"AGL has strong cash flows and a strong balance sheet, to allow it to develop sensible strategic opportunities," Johnson told shareholders at an extraordinary meeting yesterday.

AGL was still investigating opportunities for strategic acquistions and investments in power generation and in upstream gas supplies to reduce the cost and price volatility of the wholesale electricity and gas it on-sells, he said.

AGL is returning funds to shareholders from a cash surplus produced by the sale of its 66% stake in New Zealand gas distributor NGC Holdings Pty Ltd, which gave AGL net proceeds by December 2004 of about $778 million.

The company’s $515m capital management program has three components.

The first stage was a special dividend of 30 cents per share franked to 90% in March, worth $137 million. The second was the move approved yesterday of a capital reduction of 50 cents per share, which will return $228 million to shareholders.

The last component is an on-market share buy-back of up to $150 million, due to begin next month.

On completion of the capital management program AGL will still have an A credit rating, the company said.