TELESTE CORPORATION: INTERIM REPORT - 1 JANUARY TO 30 JUNE 2006

TELESTE CORPORATION STOCK EXCHANGE RELEASE 13.7.2006 AT 13.00

TELESTE CORPORATION: INTERIM REPORT - 1 JANUARY TO 30 JUNE 2006

(Data unaudited. This interim report has been compiled in
compliance with IFRS IAS 34.)

- Net sales grew by 20% over the previous year amounting to EUR
45.5 million
- Operating profit increased by 47.8% over the previous year
totalling EUR 4.1 million, earnings per share increased 68.2%
standing at EUR 0.18 per share
- Orders received improved by 31.1% over the previous year
standing at EUR 48.4 million
- Broadband Cable Networks' orders received grew by 34.8% over the
previous year
- Video Networks' orders received were up by 9.3% over the
previous year

Net Sales and Profitability developed favourably

Net sales grew by 20.0% over the same period last year standing at
EUR 45.5 million (EUR 37.9 million). Operating profit grew by
47.8% over the previous year amounting to EUR 4.1 million and was
9.0% of the net sales (EUR 2.8 million and 7.3%). Undiluted result
per share equalled EUR 0.18 (EUR 0.11). Orders received went up by
31.1% over the previous year standing at EUR 48.4 million (EUR
36.9 million). The order backlog totalled EUR 25.7 million (EUR
19.9 million). Delays in deliveries persisted towards the end of
the review period due to lengthened delivery times in some
components. In addition, ability of cable TV operators to carry
out network installations slowed down deliveries to some degree in
the summer season. Net sales for the second quarter totalled EUR
22.7 million (EUR 18.1 million) and operating profit was EUR 1.9
million (EUR 1.5 million), i.e. 8.6% (8.3%) of the net sales. In
the second quarter, orders received amounted to EUR 21.4 million
(EUR 20.3 million). Teleste consolidated its competence through
acquisition of Suomen Turvakamera Oy in May 2006 and the Swedish
PromaCom AB in June.

Business Units

Broadband Cable Networks
Broadband Cable Networks' net sales grew by 21.1% over the
previous year to EUR 38.1 million (EUR 31.4 million). Operating
profit stood at EUR 3.9 million (EUR 2.6 million). This
improvement in the operating profit was mainly attributed to
increased net sales. Orders received by the Broadband Cable
Networks business unit increased by 34.8% over the previous year
to EUR 42.6 million (EUR 31.6 million). Order backlog totalled EUR
23.9 million (EUR 14.8 million).

In the second quarter, Broadband Cable Networks' net sales stood
at EUR 19.1 million (EUR 14.8 million). Deliveries were delayed to
some degree due to lengthened lead times of components and the
shift in cable networks installations caused by the football world
cup. Operating profit stood at EUR 1.9 million (EUR 1.4 million)
accounting for 10.0% of the net sales (9.5%). In the second
quarter, orders received amounted to EUR 18.4 million (EUR 17.5
million). The Swedish PromaCom AB was acquired in June 2006 to
consolidate integration expertise in Broadband Cable Networks'
fibre technology (FttH) applications.

Video Networks
Video Networks business unit’s net sales grew by 14.6% over the
previous year standing at EUR 7.4 million (EUR 6.5 million).
Operating profit stood at EUR 0.19 million (EUR 0.16 million).
Orders received by the Video Networks business unit increased by
9.3% over the previous year amounting to EUR 5.8 million (EUR 5.3
million). Order backlog totalled EUR 1.8 million (EUR 5.1
million).

In the second quarter, Video Networks' net sales stood at EUR 3.5
million (EUR 3.3 million). Operating profit stood at EUR 0.04
million (EUR 0.09 million), i.e. 1.1% of net sales (2.8%). In the
second quarter, orders received amounted to EUR 3.0 million (EUR
2.9 million). Suomen Turvakamera Oy was acquired in May 2006 to
expand the business unit's range of solutions provided for the mid-
market segment of the clientele.

Personnel

At the end of June, the Group employed 662 (557) persons, 490 of
them stationed in Finland. The number of personnel includes 55
(44) summer substitutes.

R&D and Investments

At the end of June, Teleste's R&D personnel included 128 (131)
persons. In the period under review, the R&D expenses amounted to
EUR 4.3 million accounting for 9.6% of the net sales (EUR 4.1
million and 10.8%). Activated R&D expenses stood at EUR 0.7
million (EUR 0.7 million). The Group’s investments totalled EUR
4.5 million (EUR 1.6 million). The priority areas included
acquisitions, product development and measuring instruments for
production. In the period under review, the real estate in Norway
was sold with inconsequential capital gain.

Finance

In the period under review, cash flow from operations stood at EUR
-4.3 million (EUR 1.7 million). The increase in current assets by
EUR 7.6 million in the period under review was due to growth in
accounts receivables and accrued income. Inventories grew by EUR
4.4 million and non-interest-bearing short-term debt increased by
EUR 3.7 million. At the end of the review period, liquid funds
stood at EUR 8.2 million (EUR 14.0 million). At the end of June,
the Group's interest-bearing debt was EUR 14.8 million (EUR 9.5
million). In the review period, interest-bearing debt increased by
EUR 10.8 million. The increased interest-bearing funds were used
to finance investments and growth in working capital. At the end
of June, in addition to liquid funds the company's undrawn
available credit facilities amounted to EUR 17 million. The
Group's gearing ratio stood at 20.1% (-16.8 %) and the equity
ratio was 47.7% (52.1%). Teleste hedges main exchange rate risks
of forecasted currency flows for six months ahead.

Shares and Shareholders

During the period under review the share price fluctuated between
EUR 6.46 and EUR 12.75. The closing price at the end of June was
EUR 9.84 (6.66). According to the Finnish Central Security
Depository, the number of shareholders at the end of the period
was 5,755 (5,539) while foreign ownership accounted for 19.5%
(13.6%). The value of shares traded on the Helsinki Exchanges was
EUR 89.5 million (EUR 36.4 million) and the number of shares
amounted to 9.2 million (5.5 million). In January 2006, Ilmarinen
Mutual Pension Insurance Company reported its ownership having
increased up to 5.42%. At the end of June, Teleste possessed
455,000 of its own shares.

Decisions by the Annual General Meeting

The Annual General Meeting (AGM) on 4 April 2006 confirmed the
financial statements for 2005 and discharged the Board and the CEO
from liability for the financial period. The AGM confirmed the
dividend of EUR 0.16 per share as proposed by the Board of
Directors. The dividend was paid out on 18 April 2006.

Composition of Teleste's Board remained unchanged. Mr. Tapio
Hintikka was re-elected as Chairman whilst Mr. Tero Laaksonen, Mr.
Pertti Raatikainen, Mr. Timo Toivila and Mr. Pekka Vennamo
continued as members on the Board of Directors.

Authorised Public Accountants KPMG Oy Ab continues as the auditor
for the financial period 2006.

The AGM authorised the Board to acquire the maximum of 1,215,000
of the company's own shares and to convey 1,700,000 company's own
shares. The AGM authorised the company to increase the share
capital by a directed issue of no more than EUR 1,360,000 being
equal to 3.4 million shares. These authorisations expire on 4
April 2007. The authorisations granted by the AGM have been used
by conveying 30,000 own shares in the acquisition of the share
capital of Suomen Turvakamera Oy; other authorisations have not
been used. Based on authorisations granted in 2001 and 2002, the
company is in possession of 455,000 of its own shares.

Outlook

In our estimation, the favourable development of the Broadband
Cable Networks business will continue. There is a mounting
interest among the clientele in Teleste’s fast communications
solution (100 Mbps) Ethernet to the Home and we expect orders to
pick up in the latter part of the year. The unit has prepared for
continuing favourable market situation by strengthening its
competence in fibre solutions (FttH) and developing logistical
processes.

We believe the order backlog on network products of Video Networks
business unit will increase towards the end of the year. The
acquisition of Suomen Turvakamera expands the business unit's
product range in the mid-market segment of the clientele. In the
latter part of the year we will start marketing surveillance
solutions of Suomen Turvakamera in the United States and Europe
for selected customers by means of Teleste's sales network and
complementary technology.

Teleste's net sales and profitability will improve from those of
last year. Cash flow from operations will improve in the second
half of the year.

Teleste's interim report for the January to September period will
be published on 24 October 2006.

13.7.2006

TELESTE CORPORATION Jukka Rinnevaara
Board of Directors President and CEO

Consolidated Statement of 1-6 1-6 Change % 1-12
Income (tEUR) /2006 /2005 /2005

Turnover 45 480 37 894 20.0 % 82 588
Change in inventories of 2 358 -435 n/a 761
finished goods
Other operating income 1 242 904 37.3 % 1 530
Materials and services -22 935 -15 321 49.7 % -36 443
Personnel expenses -13 259 -12 328 7.6 % -24 124
Other operating expenses -7 627 -7 050 8.2 % -13 791
Depreciation -1 158 -889 30.3 % -1 940
Operating profit 4 102 2 776 47.8 % 8 582

Financial income and -149 -111 34.9 % -261
expenses
Profit after financial items 3 953 2 666 48.3 % 8 321

Profit before taxes 3 953 2 666 48.3 % 8 321

Taxes -956 -783 22.1 % -2 363
Minority share 0 -103 n/a 0
Net profit 2 997 1 780 68.4 % 5 956

Attributable to:
Equity holders of the 2 997 1 780 168.4 % 5 956
parent
Minority interest 0 103 n/a 0
2 997 1 883 159.2 % 5 956

Earnings per share for profit of the year attributable to
the equity holders of the parent
(expressed in EUR per share)
Basic 0.18 0.11 68.2 % 0.35
Diluted 0.17 0.10 68.3 % 0.33

Consolidated Statement of 4-6 4-6 Change %
Income (tEUR) /2006 /2005

Turnover 22 669 18 129 25.0 %
Change in inventories of 2 331 67 3379.7 %
finished goods
Other operating income 539 836 -35.5 %
Materials and services -12 796 -6 923 84.8 %
Personnel expenses -6 571 -6 128 7.2 %
Other operating expenses -3 659 -3 989 -8.3 %
Depreciation -565 -492 14.8 %
Operating profit 1 949 1 500 29.9 %

Financial income and -126 -23 448.9 %
expenses
Profit after financial items 1 823 1 477 23.4 %

Profit before taxes 1 823 1 477 23.4 %

Taxes -382 -412 -7.3 %
Minority share 0 -19 n/a
Net profit 1 441 1 046 37.7 %

BALANCE SHEET (tEUR) 30.6. 30.6. Change % 31.12.
2006 2005 2005
Non-current assets
Property, plant, equipment 5 774 5 779 -0.1 % 5 860
Goodwill 12 581 8 526 47.6 % 9 205
Intangible assets 2 536 1 859 36.4 % 2 589
Investments 1 116 1 116 0.0 % 1 116
22 007 17 280 27.4 % 18 770
Current assets
Inventories 14 047 7 202 95.0 % 9 623
Other current assets 25 498 15 168 68.1 % 17 878
Short-term investments 0 10 366 n/a 2 000
Liquid funds 8 152 3 598 126.6 % 6 524
47 697 36 334 31.3 % 36 025

Total assets 69 704 53 614 30.0 % 54 795

Shareholder's equity and liabilities
Share capital 6 942 6 935 0.1 % 6 935
Other equity 26 280 20 841 26.1 % 25 371
33 222 27 776 19.6 % 32 306
Minority share 0 71 n/a 0
33 222 27 847 19.3 % 32 306

Non-current liabilities
Provisions 515 544 -5.3 % 515
Non interest bearing 0 0 n/a 433
liabilities
Interest bearing liabilities 1 227 9 306 -86.8 % 706
1 742 9 850 -82.3 % 1 654
Short-term liabilities
Trade payables and other s-t 19 786 14 099 40.3 % 16 123
liabilities
Provisions 1 356 1 630 -16.8 % 1 502
S-t interest bearing 13 598 187 7171.7 % 3 210
liabilities
34 740 15 916 118.3 % 20 835

Total shareholder's equity 69 704 53 614 30.0 % 54 795
and liabilities

Cash-flow (tEUR) 1-6/ 1-6 Change % 1-12
/2006 /2005 /2005

Cash-flow from operation -4 336 1 714 n/a 5 537
Cash in 39 234 37 384 4.9 % 84 118
Cash out -43 570 -35 670 22.1 % -78 581
Cash-flow from investments -3 278 -1 399 134.3 % -4 612
Cash in 315 0 n/a 0
Cash out -3 593 -1 399 156.8 % -4 612
Cash-flow from finance 7 226 -3 455 n/a -9 545
Cash in 10 051 0 n/a 3 000
Cash out -128 -1 438 -91.1 % -10 523
Paid dividend -2 697 -2 017 33.7 % -2 022
Other items 17 0 n/a 36
Effect of currency rates 17 0 n/a 36
Change in liquid funds -372 -3 140 -88.2 % -8 584

Key figures 1-6 1-6 Change % 1-12
/2006 /2005 /2005
Earnings per share, EUR 0.18 0.11 68.2 % 0.35
Earnings per share fully 0.17 0.10 68.3 % 0.33
diluted, EUR
Shareholders' equity per 1.97 1.65 19.4 % 1.92
share, EUR

Return on equity 18.3 % 13.5 % 35.6 % 19.8 %
Return on capital employed 19.3 % 15.0 % 28.7 % 23.7 %
Equity ratio 47.7 % 52.1 % -8.4 % 59.1 %
Gearing 20.1 % -16.8 % n/a -14.3 %

Investments, tEUR 4 511 1 625 177.6 % 4 073
Order backlog, tEUR 25 663 19 934 34.1 % 22 700
Personnel, average 590 528 11.7 % 546

Number of shares 17 343 17 340 0.0 % 17 340
(thousands)
including own shares
Highest share price, EUR 12.75 7.25 75.9 % 8.35
Lowest share price, EUR 6.46 5.85 10.4 % 5.85
Average share price, EUR 9.83 6.60 48.9 % 6.97

Turnover, in million shares 9.2 5.5 66.4 % 10.8
Turnover, in MEUR 89.5 36.4 145.8 % 75.3

Treasury shares
Number Nominal % of % of
of shares value share votes
Eur capital

Parent company owns own 455 000 182 000 2.62 % 2.62 %
shares 30.6.2006

Contingent liabilities and pledged assets (tEUR)

For own debt
Guarantees 888 0 n/a 320
Mortgages on company assets 0 10 000 n/a 0
Mortgages on properties 0 7 000 n/a 0
Leasing and rent liabilities 2 159 1 962 10 % 1 779
3 047 18 962 -83.9 % 2 099

Derivative instruments (tEUR)
Value of underlying forward 18 212 8 383 117.2 % 16 503
contracts
Market value of forward 18 271 8 584 112.8 % 16 597
contracts

Taxes are computed on the basis of the tax on the profit for the period.

Primary segments information 1-6 1-6 Change % 1-12
(tEUR) /2006 /2005 /2005

Broadband Cable Networks
Order intake 42 603 31 601 34.8 % 72 850
Net sales 38 080 31 439 21.1 % 67 179
EBIT 3 912 2 615 49.6 % 7 374
EBIT% 10.3 % 8.3 % 23.5 % 11.0 %
Video Networks
Order intake 5 840 5 344 9.3 % 12 500
Net sales 7 400 6 455 14.6 % 15 409
EBIT 190 161 18.0 % 1 208
EBIT% 2.6 % 2.5 % 2.9 % 7.8 %
Total
Order intake 48 443 36 945 31.1 % 85 350
Net sales 45 480 37 894 20.0 % 82 588
EBIT 4 102 2 776 47.8 % 8 582
EBIT% 9.0 % 7.3 % 23.1 % 10.4 %

Information per 4-6 1-3 10-12 7-9 4-6 7/2005-
quarter (tEUR) /06 /06 /05 /05 /05 6/2006

Broadband Cable Networks
Order intake 18 435 24 168 21 047 20 202 17 481 83 852

Net sales 19 121 18 959 19 157 16 583 14 802 73 820

EBIT 1 909 2 003 2 499 2 260 1 406 8 671
EBIT % 10.0 % 10.6 % 13.0 % 13.6 % 9.5 % 11.7 %

Video Networks
Order intake 3 045 2 795 3 490 3 716 2 863 13 046
Net sales 3 548 3 852 5 110 3 844 3 327 16 354
EBIT 40 150 569 478 94 1 237
EBIT % 1.1 % 3.9 % 11.1 % 12.4 % 2.8 % 7.6 %

Total
Order intake 21 480 26 963 24 537 23 918 20 344 96 898
Net sales 22 669 22 811 24 267 20 427 18 129 90 174
EBIT 1 949 2 153 3 068 2 738 1 500 9 908
EBIT % 8.6 % 9.4 % 12.6 % 13.4 % 8.3 % 11.0 %

Attributable to equity Share Share Trans- Retai- Total
holders of the parent (tEUR) capital pre- lation ned
mium diffe- ear-
rences nings
Shareholder's equity 6 935 1 276 70 24 025 32 306
1.1.2006
Translation differences 17 17
Profit of the period 2 997 2 997
Equity-settled share-based 7 45 -2 150 2 098
payments
Shareholder's equity 6 942 1 321 87 24 872 33 222
30.6.2006

Distribution of Ownership Shares %
Companies 1,767,443 10.18 %
Financial institutions 4,728,590 27.25 %
Public institutions 3,038,100 17.51 %
Nonprofit organisations 949,445 5.47 %
Private individuals 3,485,120 20.08 %
Foreign and nominee-registered 3,383,054 19.49 %
Total 17,353,752 100.00 %

Major Shareholders Shares %
1 Sampo Life Insurance Company Ltd 1,624,200 9.36 %
2 Ilmarinen Mutual Pension 1,606,900 9.26 %
Insurance Company
3 Kaleva Mutual Insurance Company 785,900 4.53 %
4 FIM Fenno Mutual Fund 529,900 3.05 %
5 Aktia Capital Mutual Fund 521,450 3.00 %
6 Varma Mutual Pension Insurance 486,150 2.80 %
Company
7 Teleste Corporation 455,000 2.62 %
8 State Pension Fund 400,000 2.30 %
9 Mutual Insurance Company Eläke- 350,000 2.02 %
Fennia
10 Fondita Nordic Small Cap Placfond 300,000 1.73 %

ADDITIONAL INFORMATION:
CEO Jukka Rinnevaara, tel +358 2 2605 866 or +358 400 747 488

DISTRIBUTION:
Helsinki Exchanges
Media
www.teleste.com