Annual Report Anguilla Electricity Company Limited. Selected Financial Information. Developing Customer Satisfaction. Focusing on Employees

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1 Annual Report 2008 Anguilla Electricity Company Limited Selected Financial Information Developing Customer Satisfaction Focusing on Employees Strategies for Success Corporate Information

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24 NOTES TO THE FINANCIAL STATEMENTS December 31, 2008 (With Comparative Figures for 2007) Expressed in Eastern Caribbean Dollars (EC$) 1. Reporting entity The Anguilla Electricity Company Limited (the Company) was incorporated in Anguilla on 11 January 1991 under the Companies Act and is governed by the Electricity Act, 1991, as amended, and operates in The Valley, Anguilla. The Company has an exclusive public supplier's license to generate, transmit and distribute electricity on the island of Anguilla for a period of fifty years from 1 April The Company's registered office address is Hannah Waiver House, The Valley, Anguilla, B.W.I. 2. Basis of preparation (a) Statement of compliance The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the International Accounting Standards Board (IASB). The financial statements were authorized for issue by the Board of Directors on July 20, 2009 (b) Basis of measurement The financial statements of the Company have been prepared on the historical cost basis. (c) Functional and presentation currency These financial statements are presented in Eastern Caribbean Dollars (EC Dollars), which is the Company's functional and presentation currency. Except as otherwise indicated, financial information presented in EC Dollars has been rounded to the nearest dollar. (d) Use of estimates and judgements The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognized in the financial statements is included in the following notes: Note 3 (b) Valuation of financial instruments Note 3 (d) Impairment of assets 24 Note 3 (f) Estimation of unbilled sales and fuel charges Note 3 (g) Measurement of defined benefit obligation Note 5 Determination of fair values 3. Summary of significant accounting policies The accounting policies set out below have been applied consistently by the Company to all periods presented in these financial statements, unless otherwise stated.

25 NOTES TO THE FINANCIAL STATEMENTS December 31, 2008 (With Comparative Figures for 2007) Expressed in Eastern Caribbean Dollars (EC$) 3. Summary of significant accounting policies (continued) (a) Property, plant and equipment i. Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized net within "Other income" in the statement of income. ii. Subsequent costs The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognized in the statement of income as incurred. iii. Depreciation Depreciation is recognized in the statement of income on a straight line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives for the current and comparative periods are as follows: Buildings Plant and machinery Furniture, fittings and equipment Motor vehicles 40 years years 5 years 3-5 years Depreciation methods, useful lives and residual values are reassessed at each balance sheet date. (b) Financial instruments i. Non-derivative financial instruments Non-derivative financial instruments comprise investment securities, trade and other receivables, cash and cash equivalents, borrowings, trade and other payables and bank overdraft. Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured as described below: Investments securities Held-to-maturity investments are nonderivative assets with fixed or determinable payments and fixed maturity that the Company has the positive intent and ability to hold to maturity, and which are not designated at fair value through profit or loss or available-for-sale. 25

26 NOTES TO THE FINANCIAL STATEMENTS December 31, 2008 (With Comparative Figures for 2007) Expressed in Eastern Caribbean Dollars (EC$) Summary of significant accounting policies (continued) (b) Financial instruments (continued) Held-to-maturity investments are carried at amortized cost using the effective interest method. Any sale or reclassification of a significant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Company from classifying securities as held-to-maturity for the current and the following two financial years. Trade and other receivables Trade and other receivables are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortized cost less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivable. The amount of provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of provision is recognized in the statement of income. Trade receivables, being short-term, are not discounted. Cash and cash equivalents Cash and cash equivalents comprise cash balances on hand and short-term highly liquid investments with maturities of three months or less when purchased and that are subject to a significant risk of change in value. Bank overdrafts that are repayable on demand and form an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Borrowings Borrowings are recognized initially at cost, net of any transaction costs incurred. Subsequent to initial recognition, borrowings are stated at amortized cost. Trade and other payables Trade and other payables are stated at their cost, which is the fair value of the consideration to be paid in the future for goods and services received whether or not billed to the Company. Others Other non-derivative financial instruments are measured at cost less any impairment losses. ii. Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity. Treasury shares When share capital recognized as equity is repurchased by the Company, the amount of the consideration paid, including directly attributable costs, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and presented as a deduction from total shareholders' equity. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings. (c) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. An allowance is made for obsolete and slow moving items.

27 NOTES TO THE FINANCIAL STATEMENTS As at December 31, 2008 (With Comparative Figures for 2007) Expressed in Eastern Caribbean Dollars (EC$) 3. Summary of significant accounting policies (continued) (d) Impairment i. Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognized in the statement of income. An impairment is reversed if the reversal can be related objectively to an event occuring after the impairment loss was recognized. For financial assets measured at amortized cost, the reversal is recognized in the statement of income. ii. Non-financial assets The carrying value of the Company's non-financial assets, other than inventories, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized in the statement of income. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets ("the cash-generating unit"). An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in the statement of income. Impairment loss recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. (e) Contributions in aid of construction Contributions in aid of construction are amounts received from customers towards the cost of providing services. These amounts are amortized over the estimated service lives of the related assets over the same period. Contributions received in respect of unfinished construction are amortized once the assets are placed in service. 27 (f) Revenue i. Sale of energy Revenue from the sale of electricity is recognized in the statement of income based on consumption recorded by monthly meter readings, with due adjustment made for unread consumption at year-end by apportioning the consumption of the following month.

28 A N G U I L L A E L E C T R I C I T Y C O M P A N Y L I M I T E D NOTES TO THE FINANCIAL STATEMENTS As at December 31, 2008 (With Comparative Figures for 2007) Expressed in Eastern Caribbean Dollars (EC$) 3. Summary of significant accounting policies (continued) In addition to the normal tariff rates charged for energy sales, a fuel surcharge is calculated which is based on the difference between the cost of fuel used to generate energy sales in the current month and the average fuel price for the succeeding year preceding January of the current year. The surcharge is recovered by applying the month's surcharge rate to units billed in the following month. ii. Interest income Interest income is recognized on a time-proportion basis using the effective interest method. (g) Employee benefits i. Defined contribution plan A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company operates a defined benefit pension for senior management. The plan is a multi-employer scheme with five contributing employers. The other participating companies are Montserrat Electricity Services Ltd., St. Lucia Mortgage Finance Company Ltd., St. Lucia Electricity Services Limited and St. Vincent Electricity Services Ltd. Multi-employers' schemes pool the assets contributed by the various enterprises that are not under common control, and use the assets to provide benefits to employees of more than one enterprise on the basis that contributed and benefit levels are determined without regard to the identity of the enterprise that employs the employees concerned. The Company's net obligation in respect of its defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and any unrecognized past service costs and the fair value of any plan assets are deducted. The calculation is performed by a qualified actuary using the projected unit credit method. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in the statement of income on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in the statement of income. In respect of actuarial gains and losses that arise in calculating the Company's obligation in respect of a plan, to the extent that any cumulative unrecognized actuarial gain or loss exceeds ten percent (10%) of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that portion is recognized in the statement of income over the expected average remaining working lives of the employees participating in the plan. Otherwise, the actuarial gain or loss is not recognized. When the calculation results in a benefit to the Company, the recognized asset is limited to the net total of any unrecognized actuarial losses and past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. 28 (h) Finance cost All interest and other costs incurred in connection with borrowings are expensed as incurred as part of finance costs. Borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets are capitalized as a part of the cost of the asset. (i) Earnings per share Earnings per share have been calculated by dividing the net profit for the year by the weighted average number of issued ordinary shares. (j) Dividends Dividends are recognized as a liability in the period in which they are sanctioned by the shareholders. Dividends per share have been calculated by dividing the dividend declared by the weighted average number of issued ordinary shares.

29 NOTES TO THE FINANCIAL STATEMENTS As at December 31, 2008 (With Comparative Figures for 2007) Expressed in Eastern Caribbean Dollars (EC$) 3. Summary of significant accounting policies (continued) (k) Foreign currency Transactions in foreign currencies are translated to EC Dollars at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to EC Dollars at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are re-translated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign exchange differences arising on conversion and translation are recognized in the statement of income. Nonmonetary assets and liabilities denominated in foreign currencies that are stated at historical cost are translated to EC Dollars at the exchange rate at the date of the acquisition. (l) Income tax No provision is made for income tax since Anguilla does not have any form of income tax. (m) Provisions A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pretax rate that reflects current market assessments of the time value of money and the risks specific to the liability. (n) Amendments to standards and interpretations adopted in 2008 The Company adopted the following amendments to standards and interpretations: IAS 39, Financial Instruments: Recognition and Measurement and IFRS 7, Financial Instruments: Disclosures, Reclassification of Financial Assets (Amendments), permits an entity to reclassify non-derivative financial assets, other than those designated as at fair value through profit or loss upon initial recognition, out of the fair value through profit or loss (i.e., held for trading) category if they are no longer held for the purpose of being sold or repurchased in the near term, as follows: If the financial asset would have met the definition of loans and receivables, if the financial asset had not been required to be classified as held for trading at initial recognition, then it may be reclassified if the entity has the intention to hold the financial asset for the foreseeable future or until maturity; If the financial asset would not have met the definition of loans and receivables, then it may be reclassified out of the held for trading category only in "rare circumstances"; If the financial asset would have met the definition of loans and receivables, if the financial asset had not been designated as availableforsale, then it may be reclassified if the entity has the intention to hold the financial asset for the foreseeable future or until maturity. 29 The amendment to IFRS 7 introduces additional disclosure requirements if an entity has reclassified financial assets in accordance with the amendment to IAS 39. The amendments are effective retrospectively from 1 July The adoption of these amendments to standards did not affect the Company's reported net income or financial position during the year. IFRIC 12, Service Concession Arrangements, provides guidance on the accounting by operators of public-to-private service concession arrangements; and IFRIC 14, IAS 19 The Limited on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, addresses how to assess the limit, under IAS 19, Employee Benefits, on the amount of the surplus that can be recognized as an asset particularly when a minimum funding requirement exists.

30 A N G U I L L A E L E C T R I C I T Y C O M P A N Y L I M I T E D NOTES TO THE FINANCIAL STATEMENTS As at December 31, 2008 (With Comparative Figures for 2007) Expressed in Eastern Caribbean Dollars (EC$) 3. Summary of significant accounting policies (continued) The adoption of the above interpretations effective for periods beginning on or after 1 January 2008 did not affect the Company's reported net income or financial position during the year. (o) New standards, amendments to standards and interpretations not yet effective A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2008 and have not been early adopted by the Company or are not relevant to the Company's operations. These are as follows: Accounting standards Effective date IFRS 1 and IAS 27 IFRS 1 First-time Adoption of International Reporting Standards and IAS 27 1 January 2009 (Amendments) Consolidated and Separate Financial Statements Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate IFRS 2 (Amendment) IFRS 2 Sharebased Payment Vesting Conditions and Cancellations 1 January 2009 IFRS 3 (Revised) IFRS 3 Business Combinations 1 July 2009 IFRS 8 Operating Segments 1 January 2009 IAS 1 (Revised) IAS 1 Presentation of Financial Statements 1 January 2009 IAS 23 (Revised) IAS 23 Borrowing Costs 1 January 2009 IAS 27 (Amendments) IAS 32 and IAS 1 (Amendments) IAS 27 Consolidated and Separate Financial Statements Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation 1 July January 2009 IAS 39 (Amendment) IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items 1 July 2009 IFRIC 13 Customer Loyalty Programmes 1 July 2008 IFRIC 15 Agreements for the Construction of Real Estate 1 January 2009 IFRIC 16 Hedges of a Net Investment in a Foreign Operation 1 October 2008 Various Improvements to IFRSs January Amendments to IFRS 1, First-time Adoption of International Reporting Standards and IAS 27, Consolidated and Separate Financial Statements Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate, permits a first-time adopter of IFRSs, at the date of transition, to measure the cost of its investment in a subsidiary, jointly controlled entity or associate at a deemed cost in its separate financial statements rather than having to determine cost under IFRSs. Amendments to IFRS 1 and IAS 27, which will become mandatory for 2009 financial statements, are not expected to have any impact on the Company's financial statements. Amendment to IFRS 2, Sharebased Payment Vesting Conditions and Cancellations, clarifies the definition of vesting conditions, introduces the concept of non-vesting conditions, requires non-vesting conditions reflected in grant-date fair value and provides the accounting treatment for nonvesting conditions and cancellations. Amendment to IFRS 2, which will become mandatory for 2009 financial statements with retrospective application required, is not expected to have any impact on the Company's financial statements.

31 NOTES TO THE FINANCIAL STATEMENTS As at December 31, 2008 (With Comparative Figures for 2007) Expressed in Eastern Caribbean Dollars (EC$) 3. Summary of significant accounting policies (continued) Revised IFRS 3, Business Combinations, incorporates changes as to (a) the definition of business has been broadened; (b) contingent consideration will be measured at fair value, with subsequent changes in fair value recognized in the statements of income; (c) transaction costs, other than share and debt issue costs, will be expensed as incurred; (d) any pre-existing interest in an acquiree will be measured at fair value, with the related gain or loss recognized in the statements of income; (e) any non-controlling interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of an acquiree, on a transaction-by-transaction basis. Revised IFRS 3, which will become mandatory for 2010 financial statements, is not expected to have any impact on the Company's financial statements. IFRS 8, Operating Segments, requires segment disclosure based on the components of the Company that management monitors in making decisions about operating matters as well as qualitative disclosures on segments. Segments will be reportable based on threshold tests related to revenues, results and assets. IFRS 8, which will become mandatory for 2009 financial statements, is not expected to have any significant impact on the Company's financial statements. Revised IAS 1, Presentation of Financial Statements, introduces as a financial statement (formerly "primary" statement) the "statement of comprehensive income" (i.e., changes in equity during a period, other than those changes resulting from transactions with owners in their capacity as owners), which is presented either in : (a) one statement (i.e, a statement of comprehensive income); or (b) two statements (i.e., an income statement and a statement beginning with profit or loss and displaying components of other comprehensive income). The revised standard also prohibits presenting components of comprehensive income in the statements of changes in shareholders' equity. Other requirements in the revised standard that are not current IAS 1 requirement includes: (a) a statement of financial position (formerly "balance sheet") is required at the beginning of the earliest comparative period following a change in accounting policy, the correction of an error or the reclassification of items in the financial statements; (b) reclassification adjustments to profit or loss of amounts previously recognized in other comprehensive income (formerly "recycling") are disclosed for each component of other comprehensive income; (c) income tax is disclosed for each component of other comprehensive income; (d) dividends and related per-share amounts are disclosed either on the face of the statements of changes in shareholders' equity or in the notes. Revised IAS 1, which will become mandatory for 2009 financial statements, will require adjustments and additional disclosures in the Company's financial statements. Revised IAS 23, Borrowing Costs, removes the option of immediately recognising all borrowing costs as an expense, which was the benchmark treatment in the previous standard. The revised standard requires that an entity capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Revised IAS 23, which will become mandatory for 2009 financial statements, is not expected to have any impact on the Company's financial statements. Amendments to IAS 27, Consolidated and Separate Financial Statements Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate, requires accounting for changes in ownership interests in a subsidiary that occur without loss of control, to be recognized as an equity transaction. When the Company loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognized in the statements of income. Amendments to IAS 27, which will become mandatory for 2010 financial statements, are not expected to have any impact on the Company's financial statements. 31 Amendments to IAS 32, Financial Instruments: Presentation and IAS 1, Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation, requires puttable instruments and instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation to be classified as equity if certain conditions are met. The amendments, which will become mandatory for 2009 financial statements with retrospective application required, are not expected to have any impact on the Company's financial statements.

32 A N G U I L L A E L E C T R I C I T Y C O M P A N Y L I M I T E D NOTES TO THE FINANCIAL STATEMENTS As at December 31, 2008 (With Comparative Figures for 2007) Expressed in Eastern Caribbean Dollars (EC$) 3. Summary of significant accounting policies (continued) Amendment to IAS 39, Financial Instruments: Recognition and Measurement Eligible Hedged Items, clarifies the application of existing principles in a hedging relationship. The amendments, which will become mandatory for 2010 financial statements with retrospective application required, are not expected to have any impact on the Company's financial statements. IFRIC 13, Customer Loyalty Programmes, addresses the accounting by entities that operate or otherwise participate in customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. IFRIC 13, which will become mandatory for 2009 financial statements with retrospective application required, is not expected to have any impact on the Company's financial statements. IFRIC 15, Agreements for the Construction of Real Estate, determines whether an agreement for the construction of real estate is within the scope of IAS 11, Construction Contracts or IAS 18, Revenue. IFRIC 15, which will become mandatory for 2009 financial statements with retrospective application required, is not expected to have any impact on the Company's financial statements. IFRIC 16, Hedges of a Net Investment in a Foreign Operation, provides guidance in respect of hedges of foreign currency gains and losses on a net investment in a foreign operation. IFRIC 16, which will become mandatory for 2009 financial statements, is not expected to have any impact on the Company's financial statements. (p) Comparative information Comparative information has been reclassified where necessary to conform to the current year financial statements presentation. Such reclassifications do not affect previously reported net income or shareholders' equity Financial risk management Overview The Company has exposure to the following risks from its use of financial instruments: credit risk liquidity risk market risk capital management This note presents information about the Company's exposure to each of the above risks, the Company's objectives, policies and processes for measuring and managing risk, and the Company's management of capital. Further quantitative disclosures are included throughout these financial statements. The Board of Directors has overall responsibility for the establishment and oversight of the Company's risk management framework. The Company's risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Board of Directors oversees how management monitors compliance with the Company's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables.

33 NOTES TO THE FINANCIAL STATEMENTS As at December 31, 2008 (With Comparative Figures for 2007) Expressed in Eastern Caribbean Dollars (EC$) 4. Financial risk management (continued) Trade and other receivables The Company's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The demographics of the Company's customer base, including the default risk of the industry and country in which customers operate, has less influence on credit risk. Approximately 12 percent of the Company's revenue is attributable to sales transactions with a single customer. However, geographically there is no concentration of credit risk. The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables and investment securities. The main components of this allowance are collective losses based on number of days in receivable. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company's reputation. Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, the Company maintains a line of credit with a limit of EC$3.2 million with the National Bank of Anguilla Limited with an interest rate of 9.2% per annum. Market risk Currency risk The Company's exposure to currency risk is minimal as the exchange rate of the Eastern Caribbean dollar (EC$) to the United States dollar (US$) has been formally pegged at EC$2.70 = US$1.00. Interest rate risk Differences in contractual repricing or maturity dates and changes in interest rates may expose the Company to interest rate risk. The Company's exposure and the interest rates on its financial liabilities are disclosed in Notes 14 and 27. Fair value The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing as at each balance sheet date. Quoted market prices or dealer quotes for similar instruments are used for intruments traded in the market. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The estimated fair value of cash and bank deposits with no stated maturity, which includes non-interest bearing deposits, is the amount repayable on demand. The estimated fair value of borrowings without quoted market price is based on discounted cash flows using interest rates for new debts with similar remaining maturity. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Capital Management The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors both the demographic spread of shareholders, as well as the return on capital. 33

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52 Main Office The Valley. Anguilla Power Station. Corito. Anguilla Mailing Address. P.O. Box 400 The Valley, Anguilla Telephone: (264) Facsimile: (264) Web site: Annual Report 2008 Anguilla Electricity Company Limited Design by T&T Publishing, LLC (Anguilla) - Photos by thierrydehove.com & Rebecca Haskins