Teleca takes strong actions to strengthen its competitiveness and product business profitability

Teleca will restructure its product R&D efforts with the target of
maintaining or increasing the R&D activity level at significantly
reduced cost. Now, six months after the successful acquisition of Telma
in Russia, Teleca is ready to take a new step to strengthen its
competitiveness and cost structure. Over time a significant part of
Teleca’s product R&D is planned to be made in Russia. Teleca is also
taking actions to improve performance in Teleca Systems.

The total restructuring includes staff of 220 people in Western Europe.
This will result in annual cost savings by SEK 112 million with full
effect from July 2007. Total restructuring costs are estimated to SEK 76
million. In addition Teleca will make a write-down of capitalized
development cost of SEK 67 million, which will lower the depreciation in
2007 with SEK 26 million.

“I have been with Teleca now for 4 months thoroughly reviewing our
operations. It is obvious that our financial performance is currently
not satisfactory and we need to take further actions. In the company we
have strong assets, which we can leverage better, such as our well
performing Russian affiliate. By significantly ramping up our R&D in
Russia, we can maintain current strong R&D efforts at significantly
reduced cost. Hence, the acquisition of Telma in Russia now gives us an
excellent opportunity to significantly strengthen our competitiveness in
the global market and drive profitability,” says René Svendsen-Tune, CEO
of Teleca.

Teleca Mobile
With the ambition of strengthening its innovation capability while at
the same time reducing cost Teleca plans to restructure its product R&D.
In Sweden, Teleca plans to concentrate its activities to the Malmö
region. The company also plans to significantly increasing the software
production and testing in the Russian affiliate.

The county boards for Ronneby, Umeå and Stockholm in Sweden have been
given notice that Teleca has the intention to possibly reduce staff with
150 people and close Teleca Mobile part of these local sites. Teleca
intends to reduce headcount with another 20 people in Sweden by
restricted recruiting. Teleca has initiated discussions with the local
unions.

Teleca targets a situation where its product business is above break-
even over 2nd half of 2007 assuming current revenue levels. Strengthened
competitiveness and marketing efforts are expected to drive increased
revenues and profitability thereafter.

Restructure costs in Teleca Mobile are estimated to SEK 57 million
including cost of competence transfer. Yearly savings are estimated at
SEK 88 million with full effect from July 2007.

Impairment tests of intangible assets have resulted in a write-down of
capitalized development cost of SEK 67 million, primarily related to PC-
Connectivity suite and the Messenger product. Depreciation of intangible
assets will as a result decrease with SEK 11 million in the fourth
quarter 2006 and SEK 26 million in 2007.

The targeted restructuring in Teleca Mobile will have no material impact
on revenue.


Teleca Systems
Teleca Systems takes further measures for improved cost-efficiency.
Teleca plans to reduce staff with about 50 persons across Europe. The
restructuring costs are estimated to about SEK 19 million with annual
savings estimated to about SEK 24 million with full effect from January
2007.

The restructuring in Teleca Systems is targeted to drive better
utilization. Further it may lead to minor reductions in revenues, where
such revenues currently have zero or negative margin impact.

In addition, Teleca has made a new assessment of the recoverability of
current receivables in Teleca Systems. The new assessment is based on
recent suspended installments from a few customers. Teleca will however
continue to work on recovering the outstanding amounts. As a consequence
SEK 17 million has been provisioned for during the third quarter.


Restructuring summary
In summary Teleca will take one-time charges of about SEK 76 millions in
the fourth quarter 2006. The measures will result in annual savings of
about SEK 112 million. The net cash flow effect from the restructuring
and other actions combined over the coming 12 months is expected to be
–SEK 11 million, whilst the effect after full implementation is expected
to be SEK 105 million on an annual basis. In total the second half of
2006 will be affected negatively by SEK 160 million which will translate
to yearly savings of SEK 138 million from July 2007.



SEK million Restructuring Annual savings Cash flow Oct. Cash flow Oct.
and one time from July 2007 2006-Sep. 2007 2007-Sep. 2008
charges (12 months) (12 months)
Teleca Mobile
restructuring 57 88 -16 81
Teleca
Systems
restructuring 19 24 5 24
Total
restructuring 76 112 -11 105

Impairment of
cap. dev.
cost 67 26* – –
Current
receivables
in Teleca
systems 17 – – –
Total 160 138 -11 105

*refers to full year 2007



Outlook

Full Year 2006
For the full year Teleca expects a moderate growth in revenue and
earnings for the period including earnings from discontinued operations
to be at the break-even level or just above.

Third quarter 2006
Excluding one-time charges, operating earnings (EBIT) are expected to be
about break-even during the third quarter 2006.

The one-time charges items are: 1) In continuation of previous
announcement Teleca will make a loss provision of SEK 45.5 million
related to the BenQ Mobile situation. 2) A write-down of about SEK 17
million related to current receivables within Teleca Systems. 3) A
write-down of SEK 67.3 million related to impairment of capitalized
development expenses.

Fourth quarter 2006
Teleca expects moderate growth in the fourth quarter and positive
operating earning (EBIT) before one-time charges.

The result will be affected by one-time charges of about SEK 76 million
related to restructuring. The restructuring is expected to show its
first positive effect on results in first quarter 2007.


Teleca will hold a press and capital market meeting on the turnaround
program today, Monday 9 October 2006, between 13.30 – 14.30 (CET) at
Teleca’s premises in Stockholm (Årstaängsvägen 19B). The company’s CEO,
René Svendsen-Tune, and members of the management team will be speaking
at the meeting.


For more information please contact:
· René Svendsen-Tune, President and CEO, Teleca AB, mobile +45-40540068
· Christian Luiga, CFO, Teleca AB, +46-857911604, mobile +46-703751604
· Johannes Rudbeck, Investor Relations Manager, Teleca AB, mobile +46-
705825656


Telecais a world-leading consulting company that develops and integrates
advanced software and IT solutions. Teleca helps its customers shorten
development times and use the most suitable technology more effectively.
The company consists of about 3,500 experts based in 17 countries in
Asia, Europe and North America. Teleca is quoted on The Nordic
Exchange’s Mid cap list. www.teleca.com