The telecom giant is not quite back on track yet. As per its latest stock filing, the Pakistan Telecommunications Co. Limited Group (PSX: PTC) recorded a double-digit slide in its net profits (see the illustration) for the year ended December 31, 2016. Subdued financials perhaps gave management no occasion to declare a cash dividend.

The groups financial performance could have been much better had it not been for a non-core expenditure. Last year, the PTCL Company, which is PTCs main subsidiary accounting for over 60 percent of group revenues, expensed some Rs4.6 billion on another round of employee voluntary separation scheme (VSS). Thats the main reason behind improved gross and operating margins but a depressed net margin.

But the one-off VSS expense masks the real issue, one that has been recurring in recent quarters. The lingering issue for the PTCL Group isnt only the loss-making Ufone, its cellular subsidiary. Also in some trouble is the PTCL Company, which has been losing its topline vigor lately after years of decent revenue growth.

Breaking down the groups CY16 financials, the PTCL Company earned Rs71.4 billion in revenues, about 6 percent lower on a year-on-year basis. The company did a good job cutting its operating expenditures by a relatively higher proportion, thus protecting its gross and operating margins. But the VSS payment did the firm in, leading it to close the year with Rs6.8 billion in net profitability, a drop of 22 percent.

On the other hand, Ufone, as per our calculations, recorded a 7 percent year-on-year growth in topline. Thanks to that, and also by dint of a sharp reduction in finance costs, Ufone reduced its net losses by about a quarter in CY16. The last-ranked 3G operator is still mired in Rs5 billion net loss. But the net loss has been positively reducing every quarter.

Ufone has not been aggressively adding 3G subscribers the way its rivals have been doing, it seems to be better monetizing its user base through data and voice offers. There is still some way to go before the entity comes back to black.

Meanwhile, the PTCL Company seems to be under double trouble. Previously, it was losing significant international telephony revenue on account of i) the decline in voice call termination tariff post-ICH annulment, and ii) the customer shift to virtually-free OTT apps such as WhatsApp and Viber for long-distance communications.

Now, add to it another weakness seen where the companys fixed line, DSL broadband, and wireless broadband (EvDO) subscriptions have suffered visible declines in CY16, as per PTA data. The recipe of cost savings that saved CY16 from a financial slump alone wont result in better financials going forward. The PTCL Company, and the group, will need to find creative ways to boost sales for the flagship.