Samuel's

advice. We are very contrite in

terms of us working very hard to

comply with the law. But your

behaviour was found illegal and

unacceptable? Well, illegal and, of

course, anything that's illegal is

unacceptable. We didn't believe it

was. Either did our legal

representatives. However, we

representatives. However, we accept his honour's view and we'll be

paying a lot more attention to this

part of our business moving forward.

Roger Corbett, thank you very much

for talking to Lateline Business.

My pleasure. Over at Coles Myer board members are planning their strategy to defend the company against what is now a much anticipated takeover bid expected to be led by private equity firm KKR, with a price tag of around $16 billion. Though there's no sign of any deal yet, the prospect of a takeover has emboldened many of the company's critics including former managing director Peter Bartels. The current management have a lot to answer for and a lot of midnight oil will have to be burned to make sure they can offer their directors a plan that is better than one which is coming from outside. After big gains in the last couple of weeks Coles Myer shares were down a 0.33% or $0.05 today to $13.40. Another profit result in the steel industry today with falling prices and higher input costs contributing to a 66% plunge in BlueScope Steel's full-year result. But it was perhaps no surprise that when CEO Kirby Adams faced the media today

the big talking point wasn't just the earnings decline but his company's acquisition of just under 20% of Smorgon Steel. Sue Lannin reports. It was the result the market was expecting. This has a been a disappointing year from a financial perspective,

but it has been absolutely in line with our February and June profit guidance. The steel-maker's after-tax profit fell to $338 million - a drop of 66%.

It's paying investors a final dividend of $0.44 a share - up 5%. That's after the company restructured, closing down its loss-making tin plant at Port Kembla and its operations in Taiwan. But Mr Adams says 2007 is looking up. All of our BlueScope businesses in the first two months of this year, all those business segments are operating profitably and that's obviously a change from the prior year and we're quite encouraged by that. BlueCcope last week bought a nearly 20% stake in Smorgon Steel.

It's a move that surprised some. Rival OneSteel has launched a friendly takeover bid for Smorgon - an offer that has yet to win regulatory approval. BlueScope's just very interested in being involved in the transaction, one way or another. They want to have a say as to how things progress. And I think it's a sensible move for them.

Kirby Adams has defended the $1.77 Bluescope paid for Smorgon shares but he says the company would support a new plan for a merger

between OneSteel and Smorgon. We think a revised scheme of arrangement

may present an opportunity for BlueScope to acquire some businesses. The real risk with going and buying 19.9% of Smorgons at this stage, is that the deal between OneSteel and Smorgons hasn't been approved by the ACCC. Adams says he will leave BlueScope in October next year. Sue Lannin reporting. Meanwhile, last minute changes have delayed Tattersall's take-over bid for fellow gambling giant UNiTAB. UNiTAB investors are now being offered more money for their shares. They'll get to vote on the deal next month. And Tattersall's is pulling out all stops to shorten the odds on its $1.8 billion deal. Australia's biggest lottery operator has promised to appoint UNiTAB's Dick McIlwain as the new CEO of the company. While the gambling industry is busy sorting out its future Australia's car industry is still mired in problems - again on the brink of mass stand-downs as it searches for a way to save a key component supplier. Vehicle manufacturers are reported to have reached an agreement to underwrite Melbourne firm Ajax Fasteners for the next six months. But the talks are stuck in second gear, while Holden, Ford and Toyota haggle over the costs. We are happy to eat our fair share of the pie

but we are not going to eat the whole pie by ourselves. With up to 13,000 workers affected across the country, Ford says it may be forced to begin lay-offs as early as Wednesday. Macquarie Bank's pioneering approach to infrastructure has won it fans worldwide. Its footprint is now global, with airports, roads, telecommmunications, in fact, almost anything that used to be the preserve of government. And its listed spin-off, Macquarie Infrastructure Group, is the world's biggest tollway company in its own right. But even though profits remain at record highs, some investors are starting to question whether the Macquarie model is sustainable in the long term. Stephen Long reports.

Whether you're flying or driving

Macquarie takes its toll in Sydney

and around the world. With the

Aussie bank controlling all kinds

Aussie bank controlling all kinds of assets - we're even bowling for

Macquarie and the Macquarie model

has become the modern way to

has become the modern way to finance infrastructure. Yet, there's a

chorus of voice questioning the

model. It's my view that the model

is unsustainable. Macquarie's key

tollway business is causing concern,

because of its levels of debt and

because most of the payments it

makes to investors comes from

borrowed money - money borrowed

against the value of assets.

If you look at some of the

valuations in the portfolios, the

valuations are crazy. Many y

analysts still say Macquarie

Infrastructure Group is a road to

riches. We think it's one of the

best opportunities in the

infrastructure sector at the moment.

Some high-profile investors are

avoiding it because of its complex

accountses and levels of debt.

It's quite a tangled web for want

It's quite a tangled web for want of a better word. It's not easy to

understand. We have concern with

the levels of borrowing within the

vehicles themselves. Not so long

vehicles themselves. Not so long ago many weren't putting this view but

with rising interest rates and fuel

costs, times have changed.

Macquarie Bank conceded at its AGM

it's had trouble finding a home for

$1.7 billion parked on its balance

sheets. Even before it spun off

toll roads into a separate fund,

toll roads into a separate fund, the share price was down nearly 20% in

share price was down nearly 20% in a year . For some the fancy

year . For some the fancy financial footwork that made Macquarie's name

now spells risk. Tollways are

expensive and generally don't make

positive returns for many years,

even decades. Macquarie's big

innovation was to find a way to

innovation was to find a way to make these assets attractive to

investors. In effect, it brings

forward part of the projected

profits revaluing the assets based

on what it thinks they'll earn and

borrowing against that to pay

shareholders in advance. As far as

fund manager Roger Montgomerie is

concerned, it doesn't add up.

The world is only a finite size.

You can't keep growing forever and

you can't keep debt funding those

distributions forever. It

ultimately is not sustainable.

These infrastructure players have

broken the nexus for the investor

between what the business does and

what it generates and what they

receive. There's a lot of rhetoric

that I see in the marketplace,

people being told you're a

sophisticated investor or

sophisticated investor or Australian investors are becoming more

sophisticated and more savvy, and I

don't see that at all. In fact,

what's happening is that investors

are now ignoring what the business

does, and how much money it

generates and all they seem to care

about is what distribution they're

going to get. Last year, Macquarie

Bank paid out $1.3 million to

investors yet toll roads generated

less than $250 million in net cash

flow. Most of the rest of the

flow. Most of the rest of the money came from refinancing debt and

selling assets. And that's fine,

selling assets. And that's fine, if MIG's valued its assets right and

all the cash is coming but this

ex-Macquarie Bank staffer is

sceptical. When we do some

valuations ourselves of those

valuations ourselves of those assets we don't get numbers anywhere near

as high as what Macquarie Bank gets

and therefore we do think that the

current price is well above what we

think those assets are actually

Waugh. It's all a little too risky

for Peter Morgan. Front loading the

profits is perhaps a little

aggressive. What a lot of the

vehicles have done is taken

revaluations early on in the piece

with regards to the asset, which is

fine when interest rates and other

variables are working your way, but

it's when interest rates start to

rise and other variables start to

move that revaluation effect won't

be that great if it's there at all.

But Andrew Chambers at Austock

Security says the critics have got

it wrong. We believe they're

ignoring the fact that the value of

the assets is going up at that $800

million to $900 million a year. million to $900 million a year. Why can't you borrow against that?

He says that Macquarie has a

He says that Macquarie has a natural hedge against the rising interest

rates that have made investors

lairy. Toll s that go up by

inflation or more. Quite simply,

rising interest rates are almost

always accompanied by a rise in

inflation. Rise in inflation means

that you can put the tolls up on

that you can put the tolls up on the toll roads at a greater rate and

hence, there's increased revenue.

I've seen the argument put by

Macquarie if inflation goes up and

interest rates go up because of

inflation that there is some

coverage or some hedging with

regards to that risk. But interest

rates, inflation are not uniquely

intertwined. A low level of risk

that is rising or pricing or

reprising of risk can have an

reprising of risk can have an effect on interest rates. Then there's the

risk that some time in the future

soaring petrol prices might drive

customers away. I think one of the

key variables with a toll road is

obviously, you know, the attraction

of travelling by a road in a high

petrol pricing environment and the

assumptions that have gone into

models may not necessarily reflect

how long motorists will travel

how long motorists will travel along a road in certain numbers while

petrol prices are high. So far,

increases in the prices of oil have

not had a really material impact on

most roads. Of course, there could

come a point which consumer

behaviour might change drastically.

But we haven't seen much evidence

But we haven't seen much evidence of that yet. The counter to the

doomsayers is Macquarie's huge

growth potential in the US. With

public sector debt ballooning at

public sector debt ballooning at all levels of Government, America could

be in the midst of the biggest

privatisation program in history.

Have a nice day. And MIG's been

picking up tollways on some pretty

farfl terms. On some of the roads

they've got market-based tolls

they've got market-based tolls which means they can put them up to

basically any price they choose.

Everyone says infrastructure is

Everyone says infrastructure is very very safe, sure the assets are safe,

but people need to understand that

the amount of financial leverage

employed makes it less safe. You'd

be a game person to say it's going

to blow up over the next year or so,

but it is a risk people should be

aware of. Who's to say whether a

financial perfect storm could hit

Macquarie's road to riches? Lateline business invited both Macquarie Infrastructure Group and Macquarie Bank to be part of Stephen Long's report but they declined.

To the markets now where the Australian stock market has had a steady start to the week. I spoke to the ANZ Bank's Warren Hogan a short time ago.

Lots eo Lots of eo Lots of business eo Lots of business news eo Lots of business news today eo Lots of business news today but eo

not eo not a eo not a lot eo

not a lot of eo not a lot of action eo not a lot of action on eo not a lot of action on the eo

Lots of business news today but not a lot of action on the market?eo

not a lot of action on the market? eo The market was up 1

points of 0.2%. Not a big move.

It's a pretty good result for

Australia given the weaker lead

offshore with the Nikkei and the

Hang Seng down. We had good

Hang Seng down. We had good results from Woolworths, another very

from Woolworths, another very strong result from them and their shares

result from them and their shares up over 1%. We've had other secondary

results from companies such as Seek

and Dino Nobell. What was holding

the market back was Telstra. Fell

to a record below, $3.51. Telstra

suggested they were going to keep

their dividend at 28 cents a share

next financial year, despite a

weaker earnings outlook. The

markets took this as the signal

markets took this as the signal that it's going to be ready for sale by

the Government and that T 3 will go

ahead. Of course Telstra went

ex-dividend today. If you look at

our broader market it really hasn't

done much recently, has it? The

Australian market's been broadly

flat to slightly down so far this

financial year. That's been

financial year. That's been largely a result of what's going on in the

resource and energy sector.

Offshore markets have actually been

up. US, UK, Germany, Japan all up

up. US, UK, Germany, Japan all up a couple of percent at least.

Australia has lagged that. New

Zealand has suffered considerably,

Zealand has suffered considerably, a weaker economy there has seen their

market down 5% in the last couple

market down 5% in the last couple of months. Just briefly finally, bond

market rallying? The bond market is

rallying, a global phenomenon. The

US market has seen their long-term

bond yields fall about 45 basis

points in the last couple of points.

That's on expectations that

inflation will be controlled and I

think now it's suggesting that not

only is the Federal Reserve done in

raising rates but the market is

toying with the idea that they

toying with the idea that they could actually start to need to look at

cutting rates as soon as early next

year on the back of a) weaker

economy. The Australian market's

lagged a little bit. We've had a

bond market rally of about 20

points. A stronger economy here

points. A stronger economy here and more inflation fears holding

more inflation fears holding markets back. How quickly sentiment changes,

Warren thank you very much for talking to us. Today's top mover was on-line job advertiser, Seek. It rose over 6.5% after those good profits Warren Hogan referred to. Coles Myer lost $0.05 but Centro Retail which has 47 shopping centres here and in America put on 3%. Caltex Australia clawed back some of last week's fall. Harvey Norman was another stock to make up some ground. Telecom New Zealand had another bad day falling to a 13-year low in the morning before recovering a bit to close 5% down. Wesfarmers slid over 4.5% with investors still brooding on last week's profits. The same sentiment cost Coca Cola Amatil 4% and Telstra is now at a near 9-year low after going ex-dividend. The Australian dollar is idling near US$0.76 but it continued its recent rise against the yen and fell against the euro. After the Eurozone trade deficit of two months ago moved into surplus. And the dollar clawed back some of last week's slippage against the New Zealand dollar. Gold prices have been rising in Europe tonight. The spot price hit $625 an ounce on fears the week-long Middle East cease-fire might unravel. Iran's determination to continue its nuclear fuel program has seen oil on the rise again. Copper prices rose by 2% leading a general metal price rise in Europe continues. as the strike at BHP's Chile mine Tomorrow's diary now - and another day of company results. are OneSteel Among those reporting Geoff Plummer and we'll be speaking to boss on tomorrow night's program. Paper maker, PaperlinX

Billabong International and surfwear clothing maker, will also reveal their results. new vehicle sales for July. Statistics out tomorrow include Before we go, in the business sections. a look at what's making news says The 'Australian Financial Review' for its float Telstra has cleared the final hurdle million in dividends this year by guaranteeing to pay out $3.5 and the 'Australian' reports on to retire. BlueScope's CEO's decision of BHP's copper mine woes in Chile. The paper also carries an analysis And that's all for tonight.

tonight's program, If you want to review any part of abc.net.au/latelinebusiness you can visit our website at program on-line, where you can now watch the entire or download it as a vodcast. We'd also love to get your feedback. latelinebusiness@your.abc.net.au. Our email address is Goodnight. I'm Ali Moore. International Pty Ltd Captioning and Subtitling Closed Captions produced by

This program is not subtitled

Tom...Quinn. That's my real name. for the Government. Ooh(!) MI5. The truth? I work meetings is to liaise. Informally? anything for us? The point of these Christine Dale. Have the CIA in meltdown. Sod your superiors. so angry with you people, they're My superiors are ..Egypt? Run away with me... They'd never give me clearance. Can't? O-Or won't? No way can I go to Egypt. Can't.

Vicky, don't be ridiculous! You're dumping me.

It's not working. I wanna finish it. I can't go on seeing you. ..What are you talking about? We cannot defend America... ..and our friends... by hoping for the best. sign non-proliferation treaties the word of tyrants who solemnly We cannot put our faith in and then systematically break them. for threats to fully materialise, If we wait we will have waited too long... Diane? Are you kidding...Steve? ANYONE here is a trade delegate... Who's Tom tonight? Steve. You think THEY SPEAK IN ITALIAN I could have told you that. I guess I'm just not pretty enough.

PAGERS BLEEP Back in a minute. President Bush. Isn't he in Rio? What's up? High-level quickie with the PM. Fishing trip? He was. Coming here early tomorrow.

There'll be a rush on taxis. They wanna bash heads. Something major on the OPEC talks. Don't worry. Harry's outside. Francois, what can I tell you? of course. The real reason. Harry, you know why Bush is coming, meet the Libyans. Can't believe it. Meeting your PM's a feint. It's to It's a VERY special relationship.

crates from Washington. WE have. No need to. Look at the diplomatic government at all times." the property of the representative "All diplomatic materials remain one shouldn't read." Oscar Wilde. of modern culture depends on what UN Resolution 3501. "More than half watch YOU. As if you didn't know. our closest ally. They pay US to We do not conduct espionage against

Ours. now. Whose side are you on, anyway? Come on, Harry, we're all Europeans Ready to copy... ' 'Andrews Tower, Air Force One. Don't believe everything you hear. said you'd be a minute! Hey, I thought you wheels up and clear.' 'This is Air Force One -

Shouting practice? with a Thames House counsellor? What would Harry want cargo planes into Brize Norton. of Air Force One? Two C-5 Galaxy Advance teams land 2.5 hours ahead of stuff when you're the President. That's a lot of cargo. You get a lot What's he bringing? sundry Secret Service vehicles, decoy limos, private ambulance, Bulletproof limo, stand-by limos, and something called a blue goose. Marine One plus another helicopter by Marine One from Brize Norton. planning to transfer to the Embassy Presidential podium. Presumably he's the US Ambassador, sightseeing, know what comes later. Coffee with Know who's meeting him? No. But I do

for talks. Elapsed time, 15 hours. lunch with the Queen, then Chequers Maybe he booked it on the internet. MOBILE RINGS Bloody last-minute.

Yes? They're sending it here. What? problem, so they're sending it here. crate. I did. They looked. There's a You said to tell Customs to open a

Harry, they're ready for you. saying - which scares me. A Libyan problem? They're not to the enemy. Disrupt his plans ..We must take the battle before they emerge. and confront the worst threats here in approximately seven hours, of the United States will reach Ladies and gentlemen, the President

in the folder resources here. We've outlined our security needs and be here until 20.00 tomorrow. FLOTUS and VPOTUS will not visit. trip at 18.00 GMT yesterday. POTUS requested the diversionary MOBILE PHONE RINGS this as pleasurable as possible. first we heard of it. So let's make First you heard of it was probably

at Grosvenor Square. A command post has been established

Section, survey each site the White House Protective Research The POTUS advance team will, with to determine manpower, equipment... to be visited by the President, We'd actually prefer to do that. ..and evacuation requirements. MOBILE RINGS a vital part of our operation. We Your assistance in these matters is thank you for coming this evening.

People, please note on page eight. Bagpipe and the PRS will initiate a full complement of POTUS SA1s on CP from the Blacktop Unit at Grosvenor by the time we get a wheels-down from Cowpuncher at the Basecamp LZ. In English, please. A full US Secret Service team will meet the President at Brize Norton. We'd like MI5 close-protection teams on perimeter security for the visit's duration.

MOBILE RINGS But not close to the President. That's OUR job. It's also our job. Well, no. Why not? visiting dignitaries. Not this one. the protection of the PM, Queen and Not in this case. MI5 oversees protection for Presidential visits. the host Government provides 95% of Diplomatic protocol states that