Tatts posted broadly neutral results for the 2016 financial year with revenue increasing by 4.4% to $2.9 billion. EBITDA was flat but the group was able to increase underlying net profit by 3.8% due to a $10 million reduction in interest expense.   The lotteries business remains the largest division (~65% of group EBIT) with EBITDA growing by 10% to $346 million over the period. However, this was partially offset by its wagering arm (EBITDA down 13.2%) due to growing competitive pressure (i.e. higher marketing costs and more aggressive pricing).   Following the reversal of the Victoria Pokies compensation case, net debt now sits at $1.1 billion (up from $600 million) but credit metrics have remained broadly stable on a normalised basis (exclusion of compensation proceeds) and roughly on par with sector averages. As a result, we believe the sharp increase in debt is manageable.   We expect Tatts to continue improving its lotteries segment through product innovation and see a successful transition away from traditional and into primarily digital lotteries. However, we believe the future success of the group’s wagering arm is dependent on the government’s ability to stamp out in-play betting products and other betting activities conducted in regulatory loopholes.   Click here for updated research on the Tatts Bonds (ASX: TTSHA)