Good everyone, and welcome to our 2022 annual results briefing. Miles Hurrell, CEO, and joined here by Marc Rivers, our CFO. I'm gonna kick things off with an overview of our performance before asking Marc to take us through a bit more of the detail around the numbers. Before I get into it, I wanna start by acknowledging and thanking our farmer owners and our people right around the world who continue to show up and deliver in what has been another tough year. The hard work and resilience of our people was reflected in the 2022 performance. In particular, I'd like to acknowledge Marc. He joined us at a difficult time, and under his leadership, we've rebuilt the strength of our co-op's balance sheet and increased the clarity and focus on achieving our financial goals.
This is his last annual results for the co-op, and appropriately, it's a great set of numbers. Let's have a look at the results. I'm pleased to say it's a good news story for our co-op, our farmer-owners, and unit holders, and also New Zealand as a whole. We've seen improved earnings as well as a high milk price. Our final milk price for the 2021-22 season was NZD 9.30 per kg of milk solids, which is around NZD 13.7 billion paid into the New Zealand economy in milk price payments alone. This is much needed for our farmers who have seen a significant rise in their on-farm costs this year.
Our reported profit after tax of NZD 583 million is NZD 16 million lower than the prior year, due to having the benefit of the gain on sale of non-core assets last year. After removing the impact of these gains, our underlying performance has improved despite a significant increase in the cost of goods and operating expenses being up, with our normalized profit after tax up NZD 3 million to NZD 591 million. Our normalized earnings per share is NZD 0.35, and the total dividend for the year is NZD 0.20 per share. The high milk price and earnings performance reflects strong demand for dairy right across multiple markets and products at a time of constrained milk supply, global supply chain challenges, and a significantly higher cost of milk for our business.
This operating environment and our decisions around the best way to sell our products increased our working capital requirements through the H2 of the financial year. At financial year-end, our net debt was NZD 1 billion higher at NZD 5.3 billion. Our strong balance sheet, however, gave us the flexibility to proactively manage this. Our working capital requirements and our net debt position is forecast to improve during the 2023 financial year as working capital returns to normal levels. Marc will go into a bit of detail on the working capital later on. A final comment I'd like to make is this slide here is to note our improved performance has meant our return on capital has increased from 6.6%- 6.8%, despite the decision to hold more inventory. Look at the next slide.
The increase in dairy prices, as shown on the graph on the left, reflects strong dairy fundamentals, as I've just mentioned. The significant increase in prices over the season did place pressure on our margins in food service and our consumer channels. In particular, you can see the cost of milk manufacture between February and April averaged NZD 10.40 per kg of milk solids, which impacted sales margins in that Q4. The graph on the right, you can see the narrowing price relativities in the H1 of the year between Reference and Non-Reference Products. The strong increase in Non-Reference Product prices in the H2 has been driven by our protein portfolio, in particular cheese and caseins. These price relativities are reflected in the strong earnings through our ingredients channel in the H2 of the year.
As we've seen these continue in the current financial year, they are a key driver in our recent improvement in our earnings guidance, which I'll talk to later. Before I hand over to Marc to discuss the business performance in more detail, I'll just cover off a couple of the drivers of that high Farmgate Milk Price that were referred to in the earlier slide. You can see the increase in milk prices driven by the higher product prices. Whole milk powder, which is around 65% of the sales, which within the milk price calculation increased some 21%. This year, we did have a high FX conversion rate of 0.6884 compared to 0.6677, which has partially offset the increase in product prices.
Like most businesses, we've experienced inflationary pressures across the board, which is part of the additional NZD 0.17 you can see in our costs. Included in this is such items as manufacturing, transport, and energy costs. I'll now hand over to Marc Rivers to speak to the business performance in a little more detail. Thanks, Marc.
Thank you, Miles. Yeah, the 4% decline in our sales volumes were mainly due to lower New Zealand milk collections over the first nine months of the financial year. Also shipping disruptions in the final quarter, relating to continued scheduling difficulties, compounded by challenging weather conditions through July. Our total group gross profit increased NZD 226 million, despite the lower sales volumes and gross margin, due to significantly higher product prices across our regional ingredients channels, particularly in our protein portfolios. Operating expenses increased to NZD 155 million or 7%, and some of the bigger drivers were distribution and storage and admin costs, which were collectively up about NZD 81 million, mainly due to supply chain disruptions and inflationary pressure.
We're recognizing an impairment of NZD 34 million on our Asia brands, Anmum, Anlene, and Chesdale, with the carrying valuations impacted by higher global interest rates. Other on the line, which includes other operating income, net foreign exchange movements, and share of equity-accounted investees, it decreased NZD 32 million, mainly due to the impact of the economic crisis in Sri Lanka. The significant deterioration of economic conditions in Sri Lanka has seen the rapid devaluation of the Sri Lankan rupee against the US dollar, and that means it takes more Sri Lankan rupees to pay for product purchased in US dollars from New Zealand, and resulted in $80 million adverse revaluation of our Sri Lankan business payables owing to New Zealand. Now, that was partially offset by some favorable foreign exchange movements in other net receivables.
Normalised profit after tax of NZD 591 million, which increased NZD 3 million. Which is a pretty good result in the context of a significantly higher milk price and increase in operating expenses. The next slide. While our earnings have been helped by favorable price relativities, our teams out in the markets continue to be focused on creating demand in our channels where we can get the greatest value for our milk, such as food service channel and our Active Living portfolio. The growth of our Active Living portfolio this year was driven by increased demand for our milk protein concentrate, casein, and caseinate products. The allocation of milk solids to our food service channel has continued to grow as innovation enables us to expand the uses of our UHT cream range within our Anchor Food Professionals brand.
The percentage of solids our consumer channel received this year was impacted by our choice to limit sales volumes in Sri Lanka, given the economic crisis there. Our business is well diversified across both regions and product channels, and you can see the very favorable impact of the price relativities within the ingredients channel across actually all three regions. Also, the quarterly EBIT tables to the right highlight the point Miles touched on earlier of how strong the price relativities were in the H2 of the year. Our sales teams have worked with our foodservice and consumer customers to adjust in-market sales prices to reflect increased costs, particularly the significant increase in the cost of milk. However, we've not been able to adjust pricing at the same rate as our cost increases.
This has been a driver for our food service and consumer channel performances being down, as well as several region-specific challenges in the consumer channel. Now, I mentioned on the prior slide how we'd allocated greater solids to food service. It's just important to note that despite the higher input costs in our food service channel, our New Zealand milk generated a higher EBIT margin in the food service channel of 6.3%, compared to 6.1% in the ingredients channel. This slide provides some scale to the size and performance of the regions and their channels, and you can see just how significant AMENA's ingredients channel performance has been this year.
It's really benefited the most from the strong protein prices, and the team there have worked really hard to grow demand for our protein products in the sports and active, healthy aging, and medical nutrition ingredients categories. Foodservice consumer channel margins in Asia and Greater China were impacted by the increase in dairy prices. Greater China's strong ingredients channel improvement more than offset these. However, the additional challenges in Asia-Pacific, namely the Sri Lankan economic crisis and impairments to its Asian brands, meant the significant improvements in ingredients channel was not enough to offset those. Within our New Zealand manufacturing operations, milk utilization improved, and that's mainly due to improvements in our cheese processing and better planning and scheduling of byproduct streams such as whey, which is produced during the manufacture of cheese and casein.
This improvement was achieved even though we increased the proportion of complex products being manufactured for our Active Living portfolio. The more complex products can incur greater processing losses of milk solids, but provide greater earnings in the co-op and represent the greatest overall return for our milk solids. Both our Made Right First Time and our cost of quality indicators have been trending favorably for a number of years. However, this year both had unfavorable movements as they were impacted by a couple of specific challenges, including two matters and a formulation issue. We do expect both to return to favorable trends. We've got a strong balance sheet, and this continues to provide us flexibility.
As Miles mentioned earlier, our working capital requirements increased, which has meant our key leverage metrics at year-end have also increased, but they will improve as working capital returns to normal levels throughout the year. I'll discuss this more on the next slide. Our improved Return on Capital is due to higher earnings offsetting the impact of additional working capital on our capital employed. This slide shows how the increase in our working capital impacted our year-end debt. As you can see, our closing debt was NZD 5.3 billion, which is NZD 1 billion higher than the previous year-end, and it's driven by NZD 1.6 billion in working capital, of which a significant portion, proportion is temporary and will reverse in the current financial year.
Just taking a closer look at the NZD 1.6 billion increase in our working capital, this reflects NZD 1.2 billion increase in inventory and NZD 0.8 billion in receivables, but partially offset by favorable movements in trade payables. Our decisions on sales planning to return to the best overall value for our milk was always going to result in higher year-end inventory, and this was also impacted by increased late-season milk production and shipping constraints. The NZD 1.2 billion increase in the value of inventory was made up of NZD 400 million from price due to higher milk price and NZD 800 million due to holding inventory volume on hand at year-end. At year-end, we held an additional 126,000 metric tons of product. However, 88% of this product was contracted with an agreed price prior to year-end.
You can also see we had higher receivables due to increased sales revenue in the months of June and July compared to the prior year, and a significant amount of this has already been received in cash in the first month of this financial year. Next is looking at capital invested. Total capital invested was NZD 617 million. Of this, capital expenditure was NZD 587 million. As planned, this is an increase of NZD 42 million on the prior year, and it's in response to increasing regulatory requirements on wastewater treatment, reducing emissions from thermal fuel sources, and also maintaining integrity and reliability across our network of processing assets. NZD 53 million of our capital expenditure was for projects to drive future growth.
As indicated in our long-term strategy, our overall capital investments will progressively increase as we increase our investment in sustainability and future growth opportunities. This next slide provides an overview of where we allocate capital by business unit and investment type. As you can see, the majority is allocated to group operations to ensure our processing sites are fit for purpose. Key projects include wastewater upgrades at our Te Awamutu and Tirau site, biomass boiler installation to replace coal at our Stirling and Waitoa sites. Investing in whey permeate concentrate related assets to manage process risk and improving technology to improve refrigeration of products at our Whareroa site. As part of our strategy, we're committed to investing around NZD 1 billion in sustainability over the period to 2030. An important part of this investment over time will be converting coal boilers to sustainable alternative energy sources.
This slide highlights some of the recent work we've done. Work currently underway, as well as future projects to help reduce our manufacturing greenhouse gas emissions. The increase in our Return on Capital to 6.8% reflected the increase in our normalized EBIT. The impact of the improved EBIT was partially offset by the additional working capital, increasing our year-end capital and therefore our average capital employed. With that, I'll hand over back to Miles.
Great. Thanks, Marc. Our aspirations in our strategy are underpinned by three strategic choices. Firstly, a focus on New Zealand milk, be a leader in sustainability, and be a leader in dairy innovation and science. It's early days, but we're making good progress in putting in place the necessary building blocks to achieve our 2030 goals. The changes we've made to organizational structure will enable us to accelerate our progress towards 2030 and increase our focus on innovation and strategic implementation. I'm pleased that we've been able to appoint from within with two of our brightest people leading these new business units. Komal Mistry Mehta as Chief Innovation and Brand Officer brings new level of focus, capability, and thinking to the FMT to help grow the premium value of our products.
While Emma Parsons, as Managing Director of Strategy and Optimization, is focusing on demand choices, portfolio, and asset management. Another change in next month, Judith Swales will head up the new global markets team following the consolidation of our MENA and APAC regions. There are some great examples from the last year that demonstrate our strategy in action, and I'll touch on a couple. We're partnering with the government, our sector and commercial partners to tackle the on-farm methane challenge. We're just working through the final details of the agreement, but we're excited about the opportunities for New Zealand to provide world-leading solutions in this space. We've also invested in new technology at our Darfield site to expand our cream cheese range. The new equipment allows us to produce a premium high solids, low moisture cream cheese, which can be used as an ingredient in other products.
Our strategy focuses on New Zealand milk, and we have been reviewing the ownership of our businesses in Australia and Chile. We've looked at a number of options for our Australian business and decided that it's in the co-op's best interest to maintain full ownership. Australia plays an important role in our consumer strategy and a number of common and complementary brands and products. The business is going very well, and it'll play a key part in helping us meet our 2030 targets. The sale process for Soprole business is well underway. As part of our strategy to 2030, we set the goal of return of about NZD 1 billion to shareholders and unitholders, which depended mainly on the sale of Soprole and our stake in the Australian business.
Even though we've decided not to sell our stake in our Australian business, we're still committed to targeting significant capital return to our shareholders and unitholders. The amount of any capital return will ultimately be determined by the number of factors, including the successful completion of the Soprole sale process, as well as our ongoing debt and earnings levels. We'll continue to provide updates as the sales processes progress. It's also pleasing to see the progress being made on changes to the dairy legislation following the overwhelming farmer support for our new flexible shareholding structure. Along with the Co-operative Council, we're looking forward to participating in the select committee processes that'll be coming up shortly. It's great to see the process moving in the right direction, and we'll keep our farmer owners updated on progress.
This next slide talks to. It's been a great year to be part of our co-operative, and the continued strong demand for dairy means the future looks bright also. The midpoint of NZD 9.25 per kg of milk solids forecast Farmgate Milk Price reflects a constrained supply as growth from key milk-producing regions remains low, continuing strong underlying demand. We're operating in a relatively uncharted waters at the moment with a particularly volatile market, and our wide range reflects several risks, including COVID-19, the macroeconomic factors, global inflation, global economic growth, and volatility in foreign exchange markets. It's really pleasing to be starting the year with an uplift in earnings guidance range. The strong milk price outlook has been driven by the demand for our Reference Product prices.
In addition, the demand for our Non-Reference Products and ingredients channel is also very strong, and this is supporting our forecast earnings range. These higher dairy input costs will continue to place pressure on our foodservice and consumer channel gross margins due to the higher input costs. The wider guidance range reflects this point, as well as a number of unknowns, specifically around milk price. Thank you very much for joining us today.