Materialise
Annual Report 2018

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 20-F ☐REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGEACT OF 1934OR ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934OR ☐SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934Commission File Number: 001-36515 MATERIALISE NV(Exact name of Registrant as specified in its charter) Not Applicable(Translation of Registrant’s name into English)Kingdom of Belgium(Jurisdiction of incorporation or organization)Technologielaan 15, 3001 Leuven, Belgium(Address of principal executive offices) Peter Leys, telephone +32 (16) 39 66 11, facsimile +32 (16) 39 66 00, Technologielaan 15, 3001 Leuven, Belgium(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredAmerican Depositary Shares, each representing oneOrdinary Share, no nominal value per share The NASDAQ Stock Market LLCOrdinary Shares, no nominal value per share* The NASDAQ Stock Market LLC *Not for trading but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the Securities andExchange Commission.Securities registered or to be registered pursuant to Section 12(g) of the Act: None.Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None. The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2018 was: 52,890,761 Ordinary SharesIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ NoIf this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934. ☐ Yes ☒ NoNote – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934from their obligations under those Sections.Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. ☒ Yes ☐ NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☐ Yes ☐ NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See thedefinition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒Non accelerated filer ☐ Emerging growth company ☒If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected notto use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of theExchange Act. ☐ †The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its AccountingStandards Codification after April 5, 2012.Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☐ International Financial Reporting Standards as issuedby the International Accounting Standards Board ☒ Other ☐If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected tofollow. ☐ Item 17 ☐ Item 18If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No Table of ContentsTABLE OF CONTENTS Page ITEM 1. Identity of Directors, Senior Management and Advisers 3 ITEM 2. Offer Statistics and Expected Timetable 4 ITEM 3. Key Information 5 ITEM 4. Information on the Company 31 ITEM 4A. Unresolved Staff Comments 50 ITEM 5. Operating and Financial Review and Prospects 51 ITEM 6. Directors, Senior Management and Employees 71 ITEM 7. Major Shareholders and Related Party Transactions 81 ITEM 8. Financial Information 83 ITEM 9. The Offer and Listing 84 ITEM 10. Additional Information 85 ITEM 11. Quantitative and Qualitative Disclosures About Market Risk 94 ITEM 12. Description of Securities Other than Equity Securities 96 ITEM 13. Defaults, Dividend Arrearages and Delinquencies 98 ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 99 ITEM 15. Controls and Procedures 100 ITEM 16A. Audit Committee Financial Expert 102 ITEM 16B. Code Of Ethics 103 ITEM 16C. Principal Accountant Fees and Services 104 ITEM 16D. Exemptions from the Listing Standards for Audit Committees 105 ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 106 ITEM 16F. Change in Registrant’s Certifying Accountant 107 ITEM 16G. Corporate Governance 108 ITEM 16H. Mine Safety Disclosure 109 ITEM 17. Financial Statements 110 ITEM 18. Financial Statements 111 ITEM 19. Exhibits 112 Table of ContentsINTRODUCTIONExcept as otherwise required by the context, references to “Materialise,” “Company,” “we,” “us” and “our” are to Materialise NV and itssubsidiaries.Our trademark portfolio contained 119 registered trademarks and 27 pending trademark applications as of December 31, 2018. All othertrademarks or trade names referred to in this annual report are the property of their respective owners. Solely for convenience, the trademarks and trade namesin this annual report are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective ownerswill not assert, to the fullest extent under applicable law, their rights thereto.All references in this annual report to “U.S. dollars” or “$” are to the legal currency of the United States and all references to “€” or “euro” are tothe currency introduced at the start of the third stage of the European economic and monetary union pursuant to the treaty establishing the EuropeanCommunity, as amended.On June 30, 2014, we sold 8,000,000 American Depositary Shares, or ADSs, each representing one ordinary share with no nominal value, orordinary shares, in our initial public offering at a price of $12.00 per ADS. In connection with the closing of our initial public offering, we converted ouroutstanding Class A ordinary shares, Class B ordinary shares and Class C ordinary shares into ordinary shares and effected a stock split of our outstandingordinary shares, whereby each ordinary share was converted into four ordinary shares. The number of ordinary shares and number of shares issuable uponexercise of our outstanding warrants and conversion of our outstanding convertible bonds are presented herein on the basis of the number after this stocksplit.SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATIONThis annual report includes certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, orthe Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, concerning our business, operations andfinancial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition.Any statements that are not of historical facts may be deemed to be forward-looking statements. You can identify these forward-looking statements by wordssuch as “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “will,” “should,” “aims,” or other similar expressionsthat convey uncertainty of future events or outcomes. Forward-looking statements appear in a number of places throughout this annual report and includestatements regarding our intentions, beliefs, assumptions, projections, outlook, analyzes or current expectations concerning, among other things, ourintellectual property position, research and development projects, acquisitions, results of operations, cash needs, spending of the remaining net proceeds fromour initial public offering, capital expenditures, financial condition, liquidity, prospects, growth and strategies, regulatory approvals and clearances, themarkets and industry in which we operate and the trends and competition that may affect the markets, industry or us.By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industrychange, and depend on economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated.Although we believe that we have a reasonable basis for each forward-looking statement contained in this annual report, we caution you that forward-lookingstatements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are in some cases beyond ourcontrol. All of our forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from ourexpectations.Actual results could differ materially from our forward-looking statements due to a number of factors, including, without limitation, risks relatedto: • our ability to enhance and adapt our software, products and services to meet changing technology and customer needs; • fluctuations in our revenue and results of operations; • changes in volumes and patterns of customer electricity usage; • our ability to operate in a highly competitive and rapidly changing industry; • our ability to adequately increase demand for our products and services; • our collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships with third-parties; • our ability to integrate acquired businesses or technologies effectively; 1Table of Contents • our dependence upon sales to certain industries; • our relationships with suppliers; • our ability to attract and retain senior management and other key employees; • any disruptions to our service center operations, including by accidents, natural disasters or otherwise; • our ability to raise additional capital on attractive terms, or at all, if needed to meet our growth strategy; • our ability to adequately protect our intellectual property and proprietary technology; • our international operations; • our ability to comply with applicable governmental laws and regulations to which our products, services and operations are subject; and • other risk factors as set forth under “Item 3. Key Information—D. Risk Factors.”Any forward-looking statements that we make in this annual report speak only as of the date of such statement, and we undertake no obligationto update such statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed assuch, and should only be viewed as historical data. You should, however, review the factors and risks we describe in the reports we will file from time to timewith the SEC after the date of this annual report. See “Item 10. Additional Information—H. Documents on Display.”You should also read carefully the factors described in “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report to betterunderstand the risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, we cannot assureyou that the forward-looking statements in this annual report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate,the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as arepresentation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. 2Table of ContentsPART I ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable. 3Table of ContentsITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLENot applicable. 4Table of ContentsITEM 3.KEY INFORMATIONA. Selected Financial DataThe tables below contain a summary of our financial data as of and for years ended December 31, 2018, 2017, 2016, 2015 and 2014, which havebeen derived from our consolidated financial statements prepared in accordance with International Financial Reporting Standards, as issued by theInternational Accounting Standards Board, which we refer to as IFRS. Our consolidated financial statements and the related notes as of and for the yearsended December 31, 2018, 2017 and 2016 appear elsewhere in this annual report.Our historical results are not necessarily indicative of the financial results to be expected in any future periods. You should read this informationin conjunction with our consolidated financial statements and related notes included elsewhere in this annual report, as well as the section entitled “Item 5.Operating and Financial Review and Prospects.”Consolidated Statements of Financial Position Data: As of December 31, in 000€ 2018 2017* 2016 2015 2014 Inventories and contracts in progress 9,986 11,027 7,870 5,387 3,660 Trade receivables 36,891 35,582 27,479 22,843 18,370 Cash and cash equivalents 115,506 43,175 55,912 50,726 51,019 Total assets 313,225 234,678 161,920 144,136 133,221 Total liabilities 177,236 157,624 82,887 61,181 48,054 Net assets(1) 135,989 77,054 79,033 82,955 85,167 Total equity 135,989 77,054 79,033 82,955 85,167 (1)Net assets represents total assets less total liabilities. *The year 2017 has been restated to reflect certain reclassification adjustments and the final accounting of the business combination with ACTechHolding GmbH, ACTech GmbH and ACTech North America Inc., referred to collectively as ACTech. See Note 2 to our audited consolidated financialstatements for more information. 5Table of ContentsConsolidated Income Statements Data: For the year ended December 31, in 000€ 2018 2017* 2016 2015 2014 Revenue 184,721 142,573 114,477 102,035 81,355 Cost of sales (82,299) (62,952) (46,706) (42,963) (32,396) Gross profit 102,422 79,621 67,771 59,072 48,959 Research and development expenses (22,416) (19,959) (17,682) (18,186) (15,093) Sales and marketing expenses (46,303) (38,935) (36,153) (36,832) (27,543) General and administrative expenses (32,310) (24,876) (20,041) (15,045) (11,645) Net other operating income 3,771 4,541 6,212 7,102 5,652 Operating profit (loss) 5,164 392 107 (3,889) 330 Financial expenses (4,864) (4,728) (2,437) (2,470) (1,150) Financial income 3,627 3,210 2,039 3,511 3,160 Share in loss of joint venture (475) (469) (1,018) (401) (81) Profit (loss) before taxes 3,452 (1,595) (1,309) (3,249) 2,259 Income taxes (425) (522) (1,710) 389 (387) Net profit (loss) for the year 3,027 (2,117) (3,019) (2,860) 1,872 Net profit (loss) attributable to: The owners of the parent 3,027 (2,117) (3,019) (2,807) 2,061 Non-controlling interest — — — (53) (189) Earnings per share attributable to the owners of the parent Basic 0.06 (0.04) (0.06) (0.06) 0.05 Diluted 0.06 (0.04) (0.06) (0.06) 0.05 Weighted average number of ordinary shares for basic earnings per share (´000) 49,806 47,325 47,325 47,224 43,118 Weighted average number of ordinary shares adjusted for effect of dilution (´000) 50,609 47,325 47,325 47,224 43,288 Consolidated Statements of Comprehensive Income Data: Net profit (loss) 3,027 (2,117) (3,019) (2,860) 1,872 Other comprehensive income (loss), net of taxes (47) (691) (1,833) 624 126 Total comprehensive income (loss) for the year, net of taxes 2,980 (2,808) (4,852) (2,236) 1,998 *The year 2017 has been restated to reflect certain reclassification adjustments and the final accounting of the business combination with ACTech. SeeNote 2 to our audited consolidated financial statements for more information.Other Data (unaudited): For the year ended December 31, in 000€ 2018 2017* 2016 2015 2014 Adjusted EBITDA (unaudited)(2) 23,526 14,610 9,458 3,687 5,752 (2)We calculate EBITDA as net profit plus income taxes, financial expenses (less financial income), depreciation and amortization, and share in loss ofjoint venture. We calculate Adjusted EBITDA by adding non-recurring initial public offering related expenses, non-cash stock-based compensationexpenses and acquisition-related expenses of business combinations to EBITDA. Disclosure in this annual report of EBITDA and Adjusted EBITDA,which are non-IFRS financial measures, is intended as a supplemental measure of our performance that is not required by, or presented in accordancewith, IFRS. EBITDA and Adjusted EBITDA should not be considered as alternatives to net profit or any other performance measure derived inaccordance with IFRS. Our presentation of EBITDA and Adjusted EBITDA should not be construed to imply that our future results will be unaffectedby unusual or non-recurring items. For additional information, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Other Financial Information.” The following table reconciles net profit to EBITDA and Adjusted EBITDA for the periods presented: 6Table of Contents For the year ended December 31, in 000€ 2018 2017* 2016 2015 2014 Net profit (loss) 3,027 (2,117) (3,019) (2,860) 1,872 Income taxes 425 522 1,710 (389) 387 Financial expenses 4,864 4,728 2,437 2,470 1,150 Financial income (3,627) (3,210) (2,039) (3,511) (3,160) Depreciation and amortization 17,287 12,576 8,374 6,810 4,565 Share in loss of joint venture 475 469 1,018 401 81 EBITDA (unaudited) 22,451 12,968 8,481 2,921 4,895 Non-recurring initial public offering expenses(a) — — — — 182 Non-cash share-based compensation expenses(b) 1,075 1,033 977 766 675 Acquisition-related expenses of business combinations(c) — 609 — — — Adjusted EBITDA (unaudited) 23,526 14,610 9,458 3,687 5,752 *The year 2017 has been restated to reflect certain reclassification adjustments and the final accounting of the business combination with ACTech. SeeNote 2 to our audited consolidated financial statements for more information. (a)Non-recurring initial public offering expenses represent fees and costs incurred in connection with our initial public offering.(b)Non-cash stock-based compensation expenses represent the cost of equity-settled and cash-settled share-based payments to employees.(c)Acquisition-related expenses of business combinations represent fees and costs in connection with the acquisition of ACTech. B.Capitalization and IndebtednessNot applicable. C.Reasons for the Offer and Use of ProceedsNot applicable. D.Risk FactorsRisks Relating to Our BusinessWe may not be able to maintain or increase the market share or reputation of our software and other products and services that they need to remain orbecome a market standard.The additive manufacturing, or 3D printing, industry is rapidly growing on a global scale and is subject to constant innovation andtechnological change. A variety of technologies compete against one another in our market, which is driven, in part, by technological advances and end-userrequirements and preferences, as well as by the emergence of new standards and practices. As the additive manufacturing market evolves, the industrystandards that are adopted and adhered to are a function of the inherent qualities of the technology as well as the willingness of members of the industry toadopt them. To remain competitive, we depend in large part on our ability to increase and maintain market share and influence in the industry in order to berecognized as a market standard. Nonetheless, in the future, our influence in setting standards for the additive manufacturing industry may be limited and thestandards adopted by the market may not be compatible with our present or future products and services.We may not be successful in continuing to enhance and adapt our software, products and services in line with developments in market technologies anddemands.Our present or future software, products and services could be rendered obsolete or uneconomical by technological advances by one or more ofour present or future competitors or by other technologies. Our ability to remain competitive will depend, in large part, on our ability to enhance and adaptour current software, product and services to developments in market technologies and demands and to enhance and develop new 3D printing softwaresolutions, products and services. We believe that to remain competitive we must continuously enhance and expand the functionality and features of ourproducts, services and technologies. However, there can be no assurance that we will be able to: 7Table of Contents • maintain and enhance the market share of our current products, services and technologies; • enhance our existing product, services and technologies; • continue to leverage advances in 3D printing technology; • develop new products, services and technologies that address the increasingly sophisticated and varied needs of prospective end-users; • respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis; • develop products and services that are cost effective or that otherwise gain market acceptance; or • adequately protect our intellectual property as we develop new products, services and technologies and anticipate intellectual propertyclaims from third parties. 8Table of ContentsThe research and development programs that we are currently engaged in, or that we may establish in the future, may not be successful and our significantinvestments in these programs may be lost.To remain competitive, we currently, and we intend to continue to, invest significant amounts in various research and development programs.There can be no assurances, however, that these research and development programs will improve our existing additive manufacturing software solutions,products and services or create new software, products or services. Even if some of these programs are successful, it is possible that the new software, productsor services developed from such programs will not be commercially viable, that new 3D printing technologies that we, or others, develop will eventuallysupplant our current 3D printing technologies, that changes in the manufacturing or use of 3D printers will adversely affect the need or demand for oursoftware, products or services or that our competitors will create or successfully market 3D printing technologies that will replace our solutions, products andservices in the market. As a result, any of our software solutions, products or services may be rendered obsolete or uneconomical and our significantinvestments in all or some of our research and development programs may be lost.Existing and increased competition may reduce our revenue and profits.The market segments in which we operate, Materialise Software, Materialise Medical and Materialise Manufacturing, are characterized byvigorous competition, by entry of competitors with innovative technologies, by consolidation of companies with complementary products, services andtechnologies, and by entry of large corporations in any one or more of our market segments.In particular, the barriers to enter the software, medical and industrial markets with 3D printing solutions are decreasing rapidly.In the Materialise Software segment, the availability of computing devices with continually expanding performance at progressively lowerprices contributes to the ease of market entry. Additionally, there are certain open source software applications that are being offered free of charge or for anominal fee that can place additional competitive pressure on us. In addition, 3D printer manufacturers, which closely work with their customers, maysuccessfully bundle their own software solutions with their equipment, which may make our independent software solutions obsolete. In addition, companiesthat have greater financial, technical, sales and marketing and other resources, including market leaders with significant in-house capacities in softwaredevelopment, or existing computer-aided design, or CAD, or computer-aided manufacturing, or CAM, software providers, may, at any point in time, enter theadditive manufacturing market and very rapidly gain a significant share of the markets that we target.In the Materialise Medical segment, medical device companies are investing in 3D printing solutions that may compete with our softwaresolutions, products and services. Companies that initially rely on us to enter the additive manufacturing market for medical applications may, as they gainexperience and as 3D printing technology gains strategic importance, decide to develop their own in-house solutions and enter the market themselves withtheir own software, products or services, thus becoming competitors and denying us continued access to their distribution channels.In the Materialise Manufacturing segment, as additive manufacturing gains importance as a strategic technology, our customers are likely tobring 3D manufacturing in-house and reduce or even discontinue using our 3D printing services. In addition, competitors with more efficient or profitablebusiness models, superior techniques or more advanced technologies may take market share away from us.Because of these and other factors, competitive conditions in the industry are likely to intensify in the future. Increased competition could resultin price reductions, reduced revenue and operating margins and loss of market share, any of which would likely harm our results of operations.We rely on collaborations with users of our additive manufacturing solutions to be present in certain large scale markets and, indirectly, to expand intopotentially high-growth specialty markets. Our inability to continue to develop or maintain these relationships in the future could harm our ability toremain competitive in existing markets and expand into other markets.Our strategy includes entering into collaborations with our customers in certain large-scale markets and leveraging these collaborations to enterinto other underserved specialty markets. For example, in the medical market, we have entered into collaborations with Zimmer Biomet Holdings, Inc., orZimmer Biomet, Encore Medical, L.P. (d/b/a DJO Surgical), or DJO Surgical, DePuy Synthes Companies of Johnson & Johnson, or DePuy Synthes, as well aswith Global Orthopaedic Technology Pty Ltd, or Global Orthopaedic Technology, Limacorporate Spa, or Lima, Mathys AG, or Mathys, HowmedicaOsteonics Corp., or Stryker, and Corin Ltd, or Corin. Increased adoption of our software, products and services, especially in potentially high-growthspecialty markets, will depend in part on our current and future collaborators’ willingness to continue to adopt our additive manufacturing solutions in theirmarkets and on our ability to continue to collaborate with these and other players. Certain of our customers that have initially relied on our 3D printingsoftware and services have announced their intention to bring their 3D printing operations in-house and enter the market themselves, and other customersmay also do so in the future as they gain experience and as 3D printing technology gains strategic importance, thus denying us continued access to theirdistribution channels. In addition, a change of control of any of our collaboration partners may negatively impact our relationship. If we are not able tomaintain our existing collaborations and develop new collaborative relationships, our foothold in larger markets and expansion into potentially high-growthspecialty markets could be harmed significantly. 9Table of ContentsOur revenue and results of operations may fluctuate.Our revenue and results of operations may fluctuate from quarter-to-quarter and year-to-year and are likely to continue to vary due to a number offactors, many of which are not within our control. You should not rely on our past results as an indication of our future performance.Fluctuations in our results of operations and financial condition may occur due to a number of factors, including, but not limited to, those listedbelow and those identified throughout this annual report: • our ability to continue, renew or replace relationships with key customers; • the degree of market acceptance of our software and our products; • the mix of software, products and services that we sell during any period, as well as the mix of the various markets in which we make salesduring said periods; • a decline in new or renewed periodic licenses or maintenance contracts; • delays in the introduction of new features; • the entry of new competitors into our market; • the development and degree of market acceptance of new competitive systems or processes by others; • changes in our pricing policies or those of our competitors, including our responses to price competition; • changes in the amount we spend in our marketing and other efforts; • delays between our expenditures to develop, acquire or license new technologies and processes, and the generation of sales relatedthereto; • the amounts we spend on, and the success rate of, our research and development activities; • changes in the regulatory environment, including changes in regulatory laws and regulations and the interpretation thereof, applicable toour software programs, products or services; • delays in obtaining regulatory approval for our software programs, products or services; • interruptions to or other problems with our website and interactive user interface, information technology systems, manufacturingprocesses or other operations; • general economic and industry conditions that affect end-user demand and end-user levels of product design and manufacturing,including the adverse effects of global economic uncertainties; and • changes in accounting rules and tax laws.Demand for additive manufacturing generally and our additive manufacturing software solutions, products and services in particular may not increaseadequately.The industrial and medical industries are generally dominated by conventional production methods with limited use of additive manufacturingtechnology in certain specific instances. If additive manufacturing technology, in particular but not limited to, for the production of end parts does not gainmore mainstream market acceptance, or gains market acceptance at a significantly slower pace than currently expected, or if the marketplace adopts additivemanufacturing based on a technology other than the technologies that we currently use or serve, we may not be able to meet our growth objectives or increaseor sustain the level of sales of our additive manufacturing software solutions, products and services, and our results of operations would be adversely affectedas a result.We are dependent upon sales to certain industries.Our revenue from products are currently relatively concentrated in the industrial and medical industries, and particularly in the automotive andorthopedic/cranio-maxillofacial segments within such industries, respectively. To the extent any of these industries experiences a downturn and we areunable to penetrate and expand in other industries, our results of operations may be adversely affected. Additionally, if any of these industries or theirrespective suppliers or other providers of manufacturing services develop new technologies or alternatives to manufacture the products that are currentlymanufactured using our 3D printing software, products and services, it may adversely affect our results of operations.If our relationships with suppliers, including with limited source suppliers of consumables, were to terminate or our manufacturing arrangements were tobe disrupted, our business could be adversely affected. 10Table of ContentsWe purchase consumables and other components that are used in our production from third-party suppliers. We currently use only a limitednumber of suppliers for several of the consumables for our print materials. Our reliance on a limited number of vendors involves a number of risks, including: • potential shortages of some key consumables or other components; • printed material performance or quality shortfalls, if traceable to particular consumables or other components, since the supplier of thefaulty consumable or component cannot readily be replaced; • discontinuation of a consumable or other component on which we rely; • potential insolvency of these vendors; and • reduced control over delivery schedules, manufacturing capabilities, quality and costs.If certain suppliers were to decide to discontinue production, or the supply to us, of a consumable or other component that we use, theunanticipated change in the availability of supplies, or unanticipated supply limitations, could cause delays in, or loss of, sales, increased production orrelated costs and, consequently, reduced margins, and damage to our reputation. In addition, because we use a limited number of suppliers, increases in theprices charged by our suppliers may have an adverse effect on our results of operations, as we may be unable to find a supplier who can supply us at a lowerprice. As a result, the loss of a limited source supplier could adversely affect our relationships with our customers and our results of operations and financialcondition.We depend on the knowledge and skills of our senior management and other key personnel, and if we are unable to retain and motivate them or recruitadditional qualified personnel, our operations could suffer.Our success depends upon the continued service and performance of our senior management and other key personnel, including engineers,designers, software developers and product managers, and our ability to identify, hire, develop, motivate and retain qualified personnel in the future.Competition for senior management and key employees in our industry is intense and we cannot guarantee that we will be able to retain our personnel orattract new, qualified personnel. We may need to invest significant amounts of cash and equity to attract and retain new employees and we may not realizereturns on these investments. The loss of the services of members of our senior management or key employees could prevent or delay the implementation andcompletion of our strategic objectives, could divert management’s attention to seeking certain qualified replacements or could adversely affect our ability tomanage our company effectively. Each member of senior management as well as our key employees may resign at any time. Only some of the members of oursenior management are subject to non-competition agreements, which may also be difficult to enforce. Accordingly, the adverse effect resulting from the lossof certain members of senior management or other key employees could be compounded by our inability to prevent them from competing with us. We do notcarry key-man insurance on any member of our senior management team or other key personnel. If we lose the ability to hire and retain key executives andemployees with a diversity and high level of skills in appropriate domains (such as research and development and sales), it could have a material adverseimpact on our business activities and results of operations.We may need to raise additional capital from time to time in order to meet our growth strategy and may be unable to do so on attractive terms, or at all.We intend to continue to make investments to support the growth of our business and may require additional funds to respond to businesschallenges, including the need to implement our growth strategy, increase market share in our current markets or expand into other markets, or broaden ourtechnology, intellectual property or service capabilities. Accordingly, we may require additional investments of capital from time to time, and our existingsources of cash and any funds generated from operations may not provide us with sufficient capital. For various reasons, including any noncompliance withexisting or future lending arrangements, additional financing, may not be available when needed, or may not be available on terms favorable to us. If we failto obtain adequate capital on a timely basis or if capital cannot be obtained on terms satisfactory to us, we may not be able to achieve our planned rate ofgrowth, which will adversely affect our results of operations.Our international operations subject us to various risks, and our failure to manage these risks could adversely affect our results of operations.We face significant operational risks as a result of doing business internationally, such as: • fluctuations in foreign currency exchange rates; • potentially longer sales and payment cycles; • potentially greater difficulties in collecting accounts receivable; • potentially adverse tax consequences, including liabilities imposed from inconsistent enforcement; • challenges in providing solutions across a significant distance, in different languages and among different cultures; 11Table of Contents • transportation delays; • becoming subject to the different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliancewith a wide variety of foreign laws, treaties and regulations; • reduced protection of, or significant difficulties in enforcing, intellectual property rights in certain countries; • difficulties in staffing and managing foreign operations, particularly in new geographic locations; • restrictions imposed by local labor practices and laws on our business and operations, including unilateral cancellation or modificationof contracts; • expropriation or nationalization of property; • rapid changes in government, economic and political policies and conditions, political or civil unrest or instability, terrorism orepidemics and other similar outbreaks or events; • operating in countries with a higher incidence of corruption and fraudulent business practices; • seasonal reductions in business activity in certain parts of the world, particularly during the summer months in Europe; • costs and difficulties of customizing products for foreign countries; and • tariffs, trade barriers and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreignmarkets.We maintain important software research and development and engineering centers in Malaysia and Ukraine. In Malaysia, the government may exercisesubstantial control over certain sectors of the economy through regulation and state ownership. In Ukraine, the political and economic situation, in general,and the relations among Ukraine, United States, the European Union and Russia, in particular, remain unstable. We continue to monitor the situation inUkraine and have a risk mitigation plan designed to limit the impact on our operations in case of escalation of the instability in that region. However,escalation could have a significant impact on our operations, in particular in the event where internet services would no longer be available in Ukraine orwhere the situation would become such that our employees would no longer be able to work from their homes. Our facility in Ukraine does not focus on salesto the Ukrainian market and mainly provides supporting activities for our global operations. Any material disruption of these supporting activities, however,could significantly impact our ability to further develop our products and to continue to service our customers globally. Moreover, changes in the laws andregulations of Malaysia or Ukraine, or in their interpretation or enforcement, including with respect to operations such as ours, which rely to a large extent onlocal private entrepreneurs, may significantly impact our activities in Malaysia or Ukraine, which would limit our future growth and adversely affect ourresults of operations. Our failure to manage the market and operational risks associated with our international operations effectively could limit the futuregrowth of our business and adversely affect our results of operations.Our international operations pose currency risks, which may adversely affect our results of operations and net income.Our results of operations may be affected by volatility in currency exchange rates and our ability to effectively manage our currency transactionrisks. In general, we conduct our business, earn revenue and incur costs in the local currency of the countries in which we operate. During the year endedDecember 31, 2018, approximately 70% of our revenue was generated, and approximately 74% of our total costs were incurred in euros. As we continue toexpand internationally, our exposure to currency risks will increase. Historically, we have not managed our foreign currency exposure in a manner that wouldeliminate the effects of changes in foreign exchange rates. Changes in exchange rates between the foreign currencies in which we do business and the eurowill affect our revenue, cost of sales, and operating margins, and could result in exchange losses in any given reporting period.Changes in tax laws, treaties or regulations could adversely affect our financial results.Our future effective tax rates could be adversely affected by changes in tax laws, treaties and regulations, both internationally and domestically,including possible changes to the patent income deduction and innovation income deduction regime in Belgium or the way it proportionately impacts oureffective tax rate. An increase of our future effective tax rates could have a material adverse effect on our business, financial position, results of operations andcash flows.We may engage in acquisitions or investments that could disrupt our business, cause dilution to our shareholders and harm our financial condition andresults of operations.We have in the past and intend to continue to evaluate opportunities to acquire or invest in, companies that we believe have products, services,competencies or capabilities that are a strategic or commercial fit with any of our businesses or that otherwise offer opportunities for our company. Inconnection with acquisitions or investments, we may: 12Table of Contents • issue ADSs or other forms of equity that would dilute our existing shareholders’ percentage of ownership; • incur debt and assume liabilities; and/or • incur amortization expenses related to intangible assets or incur large and immediate write-offs.If we complete an acquisition or investment, we cannot assure you that it will ultimately strengthen our competitive position or that it will beviewed positively by customers, suppliers, employees, financial markets or investors. Furthermore, future acquisitions or investments could pose numerousadditional risks to our operations, including: • problems integrating the purchased business, products, services or technologies; • challenges in achieving strategic objectives, cost savings and other anticipated benefits; • increases to our expenses; • the assumption of significant liabilities that exceed the limitations of any applicable indemnification provisions or the financialresources of any indemnifying party; • inability to maintain relationships with key customers, vendors and other business partners of our current or acquired businesses; • diversion of management’s attention from their day-to-day responsibilities; • difficulty in maintaining controls, procedures and policies during the transition and integration; • entrance into marketplaces where we have no or limited prior experience and where competitors have stronger marketplace positions; • potential loss of key employees, particularly those of the acquired entity; and • historical financial information may no longer be representative or indicative of our results as a combined company.Alternatively, while certain acquisitions or investments may be of strategic importance for the execution of our business plan, we may notultimately be able to complete such acquisitions or investments on favorable terms, or at all, which may in turn materially affect our ability to grow or evencause us to lose market share, and could have a material adverse effect on our business, financial condition and results of operations.We may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships with third parties that may not result in thedevelopment of commercially viable products or the generation of significant future revenue.In the ordinary course of our business, we may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances orpartnerships to develop proposed products or services and to pursue new markets. For example, in the Materialise Medical segment, we have collaborationswith leading medical device companies for the development and distribution of our surgical planning software, services, and products, including withZimmer Biomet, DJO Surgical, DePuy Synthes, Global Orthopaedic Technology, Lima and Mathys. Furthermore, in the Materialise Software segment, wehave established a collaboration with Siemens PLM, or Siemens, and, in the Materialise Manufacturing segment, we have established collaborations withHOYA Vision Care Company, or HOYA, PTC Inc., or PTC, and subsidiaries of BASF SE. Proposing, negotiating and implementing collaborations,in-licensing arrangements, joint ventures, strategic alliances or partnerships may be a lengthy and complex process. Other companies, including those withsubstantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. Wemay not succeed in maintaining, renewing or extending existing collaborations or in identifying, securing, or completing any such new transactions orarrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. We may also not realize the anticipated benefits of any suchtransaction or arrangement. In particular, these collaborations may not result in the development of products or services that achieve commercial success orresult in significant revenue and could be terminated prior to developing any products or services.Additionally, we may not be in a position to exercise sole decision making authority regarding the transaction or arrangement, which couldcreate the potential risk of creating impasses on decisions, and our collaboration partners may have economic or business interests or goals that are, or thatmay become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our current or future collaboration partners, such asconflicts concerning the achievement of performance milestones, or the interpretation of terms under any agreement, such as those related to financialobligations or the ownership or license rights or control of intellectual property developed before or during the collaboration. If any conflicts arise with ourcurrent or future collaboration partners, they may act in their self-interest, which may be adverse to our best interest, and they may breach their obligations tous. In addition, we have limited control over the amount and timing of resources that our current collaboration partners or any future collaboration partnersdevote to our collaboration partners’ or our future products or services. Disputes with our collaboration partners may result in litigation or arbitration thatwould increase our expenses and divert the attention of our management. Further, these transactions and arrangements are contractual in nature and may beterminated or dissolved under the terms of the applicable agreements and, in such event, we may not continue to have rights to the products or access to themarkets relating to such transaction or arrangement or may need to purchase such rights at a premium. 13Table of ContentsFailure to comply with applicable anti-corruption legislation could result in fines, criminal penalties and an adverse effect on our business.We operate in a number of countries throughout the world, and are committed to doing business in accordance with applicable anti-corruptionlaws. We are subject, however, to the risk that our officers, directors, employees, agents and collaboration partners may take action determined to be inviolation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act 2010 and the Belgian Penal Code, aswell as trade sanctions administered by the Office of Foreign Assets Control and the U.S. Department of Commerce. Any such violation could result insubstantial fines, sanctions, civil and/or criminal penalties or curtailment of operations in certain jurisdictions, and might adversely affect our results ofoperations. In addition, actual or alleged violations could damage our reputation and ability to do business.Errors or defects in our software or other products could cause us to incur additional costs, lose revenue and business opportunities, damage ourreputation and expose us to potential liability.Sophisticated software and complex 3D printed products may contain errors, defects or other performance problems at any point in the life of theproduct. If errors or defects are discovered in our current or future software or other products, we may not be able to correct them in a timely manner, orprovide an adequate response to our customers. We may therefore need to expend significant financial, technical and management resources, or divert someof our development resources, in order to resolve or work around those defects. We may also experience an increase in our service and warranty costs.Particularly in the medical sector, errors or defects in our software or products could lead to claims by patients against us and our customers and expose us tolawsuits that may damage our and our customers’ reputations. Claims may be made by individuals or by classes of users. Our product liability and relatedinsurance policies may not apply or sufficiently cover any product liability lawsuit that arises from defective software or products. Customers such as ourcollaboration partners may also seek indemnification for third party claims allegedly arising from breaches of warranties under our collaboration agreements.Errors, defects or other performance problems in our software or other products may also result in the loss of, or delay in, the market acceptance ofour software, our products and related 3D printing or engineering services or postponement of customer deployment. Such difficulties could also cause us tolose customers and, particularly in the case of our largest customers, the potentially substantial associated revenue which would have been generated by oursales to companies participating in our customer’s supply chain. Technical problems, or the loss of a customer with a particularly important global reputation,could also damage our own business reputation and cause us to lose new business opportunities.We rely on our information technology systems to manage numerous aspects of our business and customer and supplier relationships, and a disruption ofthese systems could adversely affect our results of operations.We rely on our information technology systems and databases to manage numerous aspects of our business and to provide analytical informationto management. Our information technology systems allow us to, among other things, optimize our software development and research and developmentefforts, organize our in-house 3D printing services logistics, efficiently purchase products from our suppliers, provide other procurement and logistic services,ship and invoice products to our customers on a timely basis, maintain cost-effective operations and generally provide service to our customers. Ourinformation technology systems are an essential component of our business and growth strategies, and a disruption to our information technology systemscould significantly limit our ability to manage and operate our business efficiently. Although we take steps to secure our information technology systems,including our computer systems, intranet and internet sites, email and other telecommunications and data networks, the security measures we haveimplemented may not be effective and our systems may be vulnerable to, among other things, damage and interruption from power loss, including as a resultof natural disasters, computer system and network failures, loss of telecommunication services, operator negligence, loss of data, security breaches, computerviruses and other disruptive events. Any such disruption could adversely affect our reputation, brand and financial condition.A breach of security in our products or computer systems may compromise the integrity of our products, harm our reputation, create additional liabilityand adversely impact our financial results.We make significant efforts to maintain the security and integrity of our product source code and computer systems. The risk of a security breachor disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has increased asthe number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. These threats include identity theft,unauthorized access, DNS attacks, wireless network attacks, viruses and worms, advanced persistent threat (APT), application centric attacks, peer-to-peerattacks, phishing, backdoor trojans and distributed denial of service (DDoS) attacks. Any of the foregoing could attack our products and computer systems.Despite significant efforts to create and continuously reinforce the security barriers to such programs, it is virtually impossible for us to entirely eliminate thisrisk. Like all software products and computer systems, our software products and computer systems are vulnerable to such cyber attacks, and our computersystems have been subject to certain cyber security incidents in the past. The impact of cyber attacks could disrupt the proper functioning of our softwareproducts and computer systems, cause errors in the output of our or our customers’ work, allow unauthorized access to sensitive, proprietary or confidentialinformation of our company, our customers or the patients that we and our customers serve through our medical solutions. Moreover, as we continue to investin new lines of products and services we are exposed to increased security risks and the potential for unauthorized access to, or improper use of, theinformation of our product and service users. If any of the foregoing occur, our reputation may suffer, customers may stop buying our products or services, wecould face lawsuits and potential liability, and our results of operations could be adversely affected. 14Table of ContentsWe rely on third party technology, platform, carriers, server and hardware providers, and a failure of service by these providers could adversely affect ourbusiness and reputation.We rely upon a third party provider to host our main servers. If this provider is unable to handle current or higher volumes of use, experiencesany interruption in operations or ceases operations for any reason or if we are unable to agree on satisfactory terms for a continued hosting relationship, wewould be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves. If we are forced to switch hostingfacilities, we may not be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves. We may alsobe limited in our remedies against our third party hosting provider in the event of a failure of service. A failure or limitation of service or available capacityby our third party hosting provider could adversely affect our business and reputation.Workplace accidents or environmental damage could result in substantial remedial obligations and damage to our reputation.Accidents or other incidents that occur at our service centers and other facilities or involve our personnel or operations could result in claims fordamages against us. In addition, in the event we are found to be financially responsible, as a result of environmental or other laws or by court order, forenvironmental damages alleged to have been caused by us or occurring on our premises, we could be required to pay substantial monetary damages orundertake expensive remedial obligations. The amount of any costs, including fines or damages payments that we might incur under such circumstancescould substantially exceed any insurance we have to cover such losses. Any of these events, alone or in combination, could have a material adverse effect onour business, financial condition and results of operations and could adversely affect our reputation.Our operations are subject to environmental laws and other government regulations that could result in liabilities in the future.We are subject to local environmental laws and regulations governing our operations, including, but not limited to, emissions into the air andwater and the use, handling, disposal and remediation of hazardous substances. A certain risk of environmental liability is inherent in our productionactivities. Under certain environmental laws, we could be held solely or jointly and severally responsible, regardless of fault, for the remediation of anyhazardous substance contamination at our service centers and other facilities and the respective consequences arising out of human exposure to suchsubstances or other environmental damage. We may not have been and may not be at all times in complete compliance with environmental laws, regulationsand permits, and the nature of our operations exposes us to the risk of liabilities or claims with respect to environmental and worker health and safety matters.If we violate or fail to comply with environmental laws, regulations and permits, we could be subject to penalties, fines, restrictions on operations or othersanctions, and our operations could be interrupted. The cost of complying with current and future environmental, health and safety laws applicable to ouroperations, or the liabilities arising from past releases of, or exposure to, hazardous substances, may result in future expenditures. Any of these developments,alone or in combination, could have a material adverse effect on our business, financial condition and results of operations.If our service center operations are disrupted, sales of our 3D printing services, including the medical devices that we print, may be affected, which couldhave an adverse effect on our results of operations.We have six 3D printing service centers in Europe, the United States and Asia, including our principal 3D printing service center located inLeuven, Belgium. If the operations of these facilities are materially disrupted, whether by fires or other industrial accidents, extreme weather, natural disasters,labor stoppages, acts of terror, or otherwise, we would be unable to fulfill customer orders for the period of the disruption, we would not be able to recognizerevenue on orders, we could suffer damage to our reputation, and we might need to modify our standard sales terms to secure the commitment of newcustomers during the period of the disruption and perhaps longer. Depending on the cause of the disruption, we could incur significant costs to remedy thedisruption and resume providing 3D printing services. Such a disruption could have an adverse effect on our results of operations.We could experience unforeseen difficulties in building and operating key portions of our 3D printing infrastructure.We have designed and built our own 3D printing operations, 3D printer platforms and other key portions of our technical infrastructure throughwhich we serve our products and services, and we plan to continue to expand the size of our infrastructure through expanding our 3D printing facilities. Theinfrastructure expansion we may undertake may be complex, and unanticipated delays in the completion of these projects or availability of components maylead to increased project costs, operational inefficiencies, or interruptions in the delivery or degradation of the quality of our products. In addition, there maybe issues related to this infrastructure that are not identified during the design and implementation phases, which may only become evident after we havestarted to fully utilize the underlying equipment, that could further degrade the user experience or increase our costs.We may not have adequate insurance for potential liabilities, including liabilities arising from litigation.In the ordinary course of business, we have been, and in the future may be, subject to various product and non-product related claims, lawsuitsand administrative proceedings seeking damages or other remedies arising out of our commercial operations, including litigation related to defects in oursoftware or other products. We maintain insurance to cover our potential exposure for a number of claims and losses. However, our insurance coverage issubject to various exclusions, self-retentions and deductibles, may be inadequate or unavailable to protect us fully, and may be cancelled or otherwiseterminated by the insurer. Furthermore, we face the following additional risks related to our insurance coverage: 15Table of Contents • we may not be able to continue to obtain insurance coverage on commercially reasonable terms, or at all, including with respect to ouractivities in the medical industry; • we may be faced with types of liabilities that are not covered under our insurance policies, such as environmental contamination, terroristattacks or alleged infringements of third parties’ intellectual property rights, and that exceed any amounts that we may have reserved forsuch liabilities; • the amount of any liabilities that we may face may exceed our policy limits; and • we may incur losses resulting from the interruption of our business that may not be fully covered under our insurance policies.Even a partially uninsured claim of significant size, if successful, could have a material adverse effect on our business, financial condition,results of operations and liquidity. However, even if we successfully defend ourselves against any such claim, we could be forced to spend a substantialamount of money in litigation expenses, our management could be required to spend valuable time defending these claims and our reputation could suffer,any of which could adversely affect our results of operations.Current and future global economic uncertainties and political conditions may adversely affect our results of operations.Our results of operations could be substantially affected not only by global economic conditions, but also by local operating and economicconditions, which can vary substantially by market. Unfavorable conditions can depress sales in a given market and may result in actions that adverselyaffect our margins, constrain our operating flexibility or result in charges that are unusual or non-recurring. Certain macroeconomic events, such as adverseconditions in the global economy, including most recently with the market disruptions caused by the economic and political challenges facing China andBrazil and certain Eurozone countries, and the anticipated exit by the United Kingdom from the European Union (commonly referred to as “Brexit”) couldhave a more wide-ranging and prolonged impact on the general business environment, which could also adversely affect us. These economic developmentscould affect us in numerous ways, many of which we cannot predict. We are unable to predict the likely duration and severity of the current disruption infinancial markets and adverse economic conditions, or the effects these disruptions and conditions could have on us.In addition, political and economic developments could also result in changes to legislation or reformation of government policies, rules andregulations, including in relation to tax and trade. Such changes could have a significant impact on our business by increasing the cost of doing business,affecting our ability to sell our software, products and services and negatively impacting our profitability. For example, as a result of the June 2016 Brexitreferendum, the British government is still negotiating the terms of the United Kingdom’s future relationship with the European Union, and it appears likelythat these negotiations will continue to be lengthy. For example, while the U.K. government and the European Union had negotiated an agreement by whichthe United Kingdom would withdraw from the European Union and the European Union had approved such withdrawal agreement, the British Parliament hassubsequently rejected the withdrawal agreement several times. As a result, there remains considerable uncertainty around the withdrawal. Although it isunknown what the final terms of the United Kingdom’s future relationship with the European Union will be, it is possible that there will be greater restrictionson imports and exports between the United Kingdom and European Union countries and increased regulatory complexities. These changes may adverselyaffect our operations and financial results. Additionally, there have been recent public announcements by members of the U.S. Congress, President Trump and his administration regardingthe possible implementation of a border tax, tariff or increase in custom duties on products manufactured outside of and imported into the United States, aswell as the renegotiation of U.S. trade agreements. For example, in March 2018, Mr. Trump issued two proclamations imposing tariffs on imports of certainsteel and aluminium products. The implementation of a border tax, tariff or higher customs duties on our products imported into the United States or on rawmaterials we import into the United States, or any potential corresponding actions by other countries in which we do business, could negatively impact ourfinancial performance.We face potential liability related to the privacy and security of personal information we collect.In particular, but not exclusively, in connection with our Materialise Medical segment, we may have access to personal information that issubject to a number of U.S. federal and state, E.U. and other applicable foreign laws protecting the confidentiality of certain patient health or other privateinformation, including patient records, and restricting the use and disclosure of that protected information.In the United States, we are subject to the Health Insurance Portability and Accountability Act, or HIPAA, the Health Information Technology forEconomic and Clinical Health Act of 2009, regulations issued pursuant to these statutes, state privacy and security laws and regulations. These statutes,regulations and contractual obligations impose numerous requirements regarding the use and disclosure of personal health information with which we mustcomply.In the European Union, the General Data Protection Regulation, or the GDPR, was passed on May 24, 2016, and replaced the E.U. DataProtection Directive when it came into force on May 25, 2018. GDPR introduced new data protection requirements in the European Union, unprecedentedregulatory risk for non-compliant data processors and controllers and sizeable penalties for serious breaches—up to €20 million or 4% of global turnover,whichever is higher. The GDPR also significantly expands the territorial reach of existing E.U. data protection and privacy rules. Our business will need to beadapted to meet these obligations and we are working on achieving compliance with the GDPR. We have completed a gap assessment in March 2018 inwhich we identified the areas where we need to adapt our business processes to become fully compliant with the GDPR. We are working on implementing thefindings and recommendations from the gap assessment. 16Table of ContentsIn ensuring continued compliance with the E.U. regime, our transfer of any personal data from the European Union to the United States must bedone in a manner which satisfies E.U. cross-border data transfer requirements. While this may be achieved under the E.U.-U.S. “Privacy Shield,” the legality ofthis regime has been challenged on a number of occasions in European courts. We will need to take steps to mitigate the risk of the Privacy Shield beinginvalidated as happened to the previous “Safe Harbour” regime. Adherence to the Privacy Shield is not, however, mandatory. U.S.-based companies arepermitted to rely either on their adherence to the E.U.-U.S. Privacy Shield or on the other authorized means and procedures to transfer personal data providedby the GDPR, such as the inclusion of standard contractual clauses in contracts between controllers and processors.In addition, the use and disclosure of personal health and other private information is subject to regulation in other jurisdictions in which we dobusiness or expect to do business in the future. Those jurisdictions may attempt to apply such laws extraterritorially or through treaties or other arrangementswith European governmental entities. We might unintentionally violate such laws, such laws may be modified and new laws may be enacted in the futurewhich may increase the chance that we violate them. For example, the GDPR contains rules relating to the collection and processing of personal information,which are not identical to the current rules under national privacy laws and which contain more strict provisions. Any such developments, or developmentsstemming from enactment or modification of other laws, or the failure by us to comply with their requirements or to accurately anticipate the application orinterpretation of these laws could create material liability to us, result in adverse publicity and negatively affect our medical business.Our failure to accurately anticipate the application or interpretation of these statutes, regulations and contractual obligations as we develop ourmedical and other products and services, a failure by us to comply with their requirements (e.g., evolving encryption and security requirements) or anallegation that defects in our medical or other products have resulted in noncompliance by our customers could create material civil and/or criminal liabilityfor us, resulting in adverse publicity and negatively affecting our medical business. Any legislation or regulation in the area of privacy and security ofpersonal information could affect the way we operate and could harm our business. The costs of compliance with, and the other burdens imposed by, theseand other laws or regulatory actions may prevent us from selling our solutions or increase the costs associated with selling our products and services, and mayaffect our ability to invest in or jointly develop our products and services in the United States, the European Union and in foreign jurisdictions. Further, wecannot assure you that our privacy and security policies and practices will be found sufficient to protect us from liability or adverse publicity relating to theprivacy and security of personal information.Risks Related to Our Materialise Medical Segment and Regulatory EnvironmentOur medical business, financial condition, results of operations and cash flows could be significantly and negatively affected by substantial governmentregulations.Our medical products are subject to rigorous regulation by the European Commission, the U.S. Food and Drug Administration, or the FDA, andnumerous other applicable governmental authorities. In general, the development, testing, manufacturing and marketing of our medical products are subjectto extensive regulation and review by numerous governmental authorities in the European Union, the United States and in other markets where we arecurrently active or may become active in the future. The regulatory process requires the expenditure of significant time, effort and expense to bring newmedical products to market, and we cannot be certain that we will receive regulatory approvals, certifications or registrations in any country in which we planto market our medical products.The laws and regulations, including the requirements for approvals, certifications or registrations and the time required for regulatory review,vary from country to country. The regulatory approval process outside the European Union and the United States may include all of the risks associated withobtaining CE or FDA clearance or approval in addition to other risks. Clearance or approval by the FDA in the United States, or declaration of conformityassessment and affixing a CE mark in the European Economic Area, or EEA, does not ensure approval or certification by regulatory authorities in othercountries, and approval or certification by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries. We may berequired to perform additional pre-clinical or clinical studies even if FDA clearance or approval, or the right to bear the CE label, has been obtained. We maynot obtain regulatory approvals or certifications outside the European Union and the United States on a timely basis, if at all. If we fail to receive necessaryapprovals to commercialize our medical products in jurisdictions outside the European Union and the United States on a timely basis, or at all, our medicalbusiness, financial condition and results of operations could be adversely affected.In addition, we are required to implement and maintain stringent reporting, labeling and record keeping procedures and make our facilities andoperations subject to periodic inspections, both scheduled and unannounced, by the regulatory authorities. The medical device industry is also subject to amyriad of complex laws and regulations governing reimbursement, which varies from jurisdiction to jurisdiction in the European Union and which includesMedicare and Medicaid reimbursement in the United States as well as healthcare fraud and abuse laws, with these laws and regulations being subject tointerpretation. In many instances, the industry does not have the benefit of significant regulatory or judicial interpretation of these laws and regulations. Incertain public statements, governmental authorities have taken positions on issues for which little official interpretation was previously available. Some ofthese positions appear to be inconsistent with common practices within the industry but that have not previously been challenged.Various governmental agencies have become increasingly vigilant in recent years in their investigation of various business practices.Governmental and regulatory actions against us can result in various actions that could adversely impact our medical operations, including: 17Table of Contents • the recall or seizure of products; • the suspension or revocation of the authority necessary for the production or sale of a product; • the delay of our ability to introduce new products into the market; • the suspension of shipments from particular manufacturing facilities; • the issuance of warning letters or untitled letters; • the imposition of operating restrictions; • the imposition of injunctions, fines and penalties; • the exclusion of our products from being reimbursed by healthcare programs in the European Union or U.S. federal and state healthcareprograms (such as Medicare, Medicaid, Veterans Administration health programs and Civilian Health and Medical Program of theUniformed Services); • the delay or denial of customs clearance of our products for import in certain jurisdictions; and • other civil or criminal sanctions against us.Failure to comply with applicable regulatory requirements could also result in civil actions against us and other unanticipated expenditures. Anyof these actions, in combination or alone, or even a public announcement that we are being investigated for possible violations of these laws, could have amaterial adverse effect on our medical business, financial condition, results of operations and cash flows. If investigated, we cannot assure that the costs ofdefending or resolving those investigations or proceedings would not have a material adverse effect on our financial condition, results of operations and cashflows.In many of the countries in which we market our medical products, we are subject to regulations affecting, among other things, clinical efficacy,product standards, packaging requirements, labeling requirements, import/ export restrictions, tariff regulations, duties and tax requirements. Many of theregulations applicable to our medical surgical guides, models, implants and software products in these countries are similar to those of the EuropeanCommission and the FDA. In addition, in many countries the national health or social security organizations require our medical products to be qualifiedbefore they can be marketed with the benefit of reimbursement eligibility. Failure to receive or delays in the receipt of relevant foreign qualifications alsocould have a material adverse effect on our medical business, financial condition, results of operations and cash flows.As the government regulators in the European Union, United States and elsewhere have become increasingly stringent, we may be subject tomore rigorous regulation by governmental authorities in the future.Modifications to our medical products marketed in the United States may require new 510(k) clearances or premarket approvals, or may require us tocease marketing or recall the modified products until clearances are obtained.Any modification to a 510(k)-cleared device that could significantly affect its safety or efficacy, or that would constitute a major change in itsintended use, technology, materials, packaging and certain manufacturing processes, may require a new 510(k) clearance or, possibly, a premarket approval,or PMA. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) clearance or PMA in the first instance, but theFDA may (and often does) review the manufacturer’s decision. The FDA may not agree with a manufacturer’s decision regarding whether a new clearance orapproval is necessary for a modification, and may retroactively require the manufacturer to submit a premarket notification requesting 510(k) clearance or anapplication for PMA. We have made modifications to our medical products in the past and may make additional modifications in the future that we believedid not or will not require additional clearances or approvals. No assurance can be given that the FDA would agree with any of our decisions not to seek510(k) clearance or PMA. If the FDA requires us to cease marketing and recall the modified device until we obtain a new 510(k) clearance or PMA, ourmedical business, financial condition, results of operations and future growth prospects could be materially adversely affected. Further, our medical productscould be subject to recall if the FDA determines, for any reason, that our products are not safe or effective. Any recall or FDA requirement that we seekadditional approvals or clearances could result in significant delays, fines, increased costs associated with modification of a product, loss of revenue andpotential operating restrictions imposed by the FDA.Healthcare policy changes, including legislation to reform the U.S. healthcare system, could adversely affect us.From time to time, legislation is drafted and introduced that could significantly change the statutory provisions governing the clearance orapproval, manufacture and marketing of a medical device. In addition, regulations and guidance are often revised or reinterpreted in ways that maysignificantly affect our medical business and our medical products. It is impossible to predict whether legislative changes will be enacted or regulations,guidance or interpretations changed, and what the impact of such changes, if any, may be. 18Table of ContentsFor instance, in 2010, the U.S. Patient Protection and Affordable Care Act, as amended by the U.S. Health Care and Education Reconciliation Actof 2010, or collectively, the PPACA, was enacted, which included, among other things, the following measures: an excise tax on any entity that manufacturesor imports medical devices offered for sale in the United States; a Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conductcomparative clinical effectiveness research; reporting and disclosure requirements on device manufacturers for any “transfer of value” made or distributed toprescribers and other healthcare providers, effective March 30, 2013 (referred to as the Physician Sunshine Payment Act); payment system reforms including anational pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency ofcertain healthcare services through bundled payment models, beginning on or before January 1, 2013; and an independent payment advisory board that willsubmit recommendations to reduce Medicare spending if projected Medicare spending exceeds a specified growth rate. Some of the provisions of the PPACAhave yet to be fully implemented, while certain provisions have been subject to U.S. judicial and Congressional challenges. Efforts to repeal and replace thePPACA have been ongoing since the 2016 election, but it is unclear if these efforts will be successful. Since January 2017, President Trump has signedExecutive Orders and other directives designed to delay, circumvent or loosen the implementation of certain provisions requirements mandated by thePPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA. In addition, as part of the December 2017 Tax Cutsand Jobs Act, the “individual mandate,” which required individuals to purchase insurance, was repealed. Furthermore, in December 2018, a U.S. DistrictCourt Judge in the Northern District of Texas ruled that the PPACA is unconstitutional in its entirety because such individual mandate was repealed,although the U.S. District Court Judge and President Trump, among others, have acknowledged the ruling will have no immediate effect pending appeal.Thus, the full impact of the PPACA, any law repealing or replacing elements of it, and the political uncertainty surrounding any repeal or replacementlegislation on our business remains unclear.The excise tax described above was suspended on December 18, 2015 by the Consolidated Appropriations Act, 2016, which includes a two-yearmoratorium on the tax effective January 1, 2016 to December 31, 2017. New legislation passed in January 2018 further suspended the medical device excisetax through December 31, 2019. The status of the tax for sales after December 31, 2019 is not clear. The tax may continue to be suspended, may be repealed,or may be reinstated at the same or at a different level effective January 1, 2020. We cannot predict what healthcare programs and regulations will beultimately implemented at the U.S. federal or state level, or at the E.U. level or within the implementing legislation of the individual E.U. Member States, orthe effect of any future legislation or regulation. However, these provisions as adopted could meaningfully change the way healthcare is delivered andfinanced, and may materially impact numerous aspects of our medical business. In particular, any changes that lower reimbursements or reduce medicalprocedure volumes could adversely affect our medical business and results of operations.In addition, in the future there may continue to be additional proposals relating to the reform of the healthcare systems of the United States, theEuropean Union, any individual Member State of the European Union or any other jurisdiction where we may operate. On April 5, 2017, the Medical DevicesRegulation (Regulation (EU) 2017/745) was adopted. The regulation will become applicable in 2020. Once applicable, the new regulations will among otherthings: • strengthen the rules on placing devices on the market and reinforce surveillance once they are available; • establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placedon the market; • improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identificationnumber; • set up a central database to provide patients, healthcare professionals and the public with comprehensive information on productsavailable in the European Union; and • strengthen rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check byexperts before they are placed on the market.This regulation could have a material adverse effect on our financial position and results of operations.Furthermore, initiatives sponsored by government agencies, legislative bodies and the private sector to limit the growth of healthcare costs,including price regulation and competitive pricing, are ongoing in markets where we do business. We could experience a negative impact on our results ofoperations due to increased pricing pressure in certain or all of the markets in which we operate. Governments, hospitals and other third-party payors couldreduce the amount of approved reimbursements for our products. Reductions in reimbursement levels or coverage or other cost-containment measures couldunfavorably affect our future results of operations.Our financial performance may be adversely affected by medical device tax provisions in the health care reform laws.The PPACA imposes a deductible excise tax equal to 2.3% of the sales price of a medical device on any entity that manufactures, produces orimports medical devices offered for sale in the United States, with limited exceptions, beginning in 2013. These taxes could have a material, negative impacton our results of operations and our cash flows. The excise tax has, however, been suspended on December 18, 2015 by the Consolidated Appropriations Act,2016, which includes a two-year moratorium on the tax effective January 1, 2016 to December 31, 2017.On January 22, 2018, legislation was passed thatsuspends the medical device excise tax for sales in 2018 and 2019. Absent further legislative action, this excise tax will be automatically reinstated formedical device sales starting on January 1, 2020. We cannot predict if the suspension of this tax will be extended or if additional regulations will beimplemented in a manner that could adversely affect us.The use, including the misuse or off-label use, of our medical services and products may be deemed unauthorized use or improper promotion, which couldharm our image in the marketplace or result in injuries that lead to product liability suits and could be costly to our business or result in regulatorysanctions. 19Table of ContentsMedical decisions may only be made and operations may only be executed by trained professionals who are authorized to do so in thejurisdictions in which they operate.Our medical services and products are generally designed to support surgeons in the planning and performance of their operations. In ourmedical software products set up, training and engineering support, we make it very clear that responsibility for medical decisions rests exclusively with theresponsible surgeon, who is responsible for carefully reviewing and explicitly approving the surgical plan and/or the design of the medical device that isproposed by our software and engineers. Nonetheless, we cannot assure that patients, hospitals, surgeons or other parties will not try to hold us responsible forall or a part of the medical decisions underlying the operations that we support, exposing us to potential litigation or civil and criminal liability forunauthorized medical decision-making. Such actions or liability could lead governmental agencies to conclude that our products or services are usedimproperly, all of which could significantly damage our reputation and could materially impair the continued adoption of our medical services and productoffering in the market.In the markets in which we operate, our medical promotional materials and training methods must comply with numerous applicable laws andregulations, including the prohibition on the promotion of a medical device for a use that has not been cleared or approved by the relevant regulator orsupervisory body. Use of a device outside of its cleared or approved indication is known as “off-label” use. If a relevant governmental authority determinesthat our medical promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotionalmaterials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine andcriminal penalties. In that event, our reputation could be damaged and adoption of our medical products would be impaired. Although we train our sales forcenot to promote our medical products for off-label uses, and our instructions for use in all markets specify that our products are not intended for use outside ofthose indications cleared for use, competent regulatory agency could conclude that we have engaged in off-label promotion. In addition, there may beincreased risk of injury if surgeons attempt to use our medical products off-label.Surgeons also may misuse our medical products or use improper techniques if they are not adequately trained, potentially leading to injury andan increased risk of product liability. Product liability claims are expensive to defend and could divert our management’s attention and result in substantialdamage awards against us. Any of these events could adversely affect our medical business, results of operations and reputation and our ability to attract andretain customers for our products and services.If our marketed medical devices are defective or otherwise pose safety risks, the relevant governmental authorities could require their recall, or we mayinitiate a recall of our products voluntarily.The relevant governmental authorities may require the recall of commercialized products in the event of material deficiencies or defects indesign or manufacture or in the event that a product poses an unacceptable risk to health. Manufacturers, on their own initiative, may recall a product if anymaterial deficiency in a device is found. A government mandated or voluntary recall could occur as a result of an unacceptable risk to health, componentfailures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our medical products would divert managerial andfinancial resources and have an adverse effect on our financial condition and results of operations. Any recall could impair our ability to produce our medicalproducts in a cost-effective and timely manner in order to meet our customers’ demands. We also may be required to bear other costs or take other actions thatmay have a negative impact on our future revenue and our ability to generate profits. We may initiate voluntary recalls involving our medical products in thefuture that we determine do not require notification of the relevant regulatory body. If a governmental agency disagrees with our determinations, they couldrequire us to report those actions as recalls. A future recall announcement could harm our reputation with customers and negatively affect our revenue. Inaddition, the relevant authority could take enforcement action for failing to report the recalls when they were conducted.If our Materialise Medical segment products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject tomedical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.Under the FDA medical device reporting regulations, or MDR, we are required to report to the FDA any incident in which our medical producthas malfunctioned and would be likely to cause or contribute to a death or serious injury if the malfunction happened again. If we fail to report these eventsto the FDA within the required timeframes, or at all, the FDA could take enforcement action against us. Any adverse event involving our medical productscould result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection, mandatory recall or otherenforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of ourtime and capital, distract management from operating our business, and may harm our reputation and financial results.In the EEA, we must comply with the E.U. Medical Device Vigilance System, the purpose of which is to improve the protection of health andsafety of patients, users and others by reducing the likelihood of reoccurrence of incidents related to the use of a medical device. Under this system, incidentsmust be reported to the competent authorities of the Member States of the EEA. An incident is defined as any malfunction or deterioration in thecharacteristics and/or performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead toor might have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. Incidents are evaluated by the EEAcompetent authorities to whom they have been reported, and where appropriate, information is disseminated between them in the form of National CompetentAuthority Reports, or NCARs. The E.U. Medical Device Vigilance System is further intended to facilitate a direct, early and harmonized implementation ofField Safety Corrective Actions, or FSCAs, across the Member States of the EEA where the device is in use. An FSCA is an action taken by a manufacturer toreduce a risk of death or serious deterioration in the state of health associated with the use of a medical device that is already placed on the market. An FSCAmay include the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its legalrepresentative to its customers and/or to the end users of the device through Field Safety Notices. 20Table of ContentsOur Materialise Medical segment’s 3D printing operations are required to operate within a quality management system that is compliant with theregulations of various jurisdictions, including the requirements of ISO 13485, and the U.S. Quality System Regulation, which is costly and could subject usto enforcement action.We are subject to the regulations of various jurisdictions regarding the manufacturing process for our medical products, including therequirements of ISO 13485. Within the United States, we are required to comply with the Quality System Regulation, which covers, among other things, themethods of documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of ourmedical products. Compliance with these regulations is costly and time-consuming. In addition, the FDA enforces the Quality System Regulation throughperiodic announced and unannounced inspections of manufacturing facilities. The failure by a manufacturer to comply with applicable statutes andregulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations orproduct safety issues, could result in, among other things, any of the following enforcement actions: • untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; • customer notifications or repair, replacement, refunds, recall, detention or seizure of our medical products; • operating restrictions or partial suspension or total shutdown of production; • refusing or delaying requests for 510(k) clearance or PMA of new products or modified products; • withdrawing 510(k) clearances or PMAs that have already been granted; • refusal to grant export approval for our medical products; or • criminal prosecution.Any of these actions could impair our ability to produce our medical products in a cost-effective and timely manner in order to meet ourcustomers’ demands. We also may be required to bear other costs or take other actions that may have a negative impact on our future revenue and our abilityto generate profits. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatoryrequirements, which could result in our failure to produce our medical products on a timely basis and in the required quantities, if at all.We may be subject to or otherwise affected by U.S. federal and state, European or other healthcare laws, including fraud and abuse and health informationprivacy and security laws, and could face substantial penalties if we are unable to fully comply with such laws.Healthcare regulation by U.S. federal and state, European or other governments could significantly impact our medical business. Healthcarefraud and abuse and health information privacy and security laws potentially applicable to our medical operations include: • the U.S. federal Anti-Kickback Law, which constrains our marketing practices and those of our independent sales agencies, educationalprograms, pricing, bundling and rebate policies, grants for physician-initiated trials and continuing medical education, and otherremunerative relationships with healthcare providers, by prohibiting, among other things, soliciting, receiving, offering or providingremuneration, intended to induce the purchase or recommendation of an item or service reimbursable under a U.S. federal healthcareprogram, such as the Medicare or Medicaid programs; • U.S. federal false claims laws which prohibit, among other things, knowingly presenting, or causing to be presented, claims for paymentfrom Medicare, Medicaid, or other third-party payors that are false or fraudulent; • HIPAA, and its implementing regulations, which created federal criminal laws that prohibit executing a scheme to defraud any healthcarebenefit program or making false statements relating to healthcare matters and which also imposes certain regulatory and contractualrequirements regarding the privacy, security and transmission of individually identifiable health information; • U.S. state laws analogous to each of the above federal laws, such as anti-kickback and false claims laws that may apply to items orservices reimbursed by any third-party payor, including commercial insurers, and state laws governing the privacy and security of certainhealth information, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicatingcompliance efforts; and • similar foreign laws and regulations governing healthcare fraud and abuse, patient data privacy, interactions with healthcareprofessionals and related laws and regulations that apply to us in the countries in which we operate. 21Table of ContentsIf our past or present operations are found to be in violation of any of such laws or any other governmental regulations that may apply to us, wemay be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from U.S. federal healthcare programs and the curtailment orrestructuring of our operations. Similarly, if the healthcare providers or entities with whom we do business are found to be non-compliant with applicablelaws, they may be subject to sanctions, which could also have a negative impact on us. Any penalties, damages, fines, curtailment or restructuring of ouroperations could adversely affect our ability to operate our medical business and our financial results. The risk of our company being found in violation ofthese laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are opento a variety of interpretations. Further, the PPACA, among other things, amends the intent requirement of the U.S. federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the PPACA providesthat the government may assert that a claim including items or services resulting from a violation of the U.S. federal anti-kickback statute constitutes a falseor fraudulent claim for purposes of the false claims statutes. Any action against us for violation of these laws, even if we successfully defend against them,could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.Risks Related to Our Intellectual PropertyIf we are unable to obtain patent protection for our products or otherwise protect our intellectual property rights, our business could suffer.We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality and other contractual arrangements with ouremployees, end-users and others to maintain our competitive position. Our success depends, in part, on our ability to obtain patent protection for or maintainas trade secrets our proprietary products, technologies and inventions and to maintain the confidentiality of our trade secrets and know-how, operate withoutinfringing upon the proprietary rights of others and prevent others from infringing upon our business proprietary rights.Despite our efforts to protect our proprietary rights, it is possible that competitors or other unauthorized third parties may obtain, copy, use ordisclose or otherwise circumvent our technologies, software, inventions, processes or improvements. We cannot assure investors that any of our existing orfuture patents or other intellectual property rights will be enforceable, will not be challenged, invalidated or circumvented, or will otherwise provide us withmeaningful protection or any competitive advantage. In addition, our pending patent applications may not be granted, and we may not be able to obtainforeign patents or elect to file applications corresponding to our U.S., European or other patents. We intend to expand our business to certain countries thatmay not provide the same level of patent or other intellectual property protection as the United States and the European Union. Even if we assert our patentsor obtain additional patent or similar protection in such countries, effective enforcement of such patents or other rights may not be available. If our patents donot adequately protect our technology, our competitors may be able to offer products or services similar to ours or potential customers may gain illegal accessto our proprietary technology. Our competitors may also be able to develop similar technology independently or design around our patents, and we may notbe able to detect the unauthorized use of our proprietary technology or take appropriate steps to prevent such use. Any of the foregoing events would lead toincreased competition and lower revenue or gross margins, which could adversely affect our results of operations.Moreover, ongoing changes to the U.S. patent laws may impact our ability to obtain and enforce our intellectual property rights. In recent years,the courts have interpreted U.S. patent laws and regulations differently, and in particular the U.S. Supreme Court has decided a number of patent cases andcontinues to actively review more patent cases than it has in the past. Some of these changes or potential changes may not be advantageous for us, and maymake it more difficult to obtain adequate patent protection or to enforce our patents against parties using them without a license or payment of royalties.These changes could increase the costs and uncertainties surrounding the prosecution of our patent applications and the enforcement or defense of our patentrights, all of which could have a material adverse effect on our business and financial condition.We may not be able to protect our trade secrets and intellectual property.While some of our technology is licensed under patents belonging to others or is covered by process patents which are owned or applied for byus, much of our technology is not protected by patents. Furthermore, patents are jurisdictional in nature and therefore only protect us in certain markets,rather than globally. We have devoted substantial resources to the development of our technology, trade secrets, know-how and other unregisteredproprietary rights. While we enter into confidentiality and invention assignment agreements intended to protect such rights, such agreements can be difficultand costly to enforce or may not provide adequate remedies if violated. Such agreements may be breached and confidential information may be willfully orunintentionally used or disclosed in violation of the agreements, or our competitors or other parties may learn of the information in some other way. Wecannot legally prevent one or more other companies from developing similar or identical technology to our unpatented technology and accordingly, it islikely that, over time, one or more other companies may be able to replicate our technology, thereby reducing our technological advantages. If we do notprotect our technology or are unable to develop new technology that can be protected by patents or as trade secrets, we may face increased competition fromother companies, which may adversely affect our results of operations.We may incur substantial costs enforcing or acquiring intellectual property rights and defending against third-party claims as a result of litigation orother proceedings.In connection with the enforcement of our intellectual property rights, opposing third parties from obtaining patent rights or disputes related tothe validity or alleged infringement of our or third-party intellectual property rights, including patent rights, we have been and may in the future be subject orparty to claims, negotiations or complex, protracted litigation. 22Table of ContentsWhile we strive to avoid infringing the intellectual property rights of third parties, we cannot provide any assurances that we will be able toavoid any claims that our products and technology, including the technology that we license from others, infringe the intellectual property rights of thirdparties. Patent applications in the United States and most other countries are confidential for a period of time until they are published, and the publication ofdiscoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, the nature of claims contained inunpublished patent filings around the world is unknown to us, and we cannot be certain that we were the first to conceive inventions covered by our patentsor patent applications or that we were the first to file patent applications covering such inventions. Furthermore, it is not possible to know in which countriespatent holders may choose to extend their filings under the Patent Cooperation Treaty or other mechanisms. Moreover, the patent landscape in the field of 3Dprinting is very complex and freedom to operate examinations are costly and time-consuming. We have not obtained extensive freedom to operate reports inthe past for each and all of our products and services, nor do we intend to install on a general basis freedom to operate examinations for our future productsand services. In addition, we may be subject to intellectual property infringement claims from individuals, vendors and other companies, including those thatare in the business of asserting patents, but are not commercializing products or services in the field of 3D printing, or our customers may seek to invokeindemnification obligations to involve us in such intellectual property infringement claims. Furthermore, although we maintain certain procedures to help toensure that the items we 3D print on behalf of customers do not infringe upon the intellectual property rights of others, we cannot be certain that ourprocedures will be effective in preventing any such infringement.Intellectual property disputes and litigation, regardless of the merit or resolution, could cause us to incur significant costs in enforcing, orresponding to, defending and resolving such claims. In addition, such claims can be costly and disruptive to our business operations by diverting attentionand energies of management and key technical personnel, by prohibiting or otherwise impairing our ability to commercialize new or existing products orservices and by increasing our costs of doing business. We may not prevail in any such dispute or litigation, and an adverse decision in any legal actioninvolving intellectual property rights, including any such action commenced by us, could limit the scope of our intellectual property rights and the value ofthe related technology. Third-party claims of intellectual property infringement successfully asserted against us may require us to redesign infringingtechnology or enter into costly settlement or license agreements on terms that are unfavorable to us, prevent us from manufacturing or licensing certain of ourproducts, subject us to injunctions restricting our sale of products and use of infringing technology, cause severe disruptions to our operations or the marketsin which we compete, impose costly damage awards or require indemnification of our sales agents and end-users. In addition, as a consequence of suchclaims, we may incur significant costs in acquiring the necessary third-party intellectual property rights for use in our products and services or developingnon-infringing substitute technology. Any of the foregoing developments may have a material adverse effect on our business, financial condition and resultsof operations.Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirementsimposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.Periodic maintenance fees on any issued patent are due to be paid to governmental patent agencies, including the U.S. Patent and TrademarkOffice, or USPTO, in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with anumber of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in manycases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result inlapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that couldresult in lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-paymentof fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering ourproducts and processes, our competitive position could be adversely affected.We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.Certain of our past and present employees were previously employed at other companies, including our competitors or potential competitors.Some of these employees executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment.Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claimsthat we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’sformer employer. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defendagainst such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable personnel or intellectual propertyrights. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.If disputes arise, we could lose rights that are important to our business or be subject to restrictions on the conduct of our business.We have license agreements with respect to certain intellectual property that is important to our business and that may include exclusivity andnon-competition undertakings. For example, we have an arrangement with Materialise Dental NV, the entity that resulted from the spinoff of our formerdental related business and was acquired by a third party, that distinguishes the dental business that Materialise Dental NV now pursues from the businesses,such as Cranio-Maxio Facial, or CMF, that we continue to pursue following the sale. Disputes may arise between the counterparties to these agreements andus that could result in termination of these agreements. If we fail to comply with our obligations under our intellectual property-related agreements, ormisconstrue the scope of the rights granted to us or restrictions imposed on us under these agreements, the counterparties may have the right to terminatethese agreements or sue us for damages or equitable remedies, including injunctive relief. Termination of these agreements, the reduction or elimination ofour rights under these agreements, or the imposition of restrictions under these agreements that we have not anticipated may result in our having to negotiatenew or reinstated licenses with less favorable terms, or to cease commercialization of licensed technology and products. This could materially adverselyaffect our business. 23Table of ContentsCertain technologies and patents have been developed with collaboration partners and we may face restrictions on this jointly developed intellectualproperty.We have entered into collaborations with a number of industrial and medical device companies, including Zimmer-Biomet, DJO Surgical, DePuySynthes, Global Orthopaedic Technology, Lima, Mathys, Siemens and HOYA. We have, in some cases individually and in other cases along with ourcollaboration partners, filed for patent protection for a number of technologies developed under these agreements and may in the future file for furtherintellectual property protection and/or seek to commercialize such technologies. Under some of these agreements, certain intellectual property developed byus and the relevant partner may be subject to joint ownership by us and the partner and our commercial use of such intellectual property may be restricted, ormay require written consent from, or a separate agreement with, the partner. In other cases, we may not have any rights to use intellectual property solelydeveloped and owned by the partner. If we cannot obtain commercial use rights for such jointly-owned intellectual property or partner-owned intellectualproperty, our future product development and commercialization plans may be adversely affected. For additional information, see “Item 4. Information on theCompany—B. Business Overview—Intellectual Property.”Our use of open source software may expose us to additional risks and harm our intellectual property.Some of our proprietary software, including some of our 3D printing software, may use or incorporate open source software. Some open sourcesoftware licenses require users who distribute open source software as part of their own software product to publicly disclose all or part of the source code tosuch software product or make available any derivative works of the open source code on unfavorable terms or at no cost. We monitor, on an ongoing basis,whether our proprietary software, including that in our 3D printing software, would make use of any open source software that could require us to disclose ourproprietary source code, which could adversely affect our business.Risks Related to the ADSsThe ADSs may experience price and volume fluctuations.The stock market generally has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to theoperating performance of listed companies. Broad market and industry factors may negatively affect the market price of the ADSs, regardless of our actualoperating performance. The market price and liquidity of the market for the ADSs may be higher or lower than the price you paid and may be significantlyaffected by numerous factors, some of which are beyond our control. These factors include: • significant volatility in the market price and trading volume of securities of companies in our sector, which is not necessarily related tothe operating performance of these companies; • the mix of products that we sell, and related services that we provide, during any period; • delays between our expenditures to develop and market new products and the generation of sales from those products; • changes in the amount that we spend to develop, acquire or license new products, technologies or businesses; • changes in our expenditures to promote our products and services; • success or failure of research and development projects of us or our competitors; • announcements of acquisitions by us or one of our competitors; • the general tendency towards volatility in the market prices of shares of companies that rely on technology and innovation; • changes in regulatory policies or tax guidelines; • changes or perceived changes in earnings or variations in operating results; • any shortfall in revenue or net income from levels expected by investors or securities analysts; and • general economic trends and other external factors.Any of these could result in a material decline in the price of the ADSs.Members of our board of directors and senior management own a significant percentage of our ordinary shares and are able to exert significant influenceover matters subject to shareholder approval. 24Table of ContentsMembers of our board of directors and senior management beneficially owned approximately 64.5% of our outstanding ordinary shares(including ordinary shares represented by ADSs), as of December 31, 2018. These shareholders have significant influence over the election of members of ourboard of directors and the outcome of corporate actions requiring shareholder approval, including dividend policy, mergers, share capital increases,amendments of our articles of association and other extraordinary transactions. For example, these shareholders may be able to influence the outcome ofelections of members of our board of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other majorcorporate transactions. In addition, our articles of association provide that, as long as Wilfried Vancraen, our founder and Chief Executive Officer, HildeIngelaere, an Executive Vice President of our company who is also Mr. Vancraen’s spouse, and their three children, Linde, Sander and Jeroen Vancraen, orcollectively the Family Shareholders, control, directly or indirectly, in the aggregate at least 20% of the voting rights attached to our ordinary shares, amajority of our directors must be appointed by our shareholders from a list of candidates proposed by the Family Shareholders. This concentration ofownership within this group of shareholders and the rights of the Family Shareholders prevent or discourage unsolicited acquisition proposals or offers forour ordinary shares or ADSs that you may feel are in your best interest as one of our shareholders. The interests of these existing shareholders or the FamilyShareholders may not always coincide with your interests or the interests of other shareholders, and they may act in a manner that advances their best interestsand not necessarily those of other shareholders, including seeking a premium value for their ordinary shares, which might affect the prevailing market pricefor the ADSs.The dilutive effect of our warrants and convertible bonds could have an adverse effect on the future market price of the ADSs or otherwise adversely affectthe interests of our shareholders.Based on outstanding granted warrants and outstanding convertible bonds, as of December 31, 2018, there were outstanding granted warrants tosubscribe for an aggregate of 1,214,292 ordinary shares at a weighted average exercise price of €7.99 per share, and €1.0 million of outstanding convertiblebonds convertible into an aggregate of 508,904 ordinary shares at a conversion price of €1.97 per share. The warrants and convertible bonds likely will beexercised or converted if the market price of the ADSs equals or exceeds the applicable exercise or conversion price. To the extent such securities areexercised or converted, additional ordinary shares will be issued, which would dilute the ownership of existing shareholders.You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your rightto vote.Except as described in the deposit agreement related to the ADSs, holders of ADSs are not able to exercise voting rights attaching to the ordinaryshares evidenced by the ADSs on an individual basis. Under the terms of the deposit agreement, holders of ADSs may instruct the depositary to vote theordinary shares underlying their ADSs, but only if we ask the depositary to ask for their instructions. Otherwise, holders of ADSs are not able to exercise theirright to vote, unless they withdraw our ordinary shares underlying the ADSs they hold to vote them in person or by proxy. However, holders of ADSs may notknow about the meeting far enough in advance to withdraw those ordinary shares. If we ask for the instructions of holders of ADSs, the depositary, upontimely notice from us, will notify holders of ADSs of the upcoming vote and arrange to deliver our voting materials to them. Upon our request, the depositarywill mail to holders of ADSs a shareholder meeting notice which contains, among other things, a statement as to the manner in which voting instructions maybe given, including an express indication that such instructions may be given or deemed given to the depositary to give a discretionary proxy to a persondesignated by us if no instructions are received by the depositary from holders of ADSs on or before the response date established by the depositary.However, no voting instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform thedepositary that (i) substantial opposition exists, or (ii) such matter materially and adversely affects the rights of shareholders. We cannot guarantee thatholders of ADSs will receive the voting materials in time to ensure that they can instruct the depositary to vote their shares. In addition, the depositary’sliability to holders of ADSs for failing to execute voting instructions or for the manner of executing voting instructions is limited by the deposit agreement.As a result, holders of ADSs may not be able to exercise their right to give voting instructions or to vote in person or by proxy and they may not have anyrecourse against the depositary or our company if their shares are not voted as they have requested or if their shares cannot be voted.You may not receive distributions on our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical to make themavailable to holders of ADSs.Under the terms of the deposit agreement, the depositary for the ADSs has agreed to pay to you the cash dividends or other distributions it or thecustodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions inproportion to the number of our ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it maybe unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit the distribution ofthe ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive the distributions we make on our ordinary sharesor any value from them if it is unlawful or impractical to make them available to you. These restrictions may have a material adverse effect on the value ofyour ADSs.We have no present intention to pay dividends on our ordinary shares in the foreseeable future and, consequently, your only opportunity to achieve areturn on your investment during that time is if the price of the ADSs appreciates.We have no present intention to pay dividends on our ordinary shares in the foreseeable future. Any recommendation by our board of directors topay dividends will depend on many factors, including our financial condition, results of operations, legal requirements and other factors. Furthermore,pursuant to Belgian law, the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis ofour non-consolidated statutory financial statements prepared under generally accepted accounting principles in Belgium, or Belgian GAAP. In addition, inaccordance with Belgian law and our articles of association, we must allocate each year an amount of at least 5% of our annual net profit under our statutorynon-consolidated accounts (prepared in accordance with Belgian GAAP) to a legal reserve until the reserve equals 10% of our share capital. Our legal reservecurrently meets this requirement. As a consequence of these facts, there can be no assurance as to whether dividends or other distributions will be paid out inthe future or, if they are paid, their amount. 25Table of ContentsAs a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SECthan U.S. domestic issuers. This may limit the information available to holders of ADSs.We are a “foreign private issuer,” as defined in the rules and regulations of the U.S. Securities and Exchange Commission, or the SEC, and,consequently, we are not subject to all of the disclosure requirements applicable to U.S. domestic issuers. For example, we are exempt from certain rules underthe Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizationsapplicable to a security registered under the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and“short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities.Moreover, we are not required to file periodic reports and consolidated financial statements with the SEC as frequently or as promptly as U.S. domesticissuers. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies. As a foreign privateissuer, we file an annual report on Form 20-F within four months of the close of each year ended December 31 and furnish reports on Form 6-K relating tocertain material events promptly after we publicly announce these events. However, although we intend to continue to issue quarterly financial information,because of the above exemptions for foreign private issuers, we are not required to do so, and, therefore, our shareholders will not be afforded the sameprotections or information generally available to investors holding shares in public companies organized in the United States.We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.As a foreign private issuer, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Actand related rules and regulations. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recentlycompleted second fiscal quarter. Accordingly, we will next make a determination with respect to our foreign private issuer status on June 30, 2019. There is arisk that we will lose our foreign private issuer status in the future.We would lose our foreign private issuer status if, for example, more than 50% of our assets are located in the United States and more than 50%of our outstanding ordinary shares are held of record by U.S. residents. As of December 31, 2018, 2.9% of our assets were located in the United States. Theregulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly greater than the costs we incur as a foreignprivate issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms withthe SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under currentSEC rules to prepare our consolidated financial statements in accordance with U.S. GAAP and modify certain of our policies to comply with corporategovernance practices associated with U.S. domestic issuers. Such conversion and modifications would involve significant additional costs. In addition, wemay lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign privateissuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies.We are an “emerging growth company” and we intend to take advantage of reduced disclosure and governance requirements applicable to emerginggrowth companies, which could result in the ADSs being less attractive to investors.We are an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act, and we intend tocontinue to take advantage of certain exemptions from various reporting and governance requirements that are applicable to other public companies that arenot emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of theSarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and reduced disclosure obligations regarding executive compensation in our periodic reports andother public filings. Investors may find the ADSs less attractive because we rely on such exemptions. If some investors find the ADSs less attractive as a result,there may be a less active trading market for the ADSs and the price of the ADSs may be more volatile. We may take advantage of these reporting andgovernance exemptions until we are no longer an emerging growth company, which we expect will occur on December 31, 2019.In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition periodprovided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth companycan delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We currently prepare ourconsolidated financial statements in accordance with IFRS, which do not have separate provisions for publicly traded and private companies. However, in theevent we convert to U.S. GAAP while we are still an emerging growth company, we may be able to take advantage of the benefits of this extended transitionperiod and, as a result, during such time that we delay the adoption of any new or revised accounting standards, our consolidated financial statements maynot be comparable to other companies that comply with all public company accounting standards.We have identified a material weakness in our internal controls over financial reporting and if we fail to establish and maintain an effective system ofinternal control over financial reporting, we may not be able to accurately report our financial condition, results of operations or cash flows, which mayadversely affect investor confidence in us. 26Table of ContentsThe Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controlsand procedures. In particular, we are required, under Section 404 of the Sarbanes-Oxley Act, to perform system and process evaluations and testing of ourinternal controls over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of ourinternal control over financial reporting. This assessment must include disclosure of any material weaknesses in our internal control over financial reportingidentified by our management or our independent registered public accounting firm. A material weakness is a control deficiency, or combination of controldeficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interimconsolidated financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires anattestation from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. However, for as longas we remain an emerging growth company as defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply with theindependent registered public accounting firm attestation requirement. At the time when we are no longer an emerging growth company, our independentregistered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented,designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future.Although we have expanded our accounting and compliance teams with additional staff and consultants with appropriate experience andtechnical accounting knowledge, and established an internal control group, our compliance with Section 404 will require that we incur further substantialaccounting expenses and continue to expend significant management efforts. We may need to hire additional internal audit, accounting and financial staffand consultants with appropriate experience and technical accounting knowledge, and compile the system and process documentation necessary to performthe evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion.During the evaluation and testing process, we identified a material weakness in our internal control over financial reporting, and concluded that our internalcontrol over financial reporting was not effective as of December 31, 2018. See “Item 15. Controls and Procedures.” We cannot assure you that we will beable to remedy the material weakness in a timely fashion or at all, or that there will not be material weaknesses or significant deficiencies in our internalcontrol over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accuratelyreport our financial condition, results of operations or cash flows. If we are unable to remedy the material weakness and conclude that our internal controlover financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiencyin our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market priceof the ADSs could decline, and we could be subject to sanctions or investigations by the NASDAQ Stock Market, the SEC or other regulatory authorities.Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems requiredof public companies, could also restrict our future access to the capital markets.We have incurred and will incur significant increased costs as a result of operating as a company whose ADSs are publicly traded in the United States, andour management is required to devote substantial time to new compliance initiatives.As a company whose ADSs are publicly traded in the United States, we have incurred and will incur significant legal, accounting, insurance andother expenses that we did not incur prior to our initial public offering. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform andConsumer Protection Act and related rules implemented by the SEC and the NASDAQ Stock Market have imposed various requirements on publiccompanies, including requiring establishment and maintenance of effective disclosure and financial controls. These costs will increase at the time when weare no longer an emerging growth company eligible to rely on exemptions under the JOBS Act from certain disclosure and governance requirements. Ourmanagement and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations increaseour legal and financial compliance costs and make some activities more time-consuming and costly. These laws and regulations could also make it moredifficult and expensive for us to attract and retain qualified persons to serve on our board of directors or its committees. Furthermore, if we are unable tosatisfy our obligations as a public company, we could be subject to delisting of the ADSs, fines, sanctions and other regulatory action and potentially civillitigation.You may be subject to limitations on the transfer of your ADSs.Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when itdeems doing so expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons,including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holderson its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuseto deliver, transfer or register transfers of the ADSs generally when our share register or the books of the depositary are closed, or at any time if we or thedepositary thinks that it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of thedeposit agreement, or for any other reason in accordance with the terms of the deposit agreement. As a result, you may be unable to transfer your ADSs whenyou wish to.If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding theADSs, the market price for the ADSs and trading volume could decline.The trading market for the ADSs is influenced by research or reports that industry or securities analysts publish about our business. If one or moreanalysts who cover us downgrade the ADSs, the market price for the ADSs would likely decline. If one or more of these analysts cease to cover us or fail toregularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSsto decline. 27Table of ContentsIt may be difficult for investors outside Belgium to serve process on or enforce foreign judgments against us or our directors and senior management.We are a Belgian limited liability company. None of the members of our board of directors and senior management is a resident of the UnitedStates. All or a substantial portion of the assets of such non-resident persons and most of our assets are located outside the United States. As a result, it maynot be possible for investors to effect service of process upon such persons or on us or to enforce against them or us a judgment obtained in U.S. courts.Original actions or actions for the enforcement of judgments of U.S. courts relating to the civil liability provisions of the federal or state securities laws of theUnited States are not directly enforceable in Belgium. The United States and Belgium do not currently have a multilateral or bilateral treaty providing forreciprocal recognition and enforcement of judgments, other than arbitral awards, in civil and commercial matters. In order for a final judgment for thepayment of money rendered by U.S. courts based on civil liability to produce any effect on Belgian soil, it is accordingly required that this judgment berecognized or be declared enforceable by a Belgian court in accordance with Articles 22 to 25 of the 2004 Belgian Code of Private International Law.Recognition or enforcement does not imply a review of the merits of the case and is irrespective of any reciprocity requirement. A U.S. judgment will,however, not be recognized or declared enforceable in Belgium if it infringes upon one or more of the grounds for refusal which are exhaustively listed inArticle 25 of the Belgian Code of Private International Law. These grounds mainly require that the recognition or enforcement of the foreign judgmentshould not be a manifest violation of public policy, that the foreign courts must have respected the rights of the defense, that the foreign judgment should befinal, and that the assumption of jurisdiction by the foreign court may not have breached certain principles of Belgian law. In addition to recognition orenforcement, a judgment by a federal or state court in the United States against us may also serve as evidence in a similar action in a Belgian court if it meetsthe conditions required for the authenticity of judgments according to the law of the state where it was rendered. The findings of a federal or state court in theUnited States will not, however, be taken into account to the extent they appear incompatible with Belgian public policy.Holders of ADSs are not treated as shareholders of our company.Holders of ADSs with underlying shares in a Belgian limited liability company are not treated as shareholders of our company, unless theywithdraw our ordinary shares underlying the ADSs that they hold. The depository is the holder of the ordinary shares underlying the ADSs. Holders of ADSstherefore do not have any rights as shareholders of our company, other than the rights that they have pursuant to the deposit agreement.We are a Belgian limited liability company but are not a listed company in Belgium, and shareholders of our company may have different and in somecases more limited shareholder rights than shareholders of a listed company in Belgium or of a U.S. listed corporation.We are organized as a limited liability company (naamloze vennootschap / société anonyme) under the laws of Belgium. Our corporate affairs aregoverned by Belgian corporate law. From a Belgian corporate law point of view, we qualify as a public company (een vennootschap die een openbaar beroepop het spaarwezen heeft gedaan / une société ayant fait publiquement appel à l’épargne), but not as a listed company (genoteerde vennootschap / sociétécotée) because none of our securities are listed on any regulated market in the EEA. The Belgian corporate law provisions that are applicable to Belgianlisted companies do therefore not apply to us. Furthermore, we are not subject to most of the disclosure obligations applicable to Belgian listed companies.As a result, shareholders of our company may not enjoy certain of the rights and protection generally afforded to shareholders of a Belgian listed company.You should also be aware that the rights provided to our shareholders under Belgian corporate law and our articles of association differ in certainrespects from the rights that you would typically enjoy as a shareholder of a U.S. corporation under applicable U.S. federal and state laws.Under Belgian corporate law, except in certain limited circumstances, our shareholders may not ask for an inspection of our corporate records,while under Delaware corporate law any shareholder, irrespective of the size of his or her shareholdings, may do so. Shareholders of a Belgian corporation arealso unable to initiate a derivative action, a remedy typically available to shareholders of U.S. companies, in order to enforce a right of our company, in casewe fail to enforce such right ourselves, other than in certain cases of director liability under limited circumstances. In addition, a majority of our shareholdersmay release a director from any claim of liability we may have, including if he or she has acted in bad faith or has breached his or her duty of loyalty,provided, in some cases, that the relevant acts were specifically mentioned in the convening notice to the shareholders’ meeting deliberating on thedischarge. In contrast, most U.S. federal and state laws prohibit a company or its shareholders from releasing a director from liability altogether if he or she hasacted in bad faith or has breached his or her duty of loyalty to the company. Finally, Belgian corporate law does not provide any form of appraisal rights inthe case of a business combination. For additional information on these and other aspects of Belgian corporate law and our articles of association, see “Item10. Additional Information—B. Memorandum and Articles of Association.” As a result of these differences between Belgian corporate law and our articles ofassociation, on the one hand, and U.S. federal and state laws, on the other hand, in certain instances, you could receive less protection as a shareholder of ourcompany than you would as a shareholder of a U.S. corporation.The implementation of the recent reform of the Belgian Companies Code may adversely affect the rights of our shareholders.Recently a new Belgian Companies Code was approved by the Belgian Parliament that will enter into force on May 1, 2019. For existingcompanies like us there is a transition regime providing for a staggered applicability of the new provisions. Certain parts of the new code will apply to us asof January 1, 2020. The full transition must be completed by the earlier of (i) the next extraordinary shareholders’ meeting that amends our articles ofassociation or (ii) January 1, 2024. On the date of this annual report, we have not yet initiated or implemented any changes as a result of such new CompaniesCode. However, we or our shareholders may propose changes to our articles of association following the entry into force of the new Belgian Companies Codethat could impact our shareholders’ rights. 28Table of ContentsAs a foreign private issuer, we are not subject to certain NASDAQ Stock Market corporate governance rules applicable to U.S. listed companies.We rely on provisions in the Listing Rules of the NASDAQ Stock Market that permit us to follow our home country corporate governancepractices with regard to certain aspects of corporate governance. This allows us to follow Belgian corporate law and the Belgian Company Code, which differin significant respects from the corporate governance requirements applicable to U.S. companies listed on the NASDAQ Global Select Market. See “Item 16G.Corporate Governance.”Holders of ADSs or ordinary shares have limited rights to call shareholders’ meetings or to submit shareholder proposals, which could adversely affecttheir ability to participate in the governance of our company.Except under limited circumstances, only the board of directors may call a shareholders’ meeting. Shareholders who collectively own at least20% of the ordinary shares of our company may require the board of directors or the statutory auditor to convene a special or an extraordinary generalmeeting of shareholders. As a result, the ability of holders of the ADSs or ordinary shares to participate in and influence the governance of our company islimited.Holders of the ADSs have limited recourse if we or the depositary fail to meet our respective obligations under the deposit agreement or if theywish to involve us or the depositary in a legal proceeding.The deposit agreement expressly limits the obligations and liability of us and the depositary. Neither we nor the depositary will be liable to theextent that liability results from the fact that we: • are prevented or hindered in performing any obligation by circumstances beyond their control; • exercise or fail to exercise discretion under the deposit agreement; • perform our obligations without negligence or bad faith; • take any action based upon advice of or information from legal counsel, accountants, any person presenting shares for deposit, anyholder of the ADSs or any other qualified person; or • rely on any documents we believe in good faith to be genuine and properly executed.In addition, neither we nor the depositary has any obligation to participate in any action, suit or other proceeding in respect of the ADSs whichmay involve it in expense or liability unless it is indemnified to its satisfaction. These provisions of the deposit agreement will limit the ability of holders ofthe ADSs to obtain recourse if we or the depositary fails to meet our respective obligations under the deposit agreement or if they wish to involve us or thedepositary in a legal proceeding.Investors may not be able to participate in equity offerings, and ADS holders may not receive any value for rights that we may grant.In accordance with Belgian corporate law, our articles of association provide for preferential subscription rights to be granted to our existingshareholders to subscribe on a pro rata basis for any issue for cash of new shares, convertible bonds or warrants that are exercisable for cash, unless such rightsare cancelled or limited by resolution of our shareholders’ meeting or the board of directors. Our shareholders’ meeting or board of directors may cancel orrestrict such rights in future equity offerings. In addition, certain shareholders (including those in the United States, Australia, Canada or Japan) may not beentitled to exercise such rights even if they are not cancelled unless the rights and related shares are registered or qualified for sale under the relevantlegislation or regulatory framework. As a result, there is the risk that investors may suffer dilution of their shareholding should they not be permitted toparticipate in preference right equity or other offerings that we may conduct in the future.If rights are granted to our shareholders, as the case may be, but if by the terms of such rights offering or for any other reason, the depositary maynot either make such rights available to any ADS holders or dispose of such rights and make the net proceeds available to such ADS holders, then thedepositary may allow the rights to lapse, in which case ADS holders will receive no value for such rights.Shareholders in jurisdictions with currencies other than the euro face additional investment risk from currency exchange rate fluctuations in connectionwith their holding of our shares.Any future payments of dividends on shares will be denominated in euro. The U.S. dollar—or other currency—equivalent of any dividends paidon our shares or received in connection with any sale of our shares could be adversely affected by the depreciation of the euro against these other currencies.In order to satisfy our obligations as a public company, we may need to hire additional qualified accounting and financial personnel and consultants withappropriate experience. 29Table of ContentsAs a public company, we need to establish and maintain effective disclosure and financial controls. We have hired additional accounting andfinancial personnel and consultants with experience and technical accounting knowledge in this respect, but we may need to hire additional personnel andconsultants with appropriate experience and technical accounting knowledge. It is difficult to recruit and retain such personnel and consultants, and ouroperating expenses and operations are and will be impacted by the direct costs of their employment or engagement and the indirect consequences related tothe diversion of management resources from research and development efforts.We do not expect to be a passive foreign investment company for U.S. federal income tax purposes; however, there is a risk that we may be classified as apassive foreign investment company, which could result in materially adverse U.S. federal income tax consequences to U.S. investors.We do not expect to be a passive foreign investment company, or a PFIC. However, the relevant rules are not entirely clear and certain aspects ofthe tests will be outside our control; therefore, no assurance can be given that we will not be classified as a PFIC for any taxable year. If you are a U.S.taxpayer and we are determined to be a PFIC at any time during your holding period, you may be subject to materially adverse consequences, includingadditional tax liability and tax filing obligations. See “Item 10. Additional Information—E. Taxation—U.S. Taxation—Passive Foreign InvestmentCompany.” 30Table of ContentsITEM 4.INFORMATION ON THE COMPANYA. History and Development of the CompanyMaterialise NV was incorporated in Belgium on June 28, 1990 as a limited liability company under Belgian company law.On June 30, 2006, we split off our dental business through a partial de-merger, whereby the Belgian company Materialise Dental NV was formed.On July 24, 2006, an affiliate of DENTSPLY International Inc. acquired 40% of Materialise Dental NV, and subsequently increased its shareholding inMaterialise Dental NV to 45.59% in October 2008 and to 100% in February 2011, and our shareholders received aggregate proceeds of approximately€34.5 million from such split off and the staggered sale of our dental business.On April 23, 2007, we increased our shareholding in the French company OBL SA from 33% to 100%, for a purchase price of €1.5 million. OBLSA is assigned to our Materialise Medical segment.On October 10, 2008, we formed the Belgian company Mobelife NV, in which we initially owned 80.36% of the shares. On March 5, 2015, wepurchased the remaining 22.3% interest and, as a result, we own 100% of the shares of Mobelife NV. On December 5, 2016, after a transfer of all assets ofMobelife NV to Materialise NV, Mobelife NV was dissolved and ceased to exist. The business of Mobelife NV has been fully integrated in and is continuedby our Materialise Medical segment.On January 21, 2011, we acquired 100% of the shares of the German company Marcam Engineering GmbH, which specializes in softwaresolutions for 3D printed metal products, for a purchase price of €2.0 million. Marcam Engineering GmbH is assigned to our Materialise Software segment.On February 28, 2013, we spun off our fixturing business to a newly incorporated subsidiary, RapidFit NV. Through a capital increase, the Tinafund of the Flemish investment company PMV NV acquired 16.66% of the shares of RapidFit NV on June 27, 2013. For additional information regarding ouragreement with PMV regarding RapidFit NV, see “—RapidFit NV Shareholders’ Agreement” below. On September 30, 2013, RapidFit NV, through an assetpurchase agreement, acquired for a purchase price of €0.4 million Advanced Machining, Ltd., a Michigan corporation, which is assigned to our MaterialiseManufacturing segment. On December 31, 2016, we decided to transfer all the assets and activities of RapidFit, LLC, a subsidiary of RapidFit NV, anddissolved RapidFit LLC on November 6, 2017.On January 28, 2014, we acquired e-prototypy SA (which was subsequently renamed Materialise), located in Wroclaw, Poland, which operateswhat we believe to be one of the largest 3D printing service centers in Poland, for a purchase price of €1.3 million. The company, which is assigned to ourMaterialise Manufacturing segment, specializes in the production of additive manufactured prototypes and end-parts and also provides scanning and reverseengineering services.On April 29, 2014, we established RS Print NV, a 50/50 joint venture with RS Scan International NV, a Belgian company that designs and sells,among other things, foot scanning equipment and customized footwear. RS Print NV is active in the combined business of (i) providing technology for thedesign and additive manufacturing of customized footwear and footwear components and (ii) producing, with additive manufacturing technology, suchfootwear products. Each party contributed €500,000 to the joint venture at its incorporation and further contributions have been made (as part of acommitment to contribute an additional €4.0 million).On June 30, 2014, we sold 8,000,000 ADSs in our initial public offering at a price of $12.00 per ADS, and received net proceeds ofapproximately $88.3 million. The ADSs we sold in the initial public offering represented new ordinary shares issued in a capital increase resolved by ourshareholders for the purposes of the initial public offering on April 23, 2014.On October 21, 2014, we acquired OrthoView Holdings Limited, a leading provider of 2D digital pre-operative planning and templatingsolutions for orthopedic surgeons, for a cash payment of £8.47 million. OrthoView Holdings Limited is located in the United Kingdom. OrthoView HoldingsLimited’s software is a 2D digital pre-operative planning and templating solution for orthopedic surgeons. OrthoView Holdings Limited’s software imports adigital X-ray image from a picture archiving and communication system, or PACS, and positions the templates of suitable prostheses on the X-ray image atthe correct scale. We are gradually adding 3D surgical pre-planning tools and related 3D printed medical devices to OrthoView Holdings Limited’s productoffering. On November 13, 2017, we dissolved Orthoview LLC, a subsidiary of OrthoView Holdings Limited. In December 2018, we filed for dissolution ofMeridian Corporate Trustees Limited and Orthoview Limited, subsidiaries of Orthoview Holdings Limited.On March 10, 2015, we acquired the Belgian-based company Cenat BVBA. With Cenat BVBA’s proprietary technology on machine control, wehave added new software solutions for ensuring adequate quality control in additive manufacturing production processes.On October 4, 2017, we acquired ACTech, a full-service manufacturer of complex metal parts based in Germany, based on a total enterprise valueof €43.7 million for a total cash payment of €29.4 million. The transaction has brought together our metal competencies with those of ACTech into acomprehensive metal manufacturing offering. We expect the acquisition of ACTech’s expertise and in-house infrastructure will enable us to accelerate thedevelopment of our existing metal competence center and take a strong position in the market for the production and delivery of unique, complex 3D-printedmetal parts. We also expect the acquisition of ACTech will also enable us to develop and improve our software suite for Metal 3D Printing through closecollaboration with ACTech, taking advantage of learning from an active metal manufacturing environment. 31Table of ContentsOn July 18, 2018, we and BASF New Business GmbH, or BASF New Business, a subsidiary of BASF SE, the German chemical conglomerate(FWB: BAS), entered into a Strategic Alliance Partnership Agreement. The Strategic Alliance Partnership Agreement establishes a framework forcollaboration to leverage the parties’ existing strengths and expertise to develop new materials for the 3D printing industry.In connection with the entry into the Strategic Alliance Partnership Agreement, we and BASF Antwerpen NV, or BASF Antwerpen, a subsidiaryof BASF SE, entered into a Subscription Agreement pursuant to which BASF Antwerpen subscribed for 1,953,125 of our newly issued ordinary shares in aprivate placement, for an aggregate subscription price of approximately $25 million. The ordinary shares subscribed for were delivered to BASF Antwerpenon July 19, 2018.On July 27, 2018, we sold 3,450,000 ADSs in a follow-on public offering at a public offering price of $13.00 per ADS, and received net proceedsof approximately $40.2 million. The ADSs we sold in the offering represented new ordinary shares issued in a capital increase pursuant to the powers grantedto our board of directors by the extraordinary general meeting of shareholders held on April 23, 2014 and by our board of directors on July 26 and July 27,2018.Our principal executive and registered offices are located at Technologielaan 15, 3001 Leuven, Belgium. Our telephone number is +32 (16) 3966 11. We are registered with the Register of Legal Entities of Leuven under the number 0441.131.254. Our agent for service of process in the United States isMaterialise USA, LLC, located at 44650 Helm Ct., Plymouth, Michigan 48170, telephone number (734) 259-6445. Our internet website iswww.materialise.com. The information contained on, or accessible through, our website is not incorporated by reference into this annual report and shouldnot be considered a part of this annual report.The SEC maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers that fileelectronically with the SEC at www.sec.gov.Capital ExpendituresOur capital expenditures amounted to €20.9 million, €35.0 million and €17.6 million for the years ended December 31, 2018, 2017, and 2016,respectively. In 2018, our main capital expenditures were €10.7 million for new machines and installations in Belgium and Germany, €2.5 million for landand buildings in Germany and €1.8 million for information technology equipment. In 2017, our main capital expenditures were €12.8 million related tobuilding constructions in Belgium and Poland and €11.9 million for new machinery and installations in Belgium, Poland and Germany. In 2016, our maincapital expenditures were €6.1 million related to building constructions in Belgium and Poland and €8.3 million for new machinery and installations, mainlyin Europe.B. Business OverviewOur MissionOur mission is to innovate product development that results in a better and healthier world, through our software and hardware infrastructure, andan in-depth knowledge of additive manufacturing.Our CompanyWe are a leading provider of additive manufacturing and medical software and of sophisticated 3D printing services. Since our founding in 1990by our Chief Executive Officer, Wilfried Vancraen, we have consistently focused on developing innovative applications of additive manufacturingtechnologies. We believe our proprietary software platforms, which enable and enhance the functionality of 3D printers and of 3D printing operations, havebecome a market standard for professional 3D printing. We believe that our commitment to enabling 3D printing technologies has significantly supportedand accelerated the acceptance and proliferation of additive manufacturing in the industrial and medical sectors and will continue to play an instrumentalrole as the industry evolves. In the healthcare sector, we bring software and medical devices to the market. Our medical software products include surgicalplanning tools that allow medical professionals to make 3D printable designs of the human anatomy. Our medical devices include surgical guides as well ascustomized medical implants. In our 3D printing service centers, including what we believe to be one of the world’s largest single-site additivemanufacturing service center in Leuven, Belgium, we print medical devices, prototypes, production parts, and consumer products. Our customers are active ina wide variety of industries, including healthcare, automotive, aerospace, art and design and consumer products. As of December 31, 2018, our team consistedof 2,009 full-time equivalent employees, or FTEs, and fully dedicated consultants. Our portfolio of intellectual property features 281 patents and 169pending patent applications as of December 31, 2018. For the year ended December 31, 2018, we generated €184.7 million of revenue, representing 29.6%growth over the prior year, a net profit of €3.0 million and Adjusted EBITDA of €23.53 million. For a description of Adjusted EBITDA and a reconciliation ofour net profit to our Adjusted EBITDA, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Other Financial Information.”Our Core CompetenciesOur established and proven business model integrates our three research-based core competencies: (i) software development, (ii) 3D printing, and(iii) engineering, which act as complementary incubators for our new products and function as integrated support centers for our existing products. Theinteraction and synergies among our software development, 3D printing and engineering teams position us well to continuously develop and supportinnovative applications of 3D printing that often integrate all three core competencies. 32Table of ContentsSoftware Development. Our expertise in developing 3D printing software originated from our efforts to enable 3D printing applications and to continuallyimprove processes within our own additive manufacturing operations. As a result of our continued deployment over the course of more than 25 years ofhuman, intellectual and economic capital to software development, a number of our products, including Magics and Streamics, have evolved into industry-leading flagship products. Our software development team works in close partnership with the commercial groups that are active in our various marketsegments through project teams that support our various products and services. These project teams rely, in turn, on research and development groups thatdevelop libraries of software code that can be shared in multiple products and services across various markets. We have an established quality managementsystem for the development of our software products that is ISO 9001:2015 certified. We are also ISO 13485:2016 certified for our medical applications andour medical applications comply with the regulatory requirements of several jurisdictions, including Europe and the United States.3D Printing. As a pioneer in the additive manufacturing industry, we believe we have an extensive history of 3D printing millions of parts utilizing a broadarray of technologies, often in highly regulated environments, for thousands of commercial, industrial and medical customers. We operate some of the mostsophisticated printing machines currently available on the market, as well as our own proprietary stereolithography-based technology, Mammoth, to providea very broad range of technologies, sizes, materials and finishing degrees and to address the needs of customers across a large number of potential markets.Production is organized in multiple production lines that are dedicated to the Medical and the Industrial Production segments that we serve. Our 3D printinggroup, which operates in an ISO 9001:2015-certified quality management system, in an ISO 13485:2016-certified system for the production of medicaldevices, and in an EN9100:2016 as well as EASA POA certified system for the production of plastic aerospace parts, has its own maintenance and researchteam that utilizes an in-house laboratory facility where products can be tested. The wide variety of products that are processed by our multiple productionlines are logistically streamlined through our proprietary database systems that manage the entire process from order intake to 3D printing to final shipment.As of December 31, 2018, we operated a total of 181 3D printers, six vacuum casting machines and 19 computer numeric control, or CNC, machines at theseservice centers. (See “—Manufacture and Supply” for more detailed information about the printers we operate).Engineering. Our engineering expertise is integral to our entire business, as it enhances our software development and 3D printing expertise. Our engineerswork in teams that support customers in different market segments. These teams work directly with our customers to identify new, and customize and refineexisting, 3D printing applications and to increase productivity, efficiency and ease of use across all aspects of the solutions we provide. Our engineeringteams have particular expertise in industrial and medical applications, including patient-specific surgical guides, models and implants with the applicablemarket clearances. Our teams are highly specialized, especially in the medical field, and include quality controllers, development researchers for newhardware concepts and trainers who bring new engineers to the required level of expertise. Our engineers operate within the framework of a certified qualitymanagement system. Our engineering teams make extensive use of our proprietary software tools and have direct access to our 3D printing center wheredevelopments can be tested in an actual production environment.Our Market SegmentsThe product and service offerings developed by our three core competencies are offered through a market oriented organization that is activeacross three principal market segments: (i) Materialise Software, (ii) Materialise Medical, and (iii) Materialise Manufacturing. We believe that our customersbenefit significantly from the synergistic interplay between our core competencies and the three market segments on which we focus and which provideconstant end-user feedback to the product development and support teams within our core competencies. For example, we believe our software programshave become globally leading products in the markets we serve as a result of many factors including the sharing of knowledge within our central softwaredevelopment group as well as our in-house production operations, which enable us to continuously innovate, refine and focus our software solutions andprovide us with valuable insight into our customers’ objectives and needs. Similarly, certain aspects of the equipment, processes and know-how that enableus to print surgical guides cleared by the FDA, and CE-labeled implants are applicable to certain industrial markets we serve, including automotive andaerospace, where our customers have stringent requirements for high quality precision parts.Our Materialise Software SegmentIn our Materialise Software segment, we offer proprietary software worldwide through programs and platforms that enable and enhance thefunctionality of 3D printers and of 3D printing operations. We have developed software that interfaces between almost all types of industrial 3D printers, andvarious software applications and capturing technologies, including CAD/CAM packages and 3D scanners, by enabling data preparation and processplanning. Our programs interface with machines manufactured by leading original equipment manufacturers, or OEMs, such as 3D Systems Corporation,Bright Laser Technologies, DMG Mori, GE Additive, EnvisionTEC GmbH, EOS GmbH, Essentium Inc., HP Inc., The ExOne Company, Renishaw PLC, SLMSolutions Group AG, Stratasys Ltd., Trumpf GmbH & Co. KG, Uniontech Corporation and Voxeljet AG. In addition, we have entered into partnershipagreements with leading CAD, CAM and product lifecycle management, or PLM, companies such as Siemens, HCL Technologies Ltd., or HCL, and PTC, forthe integration of our additive manufacturing technology into Siemens’ NX software, HCL’s CAMworks, and PTC’s Creo software. This enables thestreamlining of the design to manufacturing process for products being produced using additive manufacturing. We offer software that enables our customersto more efficiently organize the entire workflow of a 3D printing operation with multiple 3D printing machines, many operators and complex data flow andlogistical requirements. We believe that the capabilities of our software products and their unique compatibility with almost all 3D printing systems continueto set standards in the professional 3D printing software market. Customers operating machines from multiple OEMs and customers running large 3D printingoperations are among those who can benefit the most from our software packages and we believe that in many cases those customers demand compatibilitywith our software from the systems of OEMs. 33Table of ContentsAs of December 31, 2018, our Materialise Software segment (including core competencies) had a team of approximately 273 FTEs and fully dedicatedconsultants, with approximately 35.8% based at our headquarters in Belgium and the remaining employees distributed throughout our local field offices inChina, Germany, Japan, Malaysia, Ukraine, Poland, the United Kingdom and the United States.Business Model. We generate revenue in our Materialise Software segment from our software licenses, maintenance contracts, hardware controller sales forour Materialise Controllers and custom software development services. Additionally, we offer consultancy and training services. We license our softwareproducts to our customers on either a time-based or perpetual basis, in which case we offer annual maintenance contracts that provide for software updatesand support. We charge our custom software development services either on a time and material or on a fixed-cost basis. For the years ended December 31,2018, 2017 and 2016, our Materialise Software segment generated revenue of €37.4 million, €35.8 million and €30.1 million, respectively, representing20.2%, 25.1% and 26.3% of our total revenue, respectively, and 4.5%, 18.8% and 16.8% growth over the prior year, respectively.Software Products. We have a diversified portfolio comprised of software applications addressing different 3D market opportunities. Our decades ofexperience in the additive manufacturing industry are reflected in the sophisticated 3D printing software and business management tools we provide for ourcustomers. We believe that each of our software applications is, or has the potential of becoming, one of the leading technologies in its domain. We believethat our neutral platform approach positions our software to drive greater innovation and choice across the 3D printer software ecosystem, and provides 3Dprinter users with more powerful and flexible printing capabilities.In particular, we offer the following software applications: • Magics. Magics enables customers to import a wide variety of CAD formats and to export standard tessellation language, or STL, filesready for additive manufacturing. Magics’ applications include repairing and optimizing 3D models; analyzing parts; making process-related design changes on customers’ STL files; designing support structures; documenting customer projects; nesting multiple parts in asingle print run; and process planning.Our Magics platform is enhanced with modules that further expand functionality and utility for our customers. For instance, the Magics Import Moduleplays an important role in efficiently moving CAD designs through to manufactured products by importing nearly all standard CAD formats intoMagics. The Magics Structures Module was designed to help customers to reduce weight and material usage in their designs. We also have developedlogistical modules such as the Magics SG Module, which offers tools for support structure design during the 3D printing process, and the MagicsSintermodule, which offers solutions for automated part nesting, protecting small and fragile parts and locating them after building. The MagicsSimulation module enables our users to simulate the build process virtually, and optimize the build preparation based on the results, thus reducingbuild failures and improving the result.In addition to offering state-of-the-art data preparation functionality to our users, our Magics platform also focuses on automation and otherproductivity improvements and brings interconnectivity to machines and enterprise software platforms.Specific versions of the Magics application were also brought to the market by us: • Magics Essentials: an entry-level package offering premium data preparation functionality (but without machine connectivity), that canbe used in combination with machine build preparation software offered by machine vendors. The package is available on a monthly orannual rental basis, through e-commerce. • Magics Print: This software combines the most important build preparation tools (Materialise Magics) and straightforward build filegeneration technology (Materialise Build Processor). This package is sold to machine manufacturers so that they can bundle it with theirmachines to offer their customers a complete, high-value service package that can get them started with 3D printing. Magics Print isavailable for DLP and metal technologies, and we plan to work together with Essentium Inc. to develop a version tailored at industrialFDM/Essentium’s high speed extrusion machines.Users of Magics Essentials and Magics Print can upgrade to our expert Materialise Magics platform in case they want the full data and buildpreparation functionality at their disposal in one package, potentially extended with the above mentioned speciality modules. • Streamics. Complementary to Magics is our Streamics product, which is a central additive manufacturing logistics and control systemthat links operators, 3D printers (including those from various OEMs and based on different technologies), processes, materials andshipment flows together to improve customer service and save time and money. Streamics provides a user-friendly, server-based system,which centralizes our customers’ project data and makes it easier to collaborate among team members and communicate with customers.The configurable modules are designed to facilitate communication, support the organization and execution of data preparation, planmachine capacity, and guide post-processing steps, allowing additive manufacturing teams to quickly adapt to business and marketchanges. • 3-maticSTL. 3-maticSTL is a versatile application that permits, among other things, design modification, design simplification, 3Dtexturing, re-meshing and forward engineering directly to standard additive manufacturing STL files. Using Materialise consultancyservices, targeted design automation solutions can be created for specific work flows. • MiniMagics and MiniMagicsPro. MiniMagics and MiniMagicsPro provide solutions for our customers working in data preparation, or inquoting and quality control teams. MiniMagics allows customers to view STL files and communicate in an efficient way with theiraccount manager by seeing the same visualization of the part on their respective screens. MiniMagicsPro is a professional STL filecommunication tool that allows account managers to access multiple file formats and exchange annotations and comments with thecustomer, and generate quotations taking into account file quality and the appropriate build orientation of each part. MiniMagics Pro isdesigned to give our customers’ quality control and finishing teams the ability to compare measurement results with the initial designand deliver professional quality reports. 34Table of Contents • Build Processors and Machine Control Software. We work in close collaboration with a wide variety of 3D printer OEMs to developcustomized and integrated solutions for their additive manufacturing machines. Our build processors automatically translate the 3Dmodel data into layer data to provide sliced geometry and can link the latter with the appropriate build parameters to feed the machinecontrol software. Another key benefit of our build processors is that they allow for a two-way communication between Magics and 3Dprinters. In essence, the build processor not only tells the machine what to do, but is also capable of receiving feedback from the machineallowing the operator to trace and store data on specific jobs for quality control and other purposes. Our machine control softwareinterprets sliced build data that is transferred to 3D printers and steers such machines, helping to ensure smooth and trouble-freeproduction. We also develop the metal build processors in Materialise Bremen and as a consequence we are able to cover a wide range ofmetal 3D printers. Furthermore, licensing and integrating our build processor framework, companies such as Siemens and PTC can alsoleverage the extensive ecosystem of build processors we have developed together with OEMs. Powered by our build processor frameworkand the appropriate build processor, users of Siemens and PTC CAD packages can seamlessly connect directly to the printer from withinthe CAD application. • e-Stage. e-Stage is a software solution that increases additive manufacturing productivity by automating STL support generation,optimizing the STL build process, and reducing the time our customers spend on finishing work such as build support removal andsanding. e-Stage is designed to allow our customers to use less material, to be able to 3D nest and to minimize failed builds. e-Stage forplastic has been commercially available since September 2007, and in the fall of 2017, we released e-Stage for metal. In 2018, we won theTCT SOFTWARE AWARD 2018 for e-Stage for metal. • Materialise Controller. Materialise Controller controls and steers additive manufacturing machines using embedded Materialisesoftware, and is fully integrated into the Materialise 3D printing software platform. It is engineered towards research and developmentapplications, machine manufacturers and those who want to control or adapt the production process to their specific needs.Sales and Marketing. We market and distribute our software directly through our sales force as well as through our own website and third-party distributors.Our Belgian team oversees our global marketing strategy and sales processes. Our local field office employees manage sales for particular markets andprovide pre- and post-sales technical support to our customers. In addition, OEMs and local dealers often distribute our software products together with their3D printers, with our software enhancing the printers’ value proposition and broadening the suite of applications available to the machines. Our sales forcewill typically follow up on these OEM or distributor sales to offer follow on products and services to the machine users.Customers. We believe we have a reputation for providing high-quality software in the marketplace and have strong relationships with leading multinationalcustomers and other key users of additive manufacturing. The customers for our Materialise Software segment include 3D printing machine OEMs as well asmanufacturers in a variety of other industries, such as the automotive, aerospace, consumer goods and hearing aid industries, and external 3D printing servicebureaus. Our Materialise Software segment customer base is spread across Asia, Europe and the Americas.For the years ended December 31, 2018, 2017 and 2016, our ten largest customers in the Materialise Software segment represented 23.8%, 23.0%and 15.6%, respectively, of our Materialise Software segment’s revenue.Competition. In our Materialise Software segment, we face indirect competition from the software developed by 3D printing OEMs, which are often more“closed ecosystem”-oriented (i.e., only focused on their own machines), and from companies that offer software that addresses one or more specific functionalareas covered by our software solutions, such as providers of traditional CAD solutions. We compete directly with other providers of additive manufacturingmanagement and machine control software, including open source software providers.Growth Opportunities. As the number of internal and external service or production centers across the 3D printing industry grows with these 3D printingoperations running more complex mixes of machines from different manufacturers and based on various technologies, as 3D printing will be increasinglyused for the manufacturing of complex or customized end parts, and as the number of 3D printer manufacturers increases with certain new players initiallyfocusing more on the hardware than on the software component of their 3D printers, we believe the demand for highly performing industrial 3D printingsoftware platforms is likely to grow accordingly. Furthermore, we believe that the worldwide market for additive manufacturing software is tied to the growthof the overall additive manufacturing sector and in particular the number of industrial 3D printing systems in operation. We expect that the volume ofindustrial 3D printing systems sold will grow with increased adoption of additive manufacturing processes, and that 3D printing software, in particular in theprofessional segment of the market, will increasingly be needed to interface with these systems and allow for more efficient operation of those systems.We believe that we can continue to expand our market penetration through expanding relationships with customers and OEMs, and through thecontinued innovation of our software products to adapt to and meet market demands. In order to be able to do so, we intend to bring our teams closer to ourcustomer base worldwide, which will require continued investments in the expansion of our marketing and sales presence. In order to be able to meet thedemands of new entrants on the market, we also intend to continue to invest significantly in the development of our software products, including furtheringtheir compatibility with as many 3D printers on the market as possible. For example, we believe the market for metal-based printing will be a key growth areain the additive manufacturing industry and, while we believe we currently have a strong market position in software for metal printing, we are also committedto research and development of metal-based technologies, such as machine integration and porous structures generation. 35Table of ContentsOur Materialise Medical SegmentIn our Materialise Medical segment, our product and services offering addresses what we believe to be long-term trends in the medical industrytowards personalized, functional and evidence-based medicine.As of December 31, 2018, our Materialise Medical segment consisted of approximately 634 FTEs, with approximately 26% based at our headquartersin Belgium and the remaining employees distributed throughout our local offices in Australia, China, Colombia, France, Germany, Japan, Malaysia, Ukraine,the United Kingdom and the United States.Business Model. We generate revenue in our Materialise Medical segment through clinical services and medical software. We sell medical devices that weprint for our customers and sell licenses to our medical software packages and software maintenance contracts. We also provide custom software developmentand engineering services, for which we charge either on a time and material or on a fixed cost basis. The majority of these medical devices that we printed in2018 were surgical guides (and related bone models) that were distributed to surgeons through our collaboration partners Corin, DJO Surgical, DePuySynthes, Global Orthopaedics Technology, Lima, Mathys, Smith & Nephew, Synthes, Stryker and Zimmer Biomet. We also print patient-specific implantsthat we sell directly to hospitals or distribute through partners such as DePuy Synthes. The customer base for our medical software products includesacademic institutions, medical device companies and hospitals. For the years ended December 31, 2018, 2017 and 2016, our Materialise Medical segmentgenerated revenue of €52.3 million, €42.8 million and €37.9 million, respectively, representing 28.3%, 30.0% and 33.1% of our total revenue, respectively,and 22.0%, 13.0% and 8.8% growth over the prior year, respectively.Medical Software. Our software allows medical-image based analysis and engineering as well as patient-specific design of surgical devices and implants. Ourcustomers include leading research institutes, renowned hospitals and major medical device companies. Our medical software packages often serve as anintroduction to our capabilities and in certain cases lead to custom software developments and clinical services opportunities. Our medical software packagesare: • Materialise Mimics Innovation Suite. The Materialise Mimics Innovation Suite is a complete set of tools developed for biomedicalprofessionals that allows them to perform a multitude of engineering operations based on medical imaging data. The suite consists ofseveral complementary products and services, including Materialise Mimics, Materialise 3-matic, engineering services and medicalmodels, as well as consultancy and custom software development. • Materialise Mimics. Materialise Mimics is software addressing medical professionals specifically developed for medical imageprocessing that can be used to segment accurate 3D models from medical imaging data (for example, from CT or MRI) to measureaccurately in 2D and 3D and to export 3D models for additive manufacturing or to Materialise 3-matic. These patient-specific models canbe used for a variety of engineering applications directly in Materialise Mimics or Materialise 3-matic, or may be exported to third partysoftware focused on statistical analysis, CAD or finite element analysis (which is used to predict how a product reacts to real-world forcessuch as vibration, heat and fluid flow). • Materialise 3-matic. Materialise 3-matic focuses on anatomical design and is able to combine CAD tools with pre-processing capabilitiesdirectly on the anatomical data coming from Materialise Mimics. It enables our customers to conduct thorough 3D measurements andanalysis, design a patient-specific implant, a surgical guide, or a benchtop model, and to prepare the anatomical data and/or resultingimplants for simulation • Materialise OrthoView. Materialise OrthoView is a 2D digital pre-operative planning and templating solution for orthopedic surgeons.The software imports a digital X-ray image from a Picture Archiving and Communication System, or PACS, and positions the templatesof suitable prostheses on the X-ray image at the correct scale. Materialise OrthoView currently serves more than 12,000 orthopedicsurgeons in 60 countries globally, focusing primarily on joint replacements. We acquired OrthoView Holdings Limited in October 2014,and have included the OrthoView solution in our portfolio of pre-operative planning solutions. • Materialise Mimics inPrint. With Materialise Mimics inPrint, clinicians can easily create files for 3D printing and use anatomicallyaccurate models to help simulate or evaluate options for patient-specific surgical treatment. This software was designed specificallyaround the needs of clinicians to integrate seamlessly into their existing workflow. Materialise Mimics inPrint allows clinicians to getpatient images from PACS and directly import them to start the 3D printing process. The software is compatible with digital imaging andcommunications in medicine, or DICOM, standard, which ensures easy connections with all modern imaging systems. By sharing virtualor printed 3D models as an interactive PDF on any device, communication is both immediate and clear with co-workers, the surgical teamand patients. • Materialise ProPlan CMF. Materialise ProPlan CMF is a software package developed for oral, maxillofacial, nose, throat and plasticsurgeons. The software allows surgeons to pre-operatively plan their surgeries in 3D based on (CB)CT or MRI images using a set of toolsto analyze, measure and reconstruct the patient’s anatomy. With the software the surgeon can also plan the movements (translations androtations) of the mandible or maxilla and preplan the reconstruction of defects. 36Table of ContentsClinical Services. Using our FDA-cleared and CE compliant medical software, we analyze 3D medical images of patients and provide their doctors withvirtual surgical planning services for their review and approval. In most cases, we also design and 3D print surgical guides that uniquely fit a specific patientand allow the surgeon to conduct the operation in accordance with the approved surgical plan. In certain circumstances, we deliver 3D printed customizedpatient-specific medical implants.In our 3D printing centers in Belgium, Japan and the United States, we have separate production lines, with an aggregate of 32 machines that only printdevices for our Materialise Medical segment.We believe that our medical image-based simulation and planning software and 3D printing technology can assist medical device companies,hospitals and clinicians in solving complex problems, ranging from virtual preparation tools, over patient-specific surgical guides, to patient-specificimplants which can contribute to increased quality of life.Utilizing our SurgiCase Connect tool, surgeons upload CT or MRI medical image data and submit their cases to us, track their cases and reviewthem as interactive virtual 3D models. SurgiCase Connect enables our clinical engineers to better support the surgeons in the creation of surgical plans andguides. Surgeons using our orthopedics and CMF clinical services work together with our clinical engineers to turn their patients’ medical image data intovirtual surgical plans, and patient-specific 3D printed precise surgical and customized anatomical models to optimize surgical planning. In the framework ofour collaborations with certain leading medical device companies, our SurgiCase Connect tool is rebranded and adapted to the specific product offering andneeds of our collaboration partners.Our 3D printed surgical guides include joint replacement guides for knee, shoulder and hip replacement surgeries, osteotomy guides and CMFguides, and our 3D printed implants include hip-revision implants, shoulder and CMF implants. The surgical guides we print for U.S. based patients areFDA-cleared, and to the extent required by law, our medical devices for EEA-based patients bear the appropriate CE labels. We address large surgical marketsin orthopedics and CMF through collaboration agreements with leading medical device companies, including Zimmer-Biomet, DJO Surgical, DePuySynthes, and Lima. Pursuant to these agreements, we print joint replacement and/or CMF guides that our collaboration partners distribute under their ownbrands, together with their own implants, in the United States, Canada, South Africa, Latin America, Europe, China, Japan and Australia. We leverage ourcollaboration partners’ distribution capabilities to extend our reach into these large markets, and our collaboration partners utilize our 3D printing-relatedexpertise to provide surgical planning and customized devices to surgeons. We also address certain high value-added, specialty applications by providingthe full solution ourselves, including the delivery of CE-labeled implants and guides directly to the hospital or surgeon. Such applications includecustomized hip revision, shoulder and CMF implants in a patented porous matrix configuration and osteotomy guides. Our CMF implants, hip revision,shoulder implants and/or osteotomy guides are currently distributed in Europe, South Africa, the United States, Canada and Singapore.We also work with customers to print anatomical models that may be used for a wide range of applications such as sizing of medical devices,clinical trials, training, patient communications and marketing. For example, our HeartPrint service provides 3D printed cardiovascular anatomical models.These models are printed using our proprietary process that makes possible a superior final product that is flexible. We also print transparent or multi-colormodels for better visualization of the anatomy. Each of our core competencies was instrumental in developing the HeartPrint technology. 37Table of ContentsSales and Marketing. We distribute our medical software through our direct sales force, our website and PACS partners (some of which partners also includeour OrthoView solutions in their product offering to hospitals). We distribute our 3D printed medical devices primarily through our agreements with ourcollaboration partners such as Zimmer Biomet, Depuy Synthes and Stryker. In specialty markets, we market and distribute our 3D printed medical devices andother clinical services through our experienced engineers who develop a close collaboration with key opinion leaders in each of these market segments.All our activities in our Materialise Medical segment are coordinated and supervised from our headquarters in Belgium, which supervisesproduct management and sales of our medical devices and software products.Customers. The customers for our Materialise Medical segment mainly include medical device companies, hospitals, universities, research institutes andindustrial companies. For the year ended December 31, 2018, partner sales to medical companies collectively represented 55.7% and total software revenuerepresented 32.6% of our total Materialise Medical segment revenue. Most of our other clinical service sales to customers are executed on the basis of singletransaction contracts or purchase orders. These contracts and purchase orders lay out the pricing, delivery and other terms of the order.Collaboration Partners. We collaborate with leading medical device companies for the development and distribution of our surgical planning software,services, and products, including with Zimmer Biomet, DJO Surgical, DePuy Synthes, Global Orthopaedic Technology, Lima and Mathys. Pursuant to thesearrangements, we develop and license software and sell surgical guides, including for use in the fields of knee and shoulder replacement, CMF and thoracicprocedures that our collaboration partners may then distribute under their own brands, together with their own implants, mainly in the United States, Europe,Japan and Australia. In addition, we grant licenses to collaboration partners to use, market and distribute such software or surgical guides. Some of thelicenses we have granted to our products and software provide for exclusive rights, including with respect to a particular field of medicine or to the softwareor product developed during the collaboration, and certain collaboration partners may have rights of first refusal with respect to related products orcollaborations. The compensation structures under these arrangements vary and may include an upfront fee, royalties, milestone payments linked to certaintargets, and fees for the service, maintenance and training we provide in connection with our software and products.Competition. In our Materialise Medical segment, we compete with a number of companies that provide image based software, 3D printed surgical models ormedical devices, such as 3DSystems, Stratasys, Simple Ware, Pie Medical, WITHIN Lab, GE Additive, Siemens as well as with medical device companies thatare developing in-house capacity to offer 3D printed medical devices and related software services.Growth Opportunities. The Materialise Medical segment is the market where we believe we can most directly realize our mission statement and contribute toa healthier world. We are currently investing significantly in the development of new product offerings as well as the expansion of our distribution channel inthe various sub-segments of our Materialise Medical segment. In the surgical guide business, our growth over the last few years has come primarily from theknee-implant market, a market where medical device companies are currently developing their own guide solutions. We have been developing solutions foradditional joints and have launched guides for shoulders and hips. We have also developed other applications, such as malunion and osteotomy surgicalguides. We intend to further diversify our product portfolio through product development as well as and entering into new collaborations.In the implant business, the extensive clinical evidence that OBL SA has developed with key opinion leaders over the last few years regardingthe efficacy of our customized CMF implant solutions is now gradually finding its way into scientific publications. We believe that this development willhelp the growth of our CMF activities. We expect that our existing CMF implant activities and the development of applications for new specialty marketswill require additional significant investments in the near future.As a result of the trend that we see in the medical community towards more patient-specific devices and treatments, a growing number ofacademic, clinical and commercial researchers are focusing on customized medical treatments. Because these new products and treatments can only bebrought to the market in compliance with very strict regulatory requirements, we believe there is an opportunity for providers of safe and stable medicalsoftware tools, such as our company, that can pass significant regulatory scrutiny.We are currently investing significantly in the development of new solutions for other sub-markets, including planning tools for thecardiovascular and pneumology markets.We believe that our medical services and software may also help to reduce the clinical trial effort and expense for medical device companies byallowing more efficient bench-top modelling, testing and simulations and by increasing efficiency in the selection of eligible patients.In general, our customers use our Mimics Innovation Suite either as a research and development tool for the development of new medical devicesor innovative surgical approaches or as a production tool for the manufacturing of customized or customizable medical devices. The needs and priorities ofour Mimics Innovation Suite customers vary depending on their primary use. Customers that focus on research and development applications prefer anadvanced, rapidly evolving tool that gives them immediate access to our latest innovations. In contrast, customers that focus on production require a morestatic product that has passed extensive testing and verification required for regulatory purposes. We have launched two versions of our Mimics InnovationsSuite, through which we aim to better tailor the product to this differentiated customer base.As we intend to continue to invest in product development and market penetration, we will require certain capital commitments and mayexperience an impact to our revenue and profitability levels in the near term. However, we expect such investments to form the basis of stable annual revenuegrowth in the longer term. 38Table of ContentsOur medical engineering services offerings, which we continue to build, assist medical device companies in their designs. Our engineers not onlyserve the orthopedic field but also the cardiovascular field where new and customized approaches are being developed and sizing of devices is an importantdevelopment area. As product managers in the medical device industry continue to recognize the value of, and need for, specialized advice and assistance inthe design of new 3D printable devices, our medical engineering services may grow accordingly.Our Materialise Manufacturing SegmentIn our Materialise Manufacturing segment, we primarily offer 3D printing services to industrial and commercial customers, the majority of whichare located in Europe. In addition, we have identified, and provide 3D printing services to, certain specialty growth markets in both the industrial andconsumer marketplaces.Many of the parts we print require functionality that cannot be delivered using other production processes. We believe that our industrialcustomers value the high quality, accuracy, complexity, durability, functionality and diversity in terms of size, scale and materials of the 3D printing servicesthat we can offer. We deliver products to highly regulated industries, such as aerospace, healthcare, machine manufacturing, quality control equipment andconsumer goods, where our applications, technology and hardware capabilities enable us to adhere to high quality standards in a certified productionenvironment.As of December 31, 2018, our Materialise Manufacturing segment consisted of 783 FTEs and fully dedicated consultants, with 27% based at ourheadquarters in Belgium and the remaining employees distributed throughout our local field offices in Austria, the Czech Republic, France, Germany, Italy,Poland, Spain, Ukraine, the United States and the United Kingdom.In October 2017, we acquired ACTech, a full-service manufacturer of complex metal parts. This acquisition increased the scope of our MaterialiseManufacturing segment’s operations, in particular in the prototyping of highly complex, full production grade metal components, and had a significantimpact on our results of operations for both the fourth quarter of 2017 and the year ended December 31, 2017, as well as the year ended December 31, 2018.Business Model. We generate revenue in our Materialise Manufacturing segment through the sale of parts that we print for our customers and design andengineering services. We charge for our design and engineering services either on a time or on a fixed-cost basis. For the years ended December 31, 2018,2017 and 2016, our Materialise Manufacturing segment generated revenue of €95.0 million, €63.7 million and €46.4 million, respectively, representing51.4%, 44.7% and 40.5% of our total revenue, respectively, and 49.0%, 37.3% and 12.1% growth over the prior year, respectively. Of the revenue generatedby our additive manufacturing solutions business (excluding ACTech) for the year ended December 31, 2018, approximately 53.6% was derived from rapidprototyping and 46.4% was derived from additive manufacturing of end parts. Revenue from ACTech was approximately €43.4 million.B2B (Business-to-Business) Services. We offer the following services in our Materialise Manufacturing segment: • Additive Manufacturing Solutions. We provide design and engineering services and rapid prototyping and additive manufacturing ofproduction parts to customers serving the automotive, consumer goods, industrial goods, art and architecture and aerospace markets. Inour service centers in Belgium, the Czech Republic and Poland and Germany, as of December 31, 2018, we operated 149 3D printers, sixvacuum casting machines and 19 CNC machines, producing both prototypes and production parts based on our customers’ productdesigns. Our service centers offer a variety of 3D printing technologies including stereolithography, laser sintering, FDM (also known asFilament Fusion), PolyJet, powder binding, Multi Jet Fusion, selective laser melting(or SLM), vacuum casting and foundry parts based onsand-printed moulds. In order to meet specific customer needs for very large printed parts, we developed Mammoth, our own proprietarystereolithography technology, which we believe is capable of printing parts larger than those produced using any other stereolithographytechnology by utilizing a build area of approximately 1.26 cubic meters with a length of 2 meters. We currently operate 15 Mammoth 3Dprinters in our Belgian service center. • Niche Industrial and Consumer Solutions. We have developed additive manufacturing solutions that serve certain specialty industrialapplications. Our RapidFit+ business utilizes additive manufacturing to provide the automotive market with customized, highly preciseand, in certain cases, patent protected measurement and fixturing tools. Through the use of additive manufacturing technology, webelieve that RapidFit+ fixtures provide more functionality and flexibility than the traditional fixtures that are currently widely used inthe automotive industry. We also offer production tooling that we believe has substantially better ergonomics and improvedfunctionality than traditional fixtures. ACTech, which we acquired in 2017, also provides specialized additive manufacturing solutions.In particular, ACTech provides prototyping of highly complex metal components through casting techniques that result in products thathave a production grade performance. The casting is done using state-of-the-art 3D printed sand molds, while the final functionality ofthe components is achieved by a fully integrated post processing of the components in our CNC workshop.In the consumer market, i.materialise, our global online 3D printing service that caters to the “home professional.” Designers, students, inventors andeveryday consumers who want to create something unique can utilize our online service to produce their own products and, if they desire, share theirproducts with, and even offer them for sale to others through our platform. Users can upload their 3D designs, choose from a large selection of materialsand colors, and instantly see the price for such models in the desired scale and quantities. Users can also buy 3D printed products from the catalogue of.MGX by Materialise or other third party designs on our i.materialise website. .MGX by Materialise is a collection of 3D printed lamps, furniture, andother home furnishings and accessories, many of which have been developed in collaboration with well-known designers to showcase theopportunities that additive manufacturing offers to create products 39Table of Contentswith a new look and innovative functionality. Pieces from the .MGX collection have become design icons featured in world renowned museums,including the Museum of Modern Art in New York and the Centre Pompidou in Paris, and have won many awards, including the Visionaries! award bythe Museum of Art & Design and the Red Dot Design Award. Through the .MGX by Materialise collection, we gain access to professionals as well ashome designers. In 2016, we fully integrated the i.materialise platform into our Materialise Manufacturing segment.Sales and Marketing. We market our services to our additive manufacturing solutions business customers using our sales force and through our website. Ourmore complex product offerings are addressed directly by our specialized sales managers who are located throughout Europe in close proximity to our largeraccounts and who align our customers’ needs with the wide range of 3D printing technologies that we offer. More straightforward products can be ordereddirectly by our customers through our “Materialise OnSite” web portal, a proprietary automated system that takes orders, provides quotes and manages theprinting process from start to finish, and allows customers to track the manufacturing and shipment process of their product online. Within our larger salesteams, specialized sales managers focus either on rapid prototyping, which is our traditional and well-established market, or the additive manufacturing ofend-use production parts, which is the market where we see opportunities for significant growth. Our marketing team in Belgium oversees our globalmarketing strategy. In addition, employees at our Belgian headquarters and in our local field offices manage sales for particular markets and accounts andprovide back office and production management support to our customers.All sales for our online sales platform are through our website, and managed mainly from our headquarters in Belgium. We have a separate teamdedicated to the fixtures market where our account managers’ thorough technical knowledge is key to effectively managing our RapidFit+ application.In addition, as a result of its specific product portfolio, we have dedicated sales, marketing and project teams based in Germany (Freiberg), theUnited States and India for ACTech products.Customers. The customers for our Materialise Manufacturing segment are from a wide variety of industries, including automotive, aerospace, healthcare,industrial machining, art and design and consumer products For these customers, we offer a complete set of services ranging from co-creation, to design andengineering, rapid prototyping, and certified manufacturing of end-use parts, including the RapidFit+ service offered to automotive customers.Through our co-creation offering, we work together with customers to solve complex design challenges and to discuss how the introduction of 3Dprinting can affect product development, manufacturing workflow, business models and customer experiences. For example, a co-creation with HOYA, incollaboration with Hoet Design Studio, saw the launch of the world’s first vision-centric, 3D-tailored eyewear solution, Yuniku, in the fall of 2016. Yunikuenables individualized lens and frame design through a sophisticated end-to-end digital supply chain, which includes a custom 3D scanner and softwareplatform, co-created by us and HOYA, directly linked to our manufacturing factory where we provide our Certified Additive Manufacturing services. In 2017,we started shipping the first Yuniku scanners. In 2018, together with our partners Mclaren (L’Amy) for titanium printed eyewear and Impressio, respectively,we won the Silmo d’Or in the Technological Innovation category and a Silmo d’Or for the Best Sun Glasses.Through our design and engineering service, we also provide support for those customers looking for support in their initial concept design or withmaximizing a design for 3D printing. Our design and engineering team, which is comprised of highly specialized designers and CAD engineers, offersdedicated design and software support for additive manufacturing, including remodeling and file preparation, as well as 3D scanning and measuring.The customers of both our Materialise OnSite and i.materialise platforms order through our website. Materialise OnSite customers tend to beindustrial customers looking to rapid prototype parts quickly and reliably, often taking advantage of fast-lane machines to ensure short lead times for time-critical projects. For i.materialise, while there is a potential to address the wide consumer market with this platform, we prefer to describe our currentcustomers as “home professionals.” Our i.materialise client base includes independent designers and CAD hobbyists that often sell their creations or theirservices to others, including, in certain instances, through the i.materialise gallery. Through i.materialise’s APIs, companies can also partner with i.materialiseto give their own customers a cloud-based, 3D-printing solution on their website, streamlining the ordering, manufacturing and shipping processes through adirect link to our factory for 3D printing. Since 2016, Microsoft has been using the i.materialise API to offer a cloud-based 3D print solution for Windows 10users, and PTC did the same for Creo 4.0 software users.Most of our straightforward additive manufacturing and rapid prototyping solutions are executed on the basis of single transaction contracts orpurchase orders with the customer. These contracts and purchase orders lay out the pricing, delivery and other terms of the order. For our Certified AdditiveManufacturing service an entirely new approach to ensure parts are made according to agreed standards is required, for which we have set processes toonboard new customers. An example of this is our dedicated aerospace manufacturing line, backed by certifications EN9100 and EASA Part 21G, throughwhich we are currently manufacturing plastic parts for, among others, Airbus’s A350 XWB. We expect that as demand for our Certified AdditiveManufacturing service grows, more long-term agreements may be entered into.For the automotive manufacturers and their suppliers that use our RapidFit+ service, the fixtures are custom engineered by dedicated teams. OurRapidFit+ customers, which include their quality departments, expect that fixtures meet high accuracy standards. A number of automotive OEMs in Europeare currently considering our innovative solution as a potential new standard, while a solid base of automotive Tier 1 suppliers in Europe has embracedRapidFit as one of their fixture solutions. 40Table of ContentsCompetition. In our additive manufacturing solutions business, we compete with a number of companies that provide industrial 3D printing services,including ARK, Cresilas, Protolabs and 3D Systems Corporation. In addition, larger accounts tend to move their 3D printing production in-house once theirorders have reached certain volumes, which not only creates opportunities for our Materialise Software segment but also for our Materialise Manufacturingsegment in terms of capacity balancing services. In the measurement and quality control fixture market addressed by RapidFit+, we are not aware of anydirect competition coming from 3D printing companies. We do have competition, however, from a large group of smaller companies that are active in thisfield. While there are multiple startup companies seeking to address the home 3D printing services market, we believe that Shapeways and Sculpteo are themost prominent direct competitors of i.materialise based on their global reach. i.materialise focuses on standing out as a brand in terms of service andreliability.Growth Opportunities. We believe that there is particular potential to grow our presence in the markets for additive manufacturing of complex and/or uniqueend products, including for instance eyewear products. In recent years, more companies have been using additive manufacturing for production across abroad range of industrial sectors, including aerospace, orthopedic implants, surgical guides, dental copings and hearing devices. Additive manufacturing isalso being used to manufacture specialty furniture, accessories for the home and office, personal accessories, fashion products, jewelry and footwear.For industrial end parts, we intend to continue to invest in the expansion and creation of certified 3D manufacturing environments that meet thehigh standards of the specialized segments of the industrial production market that we focus on. In addition, we believe that our local sales teams, which arein close proximity to our customers, as well as our engineering teams, which can bring in additional expertise where required, are important and rather uniqueassets in this market that are worthwhile to continue to invest in. 41Table of ContentsGeographic Information.Our revenues by geographical area for the year ended December 31, 2018 were 23.8% for the Americas, 65.2% for Europe & Africa and 11.0% forAsia, as compared to 24.6% for the Americas, 61.7% for Europe & Africa and 13.7% for Asia, for the same period in 2017, and 26.9% for the Americas, 59.3%for Europe & Africa and 13.8% for Asia for the same period in 2016. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results.”Manufacture and Supply.We produce our 3D printed products at our service centers in Belgium, the Czech Republic, Germany, Poland, Japan and the United States. Weprint substantially all of products in-house using a variety of technologies, including stereolithography, laser sintering, FDM (also known as FilamentFusion), PolyJet, powder binding, Multi Jet Fusion, Powder Bed Fusion and vacuum casting, and only subcontract the manufacture of products if certainother technologies (such as CNC machined components) are required or for capacity balancing purposes. As of December 31, 2018, we operated a total of 1813D printers and six vacuum casting machines at these service centers, which include distinct areas dedicated to the machinery, quality control, cleaning andlabeling of our products. The table below provides selected information about our 3D printers: Technology Size Manufacturer NumberStereolithography Small/Medium Size 3D Systems Corporation 38 Medium Size Materialise 2 Mammoth Materialise(1) 15PolyJet Connex Stratasys Ltd. 3FDM Small Size(2) Stratasys Ltd. 2 Medium Size(3) Stratasys Ltd. 19 Large Size(4) Stratasys Ltd. 16Laser Sintering Small Size EOS GmbH 8 Medium Size 3D Systems Corporation/EOS GmbH 21 Large Size EOS GmbH 29Multi Jet Fusion Medium Size HP 8Powder Binding Large Size ExOne 3Vacuum Casting Small SizeMedium SizeMedium SizeLarge Size MCP HEK GmbHMCP HEK GmbHSCHUHLMCP HEK GmbH 1212Direct Metal Laser Sintering Medium Size EoS GmbH 7 Medium Size Concept Laser GmbH 6 Medium Size Renishaw 1 Large Size SLM Solutions 3 (1)We have proprietary stereolithography machines based on our patented curtain coat technologies. The original curtain coat machines had a mediumsized build volume. These medium sized machines have subsequently been adapted to become the extra-large sized Mammoth machines.(2)Small size machines are machines with a build volume of less than 250×250×250 mm.(3)Medium size machines have a build volume of less than 500×500×500 mm.(4)Large size machines have a build volume of more than 500×500×500 mm.As of December 31, 2018, 32 printers produced parts exclusively for our Materialise Medical segment, while the other 149 printers and sixvacuum casting machines printed parts for our Industrial Production segment. 42Table of ContentsAs of December 31, 2018, all of our 3D printers and vacuum casting machines were either owned or held under a financial lease. At the end of thelease agreements (which are typically for a period of five years), we have an option to purchase the machines for a value of approximately 2.7% of theiroriginal value. We are responsible for the maintenance of such leased equipment.We devote significant time and attention to the quality control of our products during the printing process by maintaining a comprehensivequality control program, which, among other things, includes the control and documentation of all material specifications, operating procedures, equipmentmaintenance and quality control methods. In addition, we inspect all of our raw materials to be used in our products throughout the printing process. Wecontrol our production orders through the use of labels or visual references on our internal database, bar-codes, controlled prints and routers, which enables usto trace our products during the printing process. Upon completion of the production process, we package and label our products.The raw materials used in the printing of our products are mainly aluminium, titanium alloy and stainless steel powders, epoxy basedphotocurable resins, PA12 based powders and a suite of thermoplastic filaments like ABS and Ultem and following the ACTech acquisition, aluminium, castiron and steel, quartz sand and furanic resin binder.With the exception of FDM-materials, we believe that none of our other raw material requirements is limited to any significant extent by criticalsupply or price volatility. We continuously look for second sourcing of our raw materials in order not to be dependent on a single supplier in case a supplyissue was to occur. We monitor the costs of our raw materials in order to optimize the cost/performance whilst not jeopardizing the expectations of ourcustomers and the safe use of the materials in critical applications. With our strategic partnership with BASF New Business, we are working towards offeringto the market open solutions in terms of materials and software through which the user of additive manufacturing equipment can choose functionalities thatbest suit the user.Our 3D printing operations for our patient-specific surgical guides, models and implants are subject to extensive regulation. We operate acertified quality management system in line with the U.S. Quality System Regulation, good manufacturing practice regulations and ISO 13485. We areregistered with regulatory authorities in the United States, Europe, Canada, Australia and other jurisdictions. We CE mark our products where required. Ourservice centers are subject to periodic and sometimes unannounced inspections by regulatory authorities, including inspections by the FDA.Research and DevelopmentWe have an ongoing research and development program to improve and expand the capabilities of our existing technology portfolio, whichreflects our continued investments in a range of disciplines, including software development, industrial, mechanical and biomedical engineering, physics andchemistry.We have a long history of research and development through collaborations, which augment our internal development efforts. Our earliest jointresearch projects date from the early 1990s with market leading collaboration partners such as Siemens AG, Zeneca and the University of Leuven (KatholiekeUniversiteit Leuven), or KU Leuven. Many of our innovations are based on industrial collaborations such as those with Phonak Staefa Switzerland andZimmer Biomet. As of December 2018, we were active in 33 government funded research projects. With our platform technologies and strong track record insuccessful commercialization of scientific innovations, we receive many requests for participation in new development projects. While we strongly protectour intellectual property in our core competencies, many of our products require collaborations in order to create healthy ecosystems for their successfulimplementation.As of December 31, 2018, we had approximately 80 active research and development projects in various stages of completion and approximately370 FTEs and fully dedicated consultants working on research and development in our facilities in Belgium, France, Germany, Poland, the United Kingdom,Ukraine, China and Malaysia.For the year ended December 31, 2018, our research and development expenses were €22.4 million, or 12.1% of our revenue (15.9% excludingACTech), as compared to €20.0 million, or 14.0% (15.1% excluding ACTech) of our revenue, in 2017 and €17.7 million, or 15.4% of our revenue, in 2016.Our research and development projects include (but not limited to) the following: 1.various software development projects including projects related to engineering and design for 3D printing, and improving existingtechnological challenges (for example, the handling of large amounts of data and advanced image segmentation), which are expected to benefitboth our Materialise Software and Materialise Medical segments; 2.research projects to understand and streamline the different additive manufacturing technologies (sintering, stereolithography, FDM (also knownas Filament Fusion), non-laser based power bed fusion, DLP-based printing and Powder Bed Fusion (both for plastics and metals)); 3.research projects in our Materialise Medical segment to develop patient specific surgical tools and implants for orthopaedic and CMF surgeries; 4.release of a research version of Mimics software that allows post-operative analysis of implant placement using x-ray data; 43Table of Contents 5.a research and development project on smart digital technologies for the large scale personalization of wearables; 6.a research project in our Materialise Medical segment regarding automation of segmentation of medical images and using them for populationanalysis; and 7.several research projects related to improving the maturity, reliability and quality of the additive manufacturing process, which are expected tobenefit our three segments.In addition, our strategic partnership with BASF New Business focuses on collaboration for research and development activities in multiple areasincluding: (i) materials supply and development, (ii) application development, (iii) research and development in new technology fields, (iv) interchange ofexpertise and know-how in additive manufacturing production in the fields of 3D printing processes, and (v) pursuit of new business developmentopportunities in the field of additive manufacturing in various industries.We also regularly apply for research and development grants and subsidies under European, Belgian, British, French, German, Polish and Czechgrant rules. The majority of these grants and subsidies are non-refundable. We have received grants and subsidies from different authorities, including theFlemish government (VLAIO, or Vlaams Agentschap Innoveren en Ondernemen, the former IWT) and the European Union (FP7 and H2020 frameworkprograms).We expect to continue to invest significantly in research and development in the future.Intellectual PropertyWe regard our intellectual property rights as valuable to our business and protect our technology portfolio through a combination of patent,copyright, trademark, trade secret and other intellectual property laws, confidentiality and other contractual provisions and other measures. The nature andextent of legal protection associated with each such intellectual property right depends on, among other things, the type of intellectual property right and thegiven jurisdiction in which such right arises.As of December 31, 2018, our portfolio of intellectual property features 281 issued patents and an additional 169 pending patent applicationsprimarily in the United States, the European Union and Japan. Of these, our issued patents expire between approximately 2020 and 2035, while our currentlypending patent applications will generally remain in effect for 20 years from the date of the initial applications. We believe that, while our patents provide uswith a competitive advantage, our success depends primarily on our business development, applications know-how and ongoing research and developmentefforts. Accordingly, we believe that the expiration of any single patent, or the failure of any single patent application to result in an issued patent, would notbe material to our business or financial position.As is the case in the 3D printing industry generally, the development of our products, processes and materials has required considerableexperience, manufacturing and processing know-how and research and development activities. We protect our proprietary products, processes and materialsas trade secrets through nondisclosure and confidentiality agreements with our employees, consultants and customers.In addition, we own the trademark registrations for “Materialise” (Benelux, United States, United Kingdom, International, Malaysia, India andThailand), and trademark registrations and pending applications for many of our services and software solutions, including “Streamics,” “Mimics,” “3-matic,”“Inspector,” “Magics,” “RapidFit+,” “MGX by Materialise,” “Heartprint,” “ADaM,” “Engineering on Anatomy” and “Surgicase,” among others.We are party to various licenses and other arrangements that allow us to practice and improve our technology under a broad range of patents,patent applications and other intellectual property, including agreements with our collaboration partners, Zimmer Biomet, DJO Surgical, DePuy Synthes,Global Orthopaedic Technology, Lima, Mathys, Stryker, Corin, Siemens, HOYA and PTC.There can be no assurance that the steps we take to protect our proprietary rights will be adequate or that third parties will not infringe ormisappropriate such rights. We have been subject to claims and expect to be subject to legal proceedings and claims from time to time in the ordinary courseof our business. In particular, we may face claims from third parties that we have infringed their patents, trademarks or other intellectual property rights. Suchclaims, even if not meritorious, could result in the expenditure of significant financial and managerial resources. Any unauthorized disclosure or use of ourintellectual property could make it more expensive to do business and harm our operating results.SeasonalityEnd markets such as healthcare, automotive, aerospace and consumer products may experience some seasonality. While the historical impact ofseasonality on the revenue of our Materialise Medical and Materialise Manufacturing segments has not been material, the project related nature of ourACTech business, may make our Materialise Manufacturing segment more susceptible to fluctuations, although not necessarily in a seasonal pattern.Historically, the revenue of our Materialise Software segment has been greater in the fourth quarter, as compared to the revenue of each of the other quarters.A number of our customers make their initial software purchase in the fourth quarter prior to the end of their annual budget cycle and tend to renew, extend orbroaden the scope of their licenses on the anniversary date of their first purchase. In addition, we have in the past often brought new releases on the market inthe third quarter of the calendar year, which may also have an impact on sales in the subsequent quarter. 44Table of ContentsRegulatory / Environmental MattersEnvironmental MattersOur facilities and operations are subject to extensive U.S. federal, state and local, European and other applicable foreign environmental andoccupational health and safety laws and regulations. These laws and regulations govern, among other things, air emissions; wastewater discharges; thegeneration, storage, handling, use and transportation of hazardous materials; the handling and disposal of hazardous wastes; the cleanup of contamination;and the health and safety of our employees. Under such laws and regulations, we are required to obtain permits from governmental authorities for some of ouroperations. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators. We could also beheld responsible for costs and damages arising from any contamination at our past or present facilities or at third-party waste disposal sites.Our headquarters in Belgium and ACTech’s headquarters in Germany, follow the ISO 14001:2015 criteria for an effective environmentalmanagement system and are ISO 14001:2015 certified.Compliance with laws and regulations relating to the discharge of materials into the environment or otherwise relating to the protection of theenvironment has not had a material impact on capital expenditures, earnings or the competitive position of our subsidiaries and us. We are not the subject ofany legal or administrative proceedings relating to the environmental laws of Belgium or any country in which we have facilities. We have not received anynotices of any violations of any such environmental laws.Healthcare Regulatory MattersIn our Materialise Medical segment, we are subject to extensive and complex U.S. federal, state and local, European and other applicable foreignhealthcare and medical devices laws and regulations.Both before and after approval or clearance our medical products and product candidates are subject to extensive regulation. In the UnitedStates, the FDA under the Federal Food, Drug and Cosmetic Act primarily regulates us. In Europe and in other foreign jurisdictions in which we sell ourmedical products, many of the regulations applicable to our medical devices and products in these countries are similar to those of the FDA. Together, theseregulations govern, among other things and where applicable, the following activities in which we are involved: • product development; • product testing; • product clinical trial compliance; • product manufacturing; • product labeling and instructions for use; • product safety, product safety reporting, recalls and field corrective actions; • product packaging and storage; • product registration, market clearance or approval; • product modifications; • product marketing, advertising and promotion; • product import and export, restrictions, tariff regulations, duties and tax requirements; • product sales and distribution; • post-market surveillance, including reporting of deaths or serious deterioration in the state of health and malfunctions that, if they wereto recur, could lead to death or serious deterioration in the state of health; • record keeping procedures; • registration for reimbursement; and • necessity of testing performed in country by distributors for licenses. 45Table of ContentsFailure to comply with the Federal Food, Drug and Cosmetic Act could result in, among other things, warning letters, civil penalties, delays inapproving or refusal to approve a medical device candidate, product recall, product seizure, interruption of production, operating restrictions, suspension orwithdrawal of product approval, injunctions or criminal prosecution. In non-U.S. countries, failure to comply with applicable laws and regulations couldresult in similar actions, and in the suspension or withdrawal of Quality Management System certification which may be a prerequisite to market medicaldevices.The time required to obtain clearance required by foreign countries may be longer or shorter than that required for FDA clearance, andrequirements for licensing a product in a foreign country may differ significantly from FDA requirements.Moreover, these laws and regulations are subject to change. For example, in April 2017, the Medical Devices Regulation was adopted in theEuropean Union, which is requiring us to adopt certain measures in anticipation of its effectiveness. For more information, see “Item 3. Key Information—D.Risk Factors—Risks Related to Our Materialise Medical Segment and Regulatory Environment—Healthcare policy changes, including legislation to reformthe U.S. healthcare system, could adversely affect us.”We are in the process of obtaining a Medical Device Single Audit Program, or MDSAP, certification. This program allows an MDSAP-recognizedauditing organization to conduct a single regulatory audit of a medical device manufacturer that satisfies the relevant requirements of the regulatoryauthorities participating in the program. To the extent that we do business in the participating jurisdictions, certain major non-conformities identified underthis program may be escalated to the regulatory authorities of the United States, Canada, Japan, Australia and Brazil. The Canadian regulatory authority,Health Canada, has made participation in MDSAP a mandatory requirement for medical device manufacturers importing products to Canada. Failure toachieve timely certification under MDSAP may impact our capability to do business in Canada. In addition, failure to address escalated issues reported to theparticipating authorities may impact our capability to do business in the respective jurisdictions. 46Table of ContentsC. Organizational StructureThe following illustrates our corporate structure as of the date of this annual report: 47Table of ContentsRapidFit NV Shareholders’ AgreementOn June 27, 2013, we entered into a shareholders’ agreement with PMV-TINA Comm.VA, or PMV, with respect to our subsidiary RapidFit NV, ofwhich we own 83.33% and PMV owns 16.66%. Pursuant to the agreement, we have the right to appoint four out of the five members of the board of directorsand PMV has the right to appoint one director, who has approval rights for certain company decisions and transactions, including with respect to certainacquisitions, dispositions or pledges of assets, the budget, officers, and issuance or offering of shares of RapidFit NV. The shareholders’ agreement containsprovisions regarding restrictions against the transfer of shares, put and call options, anti-dilution warrants, liquidation preference, tag along rights and dragalong rights. For additional information regarding the accounting treatment of the put and call options and warrants, see Note 13 to our audited consolidatedfinancial statements.D. Property, Plant and EquipmentOur corporate headquarters and our largest 3D printing service center are located in Leuven, Belgium. We currently own office and servicespaces in Belgium as well as in the Czech Republic, France and the United States. We also lease other service centers and sales offices, which are located inAustria, China, France, Germany, Japan, Malaysia, Ukraine, the United Kingdom, the United States, Poland, Colombia, Australia and Italy. The aggregateannual lease payments for our facilities in 2018, 2017 and 2016 were €1.8 million, €1.7 million and €1.6 million, respectively. The table below providesselected information regarding our facilities. Location Ownership Use Approximate Area Lease ExpirationLeuven, Belgium Owned Corporateheadquarters;production 50,614.35 sq. m. N/ALeuven, Belgium Leased Warehouse 200 sq. m. March 31, 2020Ghent, Belgium Leased Office/Production 547 sq. m. December 31, 2023Plymouth, Michigan, United States Owned Office;production;parking 3.89 acres N/AAnn Arbor, Michigan, United States Leased Office/Production 2,771 sq. ft. October 31, 2023Saint Marcel les Valence, France Owned Office 1,100 sq. m. N/AYokohama, Japan Leased Office 515.58 sq. m. March 31, 2020Kawasaki, Japan Leased Production 205 sq. m. May 19, 2021Kobe, Japan Leased Office 11.67 sq. m. September 02, 2019Ústí nad Labem, Czech Republic Owned Office; production 16,013 sq. m. N/AVienna, Austria Leased Office 44 sq. m. December 31, 2021Gilching, Germany Leased Office 399 sq. m. December 31, 2021Bremen, Germany Leased Office 650 sq. m. June 30, 2020Bremen, Germany Leased Office; production 916 sq. m. June 30, 2020 (partially)and Indefinite Term(partially)Bremen, Germany Owned Office 6724 sq. m. N/APetaling Jaya, Malaysia Leased Office 13,935 sq. ft.6,403 sq. ft. May 31, 2019May 31, 2024Chatillon, France Leased Office 545 sq. m. September 30, 2019Kiev, Ukraine Leased Office 3,384.8 sq. m. June 29, 2028Kiev, Ukraine Leased Office 171 sq. m. December 31, 2021Sheffield, United Kingdom Leased Office 1,950 sq. ft. January 31, 2020(partially) andNovember 30, 2019(partially)Southampton, United Kingdom Leased Office 3,250 sq. m. April 22, 2023 48Table of ContentsShanghai, China Leased Office 1,200 sq. m. June 8, 2019Shanghai, China Leased Office (training/workshopcenter) 359.74 sq. m. February 29, 2020Medellin, Colombia LeasedLeased OfficeOffice 247.25 sq. m.64.06 sq. m. August 31, 2020January 31, 2021Wroclaw, Poland Owned Office; production 2,3975 hectare N/AGold Coast, Australia Leased Office 38 sq. m. January 1, 2022Milan, Italy Leased Office 55 sq. m. December 31, 2023Freiberg, Germany Owned Office, Production,Parking (Land) 26,277 sq. ft. N/AFreiberg, Germany Owned Office, warehouse, parking(Land) 7,996 sq. m. N/AAnn Arbor, Michigan, United States Leased Office 1,987 sq. ft. December 31, 2020Bangalore, India Leased Office 2,000 sq. ft. June 30, 2019See also “—B. Business Overview—Manufacture and Supply” for information about the printers we operate, “—Regulatory / Environmental Matters—Environmental Matters” for information about environmental matters and “Item 5. Operating and Financial Review and Prospects —B. Liquidity and CapitalResources—Indebtedness” for information about indebtedness secured by mortgages. 49Table of ContentsITEM 4A.UNRESOLVED STAFF COMMENTSNot applicable. 50Table of ContentsITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSThe following discussion and analysis should be read in conjunction with the information set forth in “Item 3. Key Information—A. SelectedFinancial Data,” and our consolidated financial statements and accompanying notes included elsewhere herein.This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from thosecontained in forward-looking statements. Factors that could cause or contribute to such differences include, without limitation, those discussed in thesections entitled “Item 3. Key Information—D. Risk Factors,” “Special Note Regarding Forward-Looking Information” and “Item 4. Information on theCompany—B. Business Overview” and elsewhere in this annual report.A. Operating ResultsOverviewCompany OverviewWe are a leading provider of additive manufacturing and medical software and of sophisticated 3D printing services. Our customers are active ina wide variety of industries, including healthcare, automotive, aerospace, art and design and consumer products. Since our founding in 1990 by our ChiefExecutive Officer, Wilfried Vancraen, we have consistently focused on developing innovative applications of additive manufacturing technologies. Webelieve our proprietary software platforms, which enable and enhance the functionality of 3D printers and of 3D printing operations, have become a marketstandard for professional 3D printing. We believe that our commitment to enabling 3D printing technologies has significantly supported and accelerated theacceptance and proliferation of additive manufacturing and will continue to play an instrumental role as the industry evolves. In the healthcare sector, ourtechnology is responsible for the design and manufacture of customized, patient-specific medical devices that includes both surgical guides (and relatedbone models) as well as customized implants. In our 3D printing service centers, including what we believe to be one of the world’s largest single-siteadditive manufacturing service center in Leuven, Belgium, we print medical devices, prototypes, production parts, and consumer products. As ofDecember 31, 2018, our team consisted of 2,009 FTEs and fully dedicated consultants. Our portfolio of intellectual property featured 281 patents and 169pending patent applications as of December 31, 2018. For the year ended December 31, 2018, we generated €184.7 million of revenue, representing 29.6%growth over the prior year, net profit of €3.0 million and Adjusted EBITDA of €23.5 million. For a description of Adjusted EBITDA and a reconciliation ofour net profit to our Adjusted EBITDA, see “—Other Financial Information” below.ACTech AcquisitionOn October 4, 2017, we acquired ACTech, a full-service manufacturer of complex metal parts. As described in more detail below, the acquisitionincreased the scope of our Materialise Manufacturing segment’s operations and had a significant impact on our results of operations for both the fourthquarter of 2017 and the year ended December 31, 2017, as well as the year ended December 31, 2018, resulting in increases to our revenues and operatingexpenses, among other items.Private Placement and Public OfferingOn July 19, 2018, we closed a private placement of 1,953,125 newly issued ordinary shares to BASF Antwerpen for gross proceeds ofapproximately $25 million.On July 27, 2018, we closed a follow-on public offering of a total of 3,450,000 ADSs at a public offering price of $13.00 per ADS for grossproceeds of $44.9 million.We raised approximately $65.2 million (or €55.9 million, based on the exchange rate as of December 31, 2018) in aggregate net proceeds fromsuch private placement and follow-on public offering, collectively.SeasonalityEnd markets such as healthcare, automotive, aerospace and consumer products may experience some seasonality. While the historical impact ofseasonality on the revenue of our Materialise Medical and Materialise Manufacturing segments has not been material, the project related nature of ourACTech business, which we acquired in the fourth quarter of 2017, may make our Materialise Manufacturing segment more susceptible to fluctuations,although not necessarily in a seasonal pattern. Historically, the revenue of our Materialise Software segment has been greater in the fourth quarter, ascompared to the revenue of each of the other quarters. A number of our customers make their initial software purchase in the fourth quarter prior to the end oftheir annual budget cycle and tend to renew, extend or broaden the scope of their licenses on the anniversary date of their first purchase. In addition, we havein the past often brought new releases on the market in the third quarter of the calendar year, which may also have an impact on sales in the subsequentquarter. 51Table of ContentsGrowth StrategyIn our Materialise Software segment, we expect that the demand for software platforms such as ours, which interface with virtually all 3D printers,is likely to grow as sales of 3D printing systems, in particular for professional use, continue to grow. We believe that we can continue to increase the marketpenetration of our software platforms by expanding relationships with OEMs, CAD/computer aided manufacturing, or CAM, companies as well as withindustrial users of 3D printers. In order to be able to do so, we intend to bring our teams closer to our customer base worldwide, which will require importantinvestments in the expansion of our marketing and sales presence. In order to be able to meet, in particular, the demands of new entrants to the additivemanufacturing market, we intend to also invest significantly in the development of our software products, including in order to further their compatibilitywith the hardware and software of as many as possible other players in the ecosystem.In our Materialise Medical segment, we believe that we are well placed to assist the larger medical device companies with our technologicalsolutions, as these companies gradually expand their presence in the medical 3D printing market. We also intend to continue to invest in the development ofnew software, planning and related device offerings, in new fields such as cardiovascular and pulmonology. We also see growing opportunities in thehospital market. Because customized medical products and treatments can only be brought to the market in compliance with very strict regulatoryrequirements, we believe there is an opportunity for providers of safe medical software tools, such as our company, that can pass significant regulatoryscrutiny.In our Materialise Manufacturing segment, we believe that demand for 3D printing services will continue to grow. We believe that there isparticular potential to grow our presence in the markets for additive manufacturing of end products (including end products that can be customized on a largescale, such as wearables). For end parts, we intend to continue to invest in the expansion and creation of certified 3D manufacturing environments that meetthe high standards of the specialized segments of the industrial market that we focus on. In addition, we believe that the cooperation between our local salesteams, which are in close proximity to our customers, and our engineering teams, which can bring in additional expertise where required, is an important assetto further increase our customer base. We have further integrated i.materialise in our Materialise Manufacturing segment. The acquisition of ACTech shouldallow us to better position our metal 3D printing offering, in particular in the market of the production of unique or small batches of complex metal parts(including pre-production prototypes) for the automotive industry. We engage in co-creation sessions with carefully chosen partners who have the intentionof transforming their manufacturing ecosystem through the use of 3D printing. Our initiatives in the eyewear market are a good example of the result of theseco-creation sessions. We believe that there is potential for similar partnerships in other markets.Recent DevelopmentsSee Note 27 to our audited consolidated financial statements for disclosure of significant transactions that occurred subsequent to December 31,2018. There has been no other significant change in our financial condition or results of operations since December 31, 2018.Key Income Statement ItemsRevenueRevenue is generated primarily by the sale of our software and 3D printed products and services.In our Materialise Software segment, we generate revenues from software licenses, maintenance contracts and custom software developmentservices and sales of Materialise Controller.In our Materialise Medical segment, we generate revenue through the sale of medical devices that we print for our customers and from the sale oflicenses on our medical software packages, software maintenance contracts and custom software development and engineering services.In our Materialise Manufacturing segment, we generate most of our revenue through the sale of parts that we print or produce for our customers.Software. Software revenue is comprised of perpetual and time-based licenses, maintenance revenue and software development service fees. Oursoftware products are mainly licensed pursuant to one of two payment structures: (i) perpetual licenses, for which the customer pays an initial fee for aperpetual license and subsequently pays fees for maintenance under separate maintenance contracts, generally on an annual basis, or (ii) time-based licenses(generally annual licenses), for which the customer pays equal periodic fees to keep the license active. Perpetual licenses require the payment of fees formaintenance, technical support and product updates. Time-based licenses entitle the customer to corrective maintenance and product updates withoutadditional charge. We generally recognize revenue from our time-based licenses and our maintenance revenue ratably on a straight-line basis over the term ofthe applicable license or maintenance contracts. Our software revenue depends upon both incremental sales of software licenses to both new and existingcustomers and renewals of existing time-based licenses and maintenance contracts. Sales and renewals are also driven by our customers’ usage and budgetcycle. Software development services are typically charged either on a time and materials basis or on a fixed fee basis. 52Table of Contents3D printed products and services. 3D printed products revenue is derived from our network of 3D printing service centers. Our service centersnot only utilize our 3D printing technology to print products but are also full-service operations that provide support and services such as pre-productioncollaboration prior to printing the product. Revenue from 3D printed products depends upon the volume of products that we print for our customers. Sales ofthese products are linked to the number of our 3D printing machines that are installed and active worldwide. We have dedicated teams and production linesfor industrial applications and medical applications. All medical products require a highly regulated production environment. Whereas both segments use thesame 3D printing technologies, the complex combination of our engineering and software solutions in connection with medical applications results in highermargins for our medical applications.Production of limited runs of highly complex casted metal parts. Casted products revenue is derived from ACTech’s network, with its productionunit in Freiberg, Germany. ACTech is not utilizing casting technology, including 3D printing technology for mould making, but offers full-service projectoperations, including project and pre-production collaboration, and high-end complex finishing services.Cost of SalesOur cost of sales includes raw materials, external subcontracting services, labor costs, manufacturing overhead expenses, depreciation andreserves for inventory obsolescence. Our manufacturing overhead expenses include quality assurance, manufacturing engineering, material procurement,inventory control, facilities, equipment and information technology and operations supervision and management.Research and Development ExpensesOur research and development activities primarily consist of engineering and research programs associated with our products under developmentas well as research and development activities associated with our core technologies and processes. Research and development expenses are primarily relatedto employee compensation, including salary, fringe benefits, share-based compensation and temporary employee expenses. We also incur expenses forsoftware and materials, supplies, costs for facilities and equipment, depreciation, and outside design and outside research support.Development expenditures on an individual project are recognized as an intangible asset when we can demonstrate: • the technical feasibility of completing the intangible asset so that the asset will be available for use or sale; • the intention to complete and the ability to use or sell the asset; • how the asset will generate future economic benefits; • the availability of resources to complete the asset; and • the ability to measure reliably the expenditure during development.We have determined that the conditions for recognizing internally generated intangible assets from proprietary software, guide and other productdevelopment activities are not met until shortly before the products are available for sale, unless either (i) we have strong evidence that the above criteria aremet and a detailed business plan is available showing the asset will on a reasonable basis generate future economic benefits or (ii) the development is donebased upon specific request of the customer, we have the intention to market the product also to other parties than the customer, the development is subject toan agreement and the substance of the agreement is that the customer reimburses us for a significant portion of the development expenses incurred. As such,development expenditures not satisfying the above criteria and expenditures on the research phase of internal projects are recognized in the consolidatedincome statement as incurred.Sales and Marketing ExpensesOur sales and marketing expenses primarily consist of employee compensation, including salary, fringe benefits and share-based compensationfor our marketing, sales and business development functions. Other significant expenses include travel, depreciation, product demonstration samples,brochures, websites and trade show expenses.General and Administrative ExpensesOur general and administrative expenses primarily consist of employee compensation, including salary, fringe benefits and share-basedcompensation for our executive, financial, human resources, information technology support and regulatory affairs and administrative functions. Othersignificant expenses include outside legal counsel, independent auditors and other outside consultants, insurance, facilities, depreciation and informationtechnologies expenses. 53Table of ContentsNet Other Operating IncomeNet other operating income consists primarily of withholding tax exemptions for qualifying researchers, development and government grants,partial funding of research and development projects, currency exchange results on purchase and sales transactions the amortization of intangible assets frombusiness combinations, and the write-off of trade receivables.Government grants are recognized when there is reasonable assurance that the grant will be received and all attached conditions will becomplied with. When the grant relates to development costs or another expense, it is recognized as income over the grant period necessary to match theincome on a systematic basis to the costs that it is intended to compensate. When the grant relates to the construction of buildings, it is recognized as incomeover the depreciation period of the related building.Such grants have been received from the federal and regional governments and from the European Union in the forms of grants linked to certainof its research and development programs, reduced payroll taxes and the financing of the construction of an office building in Leuven, Belgium and inFreiberg, Germany.Where retention of a government grant is related to assets or to income and dependent on the Company satisfying certain criteria, it is initiallyrecognized as deferred income. When the criteria for retention have been satisfied, the deferred income balance is released to other operating income in theconsolidated income statement on a systematic basis over the periods in which the entity recognizes as expenses the related costs for which the grants areintended to compensate.Any government grants recognized as income do not have any unfulfilled conditions or other contingencies attached to them, as otherwise wewould not be recognizing income for such.Financial ExpensesOur financial expenses primarily include costs associated with currency exchange differences and with interest payments on our debtobligations.Critical Accounting Policies and Accounting EstimatesThe preparation of our consolidated financial statements requires management to make judgments, estimates and assumptions that affect thereported amounts of revenue, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates couldresult in outcomes that require a material adjustment to the carrying amount of assets or liabilities for future periods.On an ongoing basis, we evaluate our estimates, assumptions and judgments, including those related to revenue recognition, developmentexpenses, share-based payment transactions, income taxes, impairment of goodwill, intangible assets and property, plant & equipment and businesscombinations.We based our assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existingcircumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond our control. Suchchanges are reflected in the assumptions when they occur.Revenue RecognitionOur revenue recognition policies require management to make significant estimates. Management analyzes various factors, including a review of specifictransactions, historical experience, creditworthiness of customers and current market and economic conditions. Changes in judgments based upon thesefactors could impact the timing and amount of revenue and cost recognized and thus affects our results of operations and financial condition. The significantestimates and judgments relate to: • The assessment whether a performance obligation is distinct in a bundled sales transaction; • Estimates of the variable considerations and the assessment of the revenue constraint limitation; • Estimates of the stand-alone selling prices for each distinct performance obligation; and • The stage of completion of our customized development of software components for customers when revenue is satisfied over time.We make significant judgments when performing the assessment of whether a performance obligation is distinct from the other performance obligations in acontract, i.e., whether the good or service has a benefit for the customer on its own or together with readily available resources and/or whether the good orservice is highly interrelated or a significant input with another good or service delivered, or whether it significantly modifies or customizes another good orservice. The relevant judgments include the following: 54Table of Contents • Whether the software license is distinct from the 3D printed guides – in most cases with contracts with collaboration partners in theMaterialise Medical segment, the software licenses is combined with the manufacturing of the 3D printed guides as the software licensehas no benefit for the customer without the manufacturing services. We are also implementing a new feature “Plan Only” where thecollaboration partners can benefit from a virtual plan produced with the software license without the manufacturing of any physicalproduct. Such Plan Only features are recognized in revenue as a separate performance obligation based on the usage by the collaborationpartner. • Whether the development services are distinct from other performance obligations – in most cases, those performance obligations aredistinct however for one contract with a collaboration partner in the Materialise Medical segment, the software license is combined withthe license and the 3D printed guides as one “distinct” performance obligationFor the stand-alone selling prices, we are using prices from price list or historical prices for similar transactions. However, in certain cases, suchinformation is not immediately available, and in such cases, we estimate the stand-alone selling price by using a cost-plus or another estimate. In addition, forcertain performance obligations such as development services, stand-alone selling prices also require an estimate of the time to complete the development.Certain contracts include estimates of variable considerations within the transaction price and assessing the revenue constraint, such as: • Quantities/volume sold for fixed prices in relation to, but not limited to, manufacturing of 3D printed products, software licenses sold andmaintenance renewals; • Contractual prices may be different based on volume purchased during a certain period; • FTE expenses for development or other services billed on a time & material basis; • Volume rebates.The method applied to estimate the variable consideration is dependent on the number of possible scenarios and the probability of eachscenario. In case there are many possible scenarios with a wide range of probabilities (each less than 50%), we will use the expected value method while themost likely method is used when there is a scenario with a higher probability (more than 50%).Variable consideration is not constrained when, based on historical experience, high reliable business forecast and/or the timeframe of theestimates, we determine that there is a high probability that this will not result in a future revenue reversal.We determine the stage of completion for development contracts satisfied over time by comparing labor hours incurred to-date to the estimatedtotal labor hours required to complete the project. We consider labor hours to be the most reliable, available measure of progress on these projects.Adjustments to estimates to complete are made in the periods in which facts resulting in a change become known. When the estimate indicates that a loss willbe incurred, such loss is recorded in the period identified. Significant judgments and estimates are involved in determining the percent complete of eachcontract. Different assumptions could yield materially different results.Development ExpensesUnder International Accounting Standards 38, or IAS 38, internally generated intangible assets from the development phase are recognized ifcertain conditions are met. These conditions include the technical feasibility, intention to complete, the ability to use or sell the asset under development,and the demonstration of how the asset will generate probable future economic benefits. The cost of a recognized internally generated intangible assetcomprises all directly attributable cost necessary to make the asset capable of being used as intended by management. In contrast, all expenditures arisingfrom the research phase are expensed as incurred.Determining whether internally generated intangible assets from development are to be recognized as intangible assets requires significantjudgment, particularly in determining whether the activities are considered research activities or development activities, whether the product enhancement issubstantial, whether the completion of the asset is technically feasible considering a company-specific approach and the probability of future economicbenefits from the sale or use.We have determined that the conditions for recognizing internally generated intangible assets from proprietary software, guide and other productdevelopment activities are not met until shortly before the products are available for sale, unless either (i) we have strong evidence that the above criteria aremet and a detailed business plan is available showing the asset will on a reasonable basis generate future economic benefits or (ii) the development is donebased upon specific request of the customer, we have the intention to market the product also to other parties than the customer, the development is subject toan agreement and the substance of the agreement is that the customer reimburses us for a significant portion of the development expenses incurred. As such,development expenditures not satisfying the above criteria and expenditures on the research phase of internal projects are recognized in the consolidatedincome statement as incurred. This assessment is monitored by us on a regular basis. 55Table of ContentsWe have determined that the criteria for internally generated intangible assets were met for two projects in 2018: (1) the software development ofa new planner for hospitals within a certain medical field and (2) the process to obtain FDA and E.U. approval for a 3D printed product within the MaterialiseMedical segment. For the latter, we determined that there is a low risk that FDA approval will not be obtained although clinical trials have to be started andcommercialization is not expected before 2022. This assessment was made by management based on several factors including the developed product itself,the exclusive patent rights obtained on the developed product, the successful application of the product on a number of patients as part of the emergencyexception use obtained from the FDA and the continued discussions to speed up the trial duration and commercialization. The product is also expected toreceive E.U. approval for commercialization by the end of 2020. The total amount capitalized is K€158 and K€524 as per December 31, 2018.Share-Based Payment TransactionsWe measure the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at whichthey are granted and measured the cost of cash-settled transactions by reference to the fair value of the equity instrument at the date of reporting. We haveapplied the Black-Scholes valuation model to estimate fair value. Using this model requires management to make assumptions with regards to volatility andexpected life of the equity instruments. The assumptions used for estimating fair value for share-based payment transactions are disclosed in Note 14 to ourconsolidated financial statements and are estimated as follows: • The dividend return is estimated by reference to the historical dividend payment. Currently, this is estimated to be zero as no dividendshave been paid since inception; • Expected volatility is estimated based on the average annualized volatility of the volatility of our shares (until September 2016: of anumber of quoted peers in the 3D printing industry and the volatility of our shares); • Estimated life of the warrant is determined to be until the first exercise period which is typically the month after vesting; • Fair value of the shares is determined based on the share price of our ADSs on Nasdaq at the date of valuation. For the grants prior to theinitial public offering, the fair value of the shares was estimated based on a discounted cash flow model with three-year cash flowprojections and a multiple of EBITDA determined based on a number of quoted peers in the 3D printing industry.Income TaxesDeferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which thelosses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon thelikely timing and the level of future taxable profits together with future tax planning strategies.As of December 31, 2018, we had €25.3 million (2017: €11.9 million; 2016: €9.5 million) of tax losses carry forward and other tax credits suchas investment tax credits (and notional interest deductions in 2017 and 2016), of which €15.6 million related to Materialise NV (2017: €4.6 million; 2016:€1.6 million). These losses relate to Materialise NV and subsidiaries that have a history of losses, do not expire (except for the notional interest deductions(2018: €0.0 million; 2017: €0.3 million; 2016: €0.3 million)) and may not be used to offset taxable income elsewhere our consolidated group.With respect to the net operating losses of Materialise NV, no deferred tax assets have been recognized given that it in view of the Belgian PatentIncome Deduction and Innovation Income Deduction systems, there is an uncertainty to what extent these tax losses will be used in future years. Effective asof July 1, 2016, the new Innovation Income Deduction system replaced the former Patent Income Deduction system. Under the grandfathering rule, the PatentIncome Deduction system can still be applied until June 30, 2021. The Belgian Patent Income Deduction system allows companies to deduct 80% of thequalifying gross patent income from the taxable basis. Under the Innovation Income Deduction system, companies can deduct up to 85% of their netinnovation income from the taxable basis. Based on our analysis in 2018, we have assessed that no deferred tax asset should be accounted for with respect toour unused tax losses in Belgium.With respect to the unused tax losses of our subsidiaries, deferred tax assets have been recognized in 2018 for the amount of €0.02 million(2017: €0; 2016: €0.1 million). We have not recognized deferred tax assets on unused tax losses totaling €11.9 million in 2018 (2017: €7.9 million; 2016:€8.9 million) given that it is not probable that sufficient positive taxable base will be available in the foreseeable future against which these tax losses can beutilized.If we were able to recognize all unrecognized deferred tax assets, net profit would have increased by €3.5 million in 2018, in which€11.9 million of tax losses would have been utilized. Further details on taxes are disclosed in Note 22 to our consolidated financial statements.Impairment of Goodwill, Intangible Assets and Property, Plant & EquipmentWe had goodwill for a total amount of €17.5 million as of December 31, 2018 (2017: €17.6million; 2016: €8.9 million) which has been subjectto an impairment test. Goodwill is tested for impairment based on a discounted cash flow model with cash flows for the next five years derived from thebudget and a residual value considering a perpetual growth rate. The value in use is sensitive to the discount rate used for the discounted cash flow model aswell as the expected future cash-inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the value in use for thedifferent cash generating units, or CGUs, are disclosed and further explained in Note 5 to our consolidated financial statements. 56Table of ContentsWhen events or changes in circumstances indicate that the carrying amount of the intangible assets and property, plant & equipment may not berecoverable, we estimate the value in use for the individual assets, or when not possible, at the level of CGUs to which the individual assets belong. Noimpairment charges were recorded during 2018 (or in 2017 or 2016).Business CombinationsWe determine and allocate the purchase price of an acquired business to the assets acquired and liabilities assumed as of the businesscombination date. The purchase price allocation process requires us to use significant estimates and assumptions, including: • estimated fair value of the acquired intangible assets; • estimated fair value of property, plant and equipment; and • estimated fair value of the contingent consideration.The contingent consideration as included in the financial statements is recorded at fair value at the date of acquisition and is reviewed on aregular basis, at least annually. The fair value of the contingent consideration is based on risk-adjusted future cash flows of different scenarios discountedusing appropriate interest rates. The structure of the possible scenarios and the probability assigned to each one of them is reassessed by management at everyreporting period and requires judgement from management about the outcome and probability of the different scenarios as well as the evolution of thevariables.While we are using our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired andliabilities assumed at the date of acquisition, our estimates and assumptions are inherently uncertain and subject to refinement. Examples of critical estimatesin valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to: • future expected cash flows from customer contracts and relationships, software license sales and maintenance agreements; • the fair value of the plant and equipment; • the fair value of the deferred revenue; and • discount rates.Provision for Expected Credit Losses, or ECLs, of Trade Receivables and Contract AssetsWe use a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due forgroupings of various customer segments that have similar loss patterns (i.e., by legal entity).The provision matrix is initially based on our historical observed default rates. We will calibrate the matrix to adjust the historical credit lossexperience with forward-looking information. For instance, if forecast economic conditions (i.e., gross domestic product) are expected to deteriorate over thenext year which can lead to an increased number of defaults, the historical default rates are adjusted. At every reporting date, the historical observed defaultrates are updated and changes in the forward-looking estimates are analyzed.The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. Theamount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. Our historical credit loss experience and forecast of economicconditions may also not be representative of a customer’s actual default in the future. Information about the ECLs on our trade receivables and contract assetsis disclosed in Note 25 to our consolidated financial statements.Recent Accounting PronouncementsThe standards and interpretations that are issued, but not yet effective, up to the date of issuance of our financial statements are disclosed in ourfinancial statements included elsewhere in this annual report. 57Table of ContentsOf those standards that are not yet effective, IFRS 16 Leases, is expected to have a material impact on our financial statements in the period ofinitial application.IFRS 16, LeasesWe are required to adopt IFRS 16 Leases from January 1, 2019. We have assessed the estimated impact that initial application of IFRS 16 willhave on our consolidated financial statements, as described below. The actual impact of adopting the standard on January 1, 2019 may change because: • we have not finalized the testing and assessment of controls over our new information technology systems; and • the new accounting policies are subject to change until we present our first financial statements that include the date of initialapplication.IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right touse the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases andleases of low-value items. Lessor accounting remains similar to the current standard, i.e., lessors continue to classify leases as finance or operating leases.IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.We will, where we act as a lessee, recognize new assets and liabilities for our operating leases of buildings, vehicles and machinery andequipment. The nature of expenses related to those leases will now change because we will recognize a depreciation charge for right-of-use assets and interestexpense on lease liabilities.Previously, we recognized operating lease expense on a straight-line basis over the term of the lease, and recognized assets and liabilities only tothe extent that there was a timing difference between actual lease payments and the expense recognized. In addition, we will no longer recognize provisionsfor operating leases that we assess to be onerous. Instead, we will include the payments due under the lease in our lease liability.No significant impact is expected for our finance leases.Based on the information currently available, we estimate that we will recognize additional lease liabilities of €5.0 million as of January 1, 2019and an estimated annual depreciation expense of €2.5 million.We plan to apply IFRS 16 initially on January 1, 2019, using the modified retrospective approach with the right-of-use asset equal to the leaseliability. Therefore, there will be no restatement of comparative information.We plan to apply the practical expedient to grandfather the definition of a lease on transition. This means that we will apply IFRS 16 to allcontracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.Other Financial InformationWe believe EBITDA and Adjusted EBITDA are meaningful measures to our investors to enhance their understanding of our financialperformance. Although EBITDA and Adjusted EBITDA are not necessarily a measure of our ability to fund our cash needs, we understand that it is frequentlyused by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performanceof other companies that report EBITDA or Adjusted EBITDA. Management believes these non-IFRS measures to be important measures as they exclude theeffects of items which primarily reflect the impact of long-term investment and financing decisions, rather than the performance of our day-to-day operations.As compared to net profit, these measures are limited in that they do not reflect the periodic costs of certain capitalized tangible and intangible assets used ingenerating revenues in our business, or the charges associated with impairments. Management evaluates such items through other financial measures such ascapital expenditures and cash flow provided by operating activities. We believe that these measurements are useful to measure a company’s ability to grow oras a valuation measurement. Our calculation of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures reported by othercompanies.We calculate EBITDA as net profit plus income taxes, financial expenses (less financial income), depreciation and amortization, and share in lossof joint venture. We calculate Adjusted EBITDA by adding non-recurring initial public offering related expenses, non-cash stock-based compensationexpenses and acquisition-related expenses of business combinations to EBITDA. Disclosure in this annual report of EBITDA and Adjusted EBITDA, whichare non-IFRS financial measures, is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, IFRS.EBITDA and Adjusted EBITDA should not be considered as alternatives to net profit or any other performance measure derived in accordance with IFRS. Ourpresentation of EBITDA and Adjusted EBITDA should not be construed to imply that our future results will be unaffected by unusual or non-recurring items. 58Table of ContentsReconciliation of Net Profit to Adjusted EBITDA (unaudited) on a Consolidated Basis For the year ended December 31, in 000€ 2018 2017* 2016 Net profit (loss) 3,027 (2,117) (3,019) Income taxes 425 522 1,710 Financial expenses 4,864 4,728 2,437 Financial income (3,627) (3,210) (2,039) Depreciation and amortization 17,287 12,576 8,374 Share in loss of joint venture 475 469 1,018 EBITDA (unaudited) 22,451 12,968 8,481 Non-cash stock-based compensation expenses(1) 1,075 1,033 977 Acquisition-related expenses of business combinations(2) — 609 — Adjusted EBITDA (unaudited) (3) 23,526 14,610 9,458 (1)Non-cash stock-based compensation expenses represent the cost of equity-settled and cash-settled share-based payments to employees.(2)Acquisition-related expenses of business combinations represent fees and costs in connection with the acquisition of ACTech.(3)Our initial public offering closed in June 2014. During the periods presented, we did not incur any fees and costs in connection with our initial publicoffering.*The year 2017 has been restated to reflect certain reclassification adjustments and the final accounting of the business combination with ACTech. A *mark has been added next to the year 2017 in tables in this “Item 5. Operating and Financial Review and Prospects” when the year has been impactedby the restatement. See Note 2 to our audited consolidated financial statements for more information. Results of OperationsComparison of Years Ended December 31, 2018 and 2017 For the year ended December 31, in 000€, except percentages 2018 2017* %Change Revenue 184,721 142,573 29.56% Cost of sales (82,299) (62,952) 30.73% Gross profit 102,422 79,621 28.64% Research and development expenses (22,416) (19,959) 12.31% Sales and marketing expenses (46,303) (38,935) 18.92% General and administrative expenses (32,310) (24,876) 29.88% Net other operating income (expenses) 3,771 4,541 -16.96% Operating profit (loss) 5,164 392 1,217.35% Financial expenses (4,864) (4,728) 2.88% Financial income 3,627 3,210 12.99% Share in loss of joint venture (475) (469) 1.28% Profit (loss) before taxes 3,452 (1,595) Income taxes (425) (522) -18.58% Net profit (loss) 3,027 (2,117) 59Table of ContentsComparison of Years Ended December 31, 2018 and 2017 by Segment in 000€ MaterialiseSoftware MaterialiseMedical MaterialiseManufacturing Totalsegments Unallocated Consolidated For the year ended December 31, 2018 Revenues 37,374 52,252 94,956 184,582 139 184,721 Segment EBITDA 11,536 10,252 10,785 32,573 (10,122) 22,451 Segment EBITDA % 30.9% 19.6% 11.4% 17.6% — 12.2% For the year ended December 31, 2017 Revenues 35,770 42,841 63,712 142,323 250 142,573 Segment EBITDA* 13,926 4,400 4,439 22,765 (9,797) 12,968 Segment EBITDA % 38.9% 10.3% 7.0% 16.0% — 9.1% (1)Unallocated related Revenues consist of occasional one-off sales by our core competencies not allocated to any of our segments. Unallocated relatedSegment EBITDA consist of corporate research and development, corporate headquarter costs and other operating income (expense).Revenue. Revenue was €184.7 million in the year ended December 31, 2018 compared to €142.6 million in the year ended December 31, 2017,an increase of €42.1 million, or 29.6%.Revenue by geographical area is presented as follows: For the year endedDecember 31, in 000€ 2018 2017 Americas 43,917 35,120 Europe & Africa 120,378 87,940 Asia-Pacific 20,426 19,513 Total 184,721 142,573 Revenue generated in Europe & Africa increased by €32.4 million, or 36.9%, in the year ended December 31, 2018 compared to the year endedDecember 31, 2017, mainly as a result of the consolidation of a full year of revenue from the ACTech business, which was acquired in October 2017, andincreased revenue in our Materialise Medical segment, which was boosted by revenue from medical device partnerships. Revenue generated throughout theAmericas increased by €8.8 million, or 25.0%, in the year ended December 31, 2018 compared to the year ended December 31, 2017, also mainly because ofthe effect of the consolidation of a full year of revenue from the ACTech business and the revenue growth in our Materialise Medical segment. Revenuegenerated in Asia-Pacific increased by €0.9 million, or 4.7%, in the year ended December 31, 2018 compared to the year ended December 31, 2017.Revenue from our Materialise Software segment increased 4.5% from €35.8 million in the year ended December 31, 2017 to €37.4 million in theyear ended December 31, 2018. Recurrent revenue, consisting of limited license fees and maintenance fees, grew 18.0%. Non-recurrent revenue, mainlyconsisting of perpetual fees, decreased 4.6%. Deferred revenue from license and maintenance fees increased to €2.8 million, compared to €1.3 million in theyear ended December 31, 2017.Revenue from our Materialise Medical segment increased €9.4 million, or 22.0%, from €42.8 million in the year ended December 31, 2017 to€52.3 million in the year ended December 31, 2018. Medical software revenue grew by 9.1% from 2017 to 2018. Within our medical software departmentrecurrent revenue from annual and renewed licenses and maintenance fees increased by 17.1%, reflecting the implementation of our strategy focused onproducts with defined contractual periods. Our revenue from perpetual licenses and services decreased by 8.4%. These recurrent revenues represented 73.7%of all medical software revenues in the year ended December 31, 2018, compared to 68.7% in the year ended December 31, 2017. Revenues from medicaldevices and services grew 29.3% in the year ended December 31, 2018, due to the revenue increase from partner sales, especially in our CMF, shoulder andknee devices business lines. As of December 31, 2018, our Materialise Medical segment operated 32 3D printers, as compared to 24 as of December 31, 2017. 60Table of ContentsRevenue from our Materialise Manufacturing segment increased from €63.7 million in the year ended December 31, 2017 to €95.0 million in theyear ended December 31, 2018, representing an increase of €31.2 million, or 49.1%. Revenue from the ACTech business contributed €43.4 million in 2018.As of December 31, 2018, Materialise Manufacturing operated 149 3D printers, six vacuum casting machines and 19 CNC machines, as compared to 155, sixand 16 as of December 31, 2017, respectively. The decrease in 3D printers was mainly due to five powder binding machines no longer being used forconsumer printing commercial purposes. Four metal 3D printers were added, while five older plastic 3D printers were put out of operation during the yearended December 31, 2018.As a result of the ACTech acquisition, our revenue was distributed differently in 2018 than in 2017. During the year ended December 31, 2018,aggregated over our various segments, 29.5% of our revenue was derived from Materialise Software and Materialise Medical software licenses and relatedservices, as compared to 36.1% in the year ended December 31, 2017. Furthermore, 51.4% of our revenue was gained from the sale of printed industrial andconsumer products (including €43.4 million from ACTech’s business), compared to 44.7% in the year ended December 31, 2017, and 19.1% of our revenuewas obtained from the sale of medical devices (guides as well as implants). These medical devices were brought to the market together with complex softwareplanning solutions, had corresponding royalties and other fees, and contributed to the total revenue at the same level as compared to the year endedDecember 31, 2017.Cost of sales. Cost of sales was €82.3 million in the year ended December 31, 2018, compared to €63.0 million in the year ended December 31,2017, representing an increase of €19.3 million, or 30.6%. This increase in cost of sales was due to increased purchases of goods and services, payrollexpenses and a full year of depreciation expenses from the acquired ACTech business. The total cost of sales of the ACTech business amounted to€28.7 million in 2018.Gross profit. The overall gross profit margin (gross profit divided by our revenue) amounted to 55.4% in the year ended December 31, 2018,compared to 55.8% in the year ended December 31, 2017.Research and development, or R&D, sales and marketing, or S&M, and general and administrative, or G&A, expenses. R&D, S&M and G&Aexpenses increased, in the aggregate, to €101.0 million in the year ended December 31, 2018, compared to €83.8 million in the year ended December 31,2017. €9.2 million of the R&D, S&M and G&A expenses relate to the acquired ACTech business, compared to €2.1 million in the year ended December 31,2017. Excluding the ACTech business, R&D expenses increased from €20.0 million to €22.4 million, S&M expenses increased from €38.9 million to€46.3 million (including €3.2 million from ACTech), and G&A expenses increased from €24.9 million to €32.3 million (including €6.0 million fromACTech).Net other operating income. Net other operating income decreased from €4.5 million in the year ended December 31, 2017 to €3.8 million in theyear ended December 31, 2018. The variance was primarily due to the increase of the provision for doubtful receivables, including the impact of the newIFRS 9 accounting standard.Financial result (financial expenses and financial income). In 2018, the net financial result mainly related to the net interest expense from loansand deposits of financial institutions. The net financial result increased from €(1.5) million in the year ended December 31, 2017 to €(1.2) million in the yearended December 31, 2018. This variance was due to an increase of net interest expense, offset by positive variances related to foreign currency results and netother financial income.Income taxes. Income taxes in the year ended December 31, 2018 resulted in an expense of €0.4 million, which was a combination of deferred taxbookings and income taxes due over the result for the period.Net profit. As a result of the factors described above, the net profit was €3.0 million in the year ended December 31, 2018 compared to a net lossof €2.1 million in the year ended December 31, 2017, or an increase of €5.1 million.EBITDA. As a result of the factors described above, our consolidated EBITDA increased from €13.0 million in the year ended December 31, 2017to €22.5 million in the year ended December 31, 2018, an increase of €7.5 million, or 73.1%, and our total segment EBITDA increased from €22.8 million inthe year ended December 31, 2017 to €32.6 million in the year ended December 31, 2018, an increase of €9.8 million, or 43.1%. The 2018 EBITDA includesACTech’s contribution of €9.4 million.Our Materialise Software segment’s EBITDA decreased from €13.9 million in the year ended December 31, 2017 to €11.5 million in the yearended December 31, 2018, a decrease of €2.4 million, or 17.3%. This segment’s EBITDA margin (the segment’s EBITDA divided by the segment’s revenue)decreased from 38.9% for the year ended December 31, 2017 to 30.9% in the year ended December 31, 2018. The decrease in the EBITDA margin was due toa moderate revenue growth of 4.5% (which was affected negatively from a sales mix with a higher portion of recurrent sales and deferred revenue), offset byan increase in operating expenses by 18.3%, reflecting continued investments in R&D and S&M, and increased G&A expenses.Our Materialise Medical segment’s EBITDA increased from €4.4 million in the year ended December 31, 2017 to €10.3 million in the year endedDecember 31, 2018. The segment’s EBITDA margin increased from 10.3% in the year ended December 31, 2017 to 19.6% in the year ended December 31,2018. This improvement is due to the increase of the segment’s gross margin by 28.6%, mainly reflecting the positive impact of the medical devices revenuegrowth, partially offset by an increase of 6.1% across the segment’s operating expenses. 61Table of ContentsOur Materialise Manufacturing segment’s EBITDA increased from €4.4 million in the year ended December 31, 2017 to €10.8 million in the yearended December 31, 2018. Excluding ACTech’s contribution of €9.4 million, the EBITDA margin of this segment decreased from 5.4% in the year endedDecember 31, 2017 to 2.7% in the year ended December 31, 2018, as a result of decreased revenue and increased operating expenses.Reconciliation of Net Profit to Segment EBITDA For the year endedDecember 31, in 000€ 2018 2017* Net profit / (loss) 3,027 (2,117) Income taxes 425 522 Finance costs 4,864 4,728 Finance income (3,627) (3,210) Share in loss of joint venture 475 469 Operating profit 5,164 392 Depreciation and amortization 17,287 12,576 Corporate research and development 1,913 2,017 Corporate headquarters costs 10,358 9,690 Other operating income (expense) (2,149) (1,910) Segment EBITDA (unaudited) 32,573 22,765 Comparison of Years Ended December 31, 2017 and 2016 For the year ended December 31, in 000€, except percentages 2017* 2016 % Change Revenue 142,573 114,477 24.5% Cost of sales (62,952) (46,706) 34.8% Gross profit 79,621 67,771 17.5% Research and development expenses (19,959) (17,682) 12.9% Sales and marketing expenses (38,935) (36,153) 7.7% General and administrative expenses (24,876) (20,041) 24.1% Net other operating income (expenses) 4,541 6,212 -26.9% Operating profit 392 107 266.4% Financial expenses (4,728) (2,437) 94.0% Financial income 3,210 2,039 57.4% Share in loss of joint venture (469) (1,018) -53.9% Loss before taxes (1,595) (1,309) 21.8% Income taxes (522) (1,710) -69.5% Net loss (2,117) (3,019) -29.9% 62Table of ContentsComparison of the Years Ended December 31, 2017 and 2016 by Segment in 000€ MaterialiseSoftware MaterialiseMedical MaterialiseManufacturing Totalsegments Unallocated Consolidated For the year ended December 31, 2017 Revenues 35,770 42,841 63,712 142,323 250 142,573 Segment EBITDA* 13,926 4,400 4,439 22,765 (9,797) 12,968 Segment EBITDA % 38.9% 10.3% 7.0% 16.0% — 9.1% For the year ended December 31, 2016 Revenues 30,122 37,910 46,406 114,438 39 114,477 Segment EBITDA 10,130 894 3,848 14,872 (6,391) 8,481 Segment EBITDA % 33.6% 2.4% 8.3% 13.0% — 7.4% (1)Unallocated Revenues consist of occasional one-off sales by our core competencies not allocated to any of our segments. Unallocated SegmentEBITDA consists of corporate research and development, corporate headquarter costs and other operating income (expense).Revenue. Revenue was €142.6 million in the year ended December 31, 2017 compared to €114.5 million in the year ended December 31, 2016,an increase of €28.1 million, or 24.5%.Revenue by geographical area is presented as follows: For the year endedDecember 31, in 000€ 2017 2016 Americas 35,120 30,804 Europe 87,940 67,883 Asia-Pacific 19,513 15,790 Total 142,573 114,477 Revenue generated in Europe increased by €20.0 million, or 29.5%, in the year ended December 31, 2017 compared to the year endedDecember 31, 2016, mainly as a result of increased revenue in our Materialise Manufacturing (including ACTech) and Materialise Software segments.Revenue generated throughout the Americas increased by €4.3 million, or 14.0%, in the year ended December 31, 2017 compared to the year endedDecember 31, 2016. Revenue generated in Asia-Pacific increased by €3.7 million, or 23.6%, in the year ended December 31, 2017 compared to the yearended December 31, 2016, mainly as a result of increased revenue in our Materialise Manufacturing (including ACTech) and Materialise Medical segments.Revenue from our Materialise Software segment increased from €30.1 million in the year ended December 31, 2016 to €35.8 million in the yearended December 31, 2017, which represented an increase of €5.7 million, or 18.8%. This growth was primarily boosted by OEM sales growth of 23.8%.Revenue from our Materialise Medical segment increased from €37.9 million in the year ended December 31, 2016 to €42.8 million in the yearended December 31, 2017, representing an increase of €4.9 million, or 13.0%. Medical software growth was 16.5%, partner sales growth was 3.7% and directsales growth was 12.3%. Within our medical software department recurrent revenue from annual and renewed licenses and maintenance fees increased by22.2%, while revenue from perpetual licenses and services increased by 5.6%, in line with the new sales model that was introduced in April 2014, whereby,except for research and academic centers, our medical software will generally be offered through time-based licenses (and no longer on a perpetual basis).Recurrent revenues from annual and renewed licenses and maintenance fees represented 68.7% of total medical software revenues in the year endedDecember 31, 2017, compared to 64.9% in the year ended December 31, 2016.Revenue from our Materialise Manufacturing segment increased from €46.4 million in the year ended December 31, 2016 to €63.7 million in theyear ended December 31, 2017, representing an increase of €17.3 million, or 37.3%. Revenue from the ACTech business that was acquired in October 2017contributed €10.0 million in 2017. We increased the number of 3D printers dedicated to the Materialise Manufacturing segment from 120 3D printers and sixvacuum casting machines at December 31, 2016 to 155 3D printers and six vacuum casting machines at December 31, 2017 (including nine 3D printersoperated by ACTech). 63Table of ContentsDuring the year ended December 31, 2017, in the aggregate across our various segments, 36.1% of our revenue was derived from MaterialiseSoftware and Materialise Medical software licenses and related services, as compared to 38.1% in the year ended December 31, 2016, 44.7% of our revenueswas derived from the sale of printed industrial and consumer products (including €10.0 million from ACTech’s business), compared to 40.6% in the yearended December 31, 2016 and 19.2% of our revenues was derived from the sale of medical devices (guides as well as implants) that were brought to themarket together with complex software planning solutions, including royalties and other fees, as compared to 21.3% in the year ended December 31, 2016.Cost of sales. Cost of sales was €62.8 million in the year ended December 31, 2017, compared to €46.7 million in the year ended December 31,2016, an increase of €16.1 million, or 34.4%. This increase in cost of sales was primarily attributable to increased purchases of goods and services, payrollexpenses and depreciation expenses. Cost of sales of the acquired ACTech business contributed €7.3 million in 2017.Gross profit. The overall gross profit margin (our gross profit divided by our revenue) decreased to 56.0% in the year ended December 31, 2017from 59.2% in the year ended December 31, 2016. The decrease was primarily due to the relative increase of the manufacturing business resulting from theACTech acquisition and the manufacturing business generally has a lower gross margin.R&D, S&M and G&A expenses. R&D, S&M and G&A expenses increased, in the aggregate, 14.5% to €84.6 million in the year endedDecember 31, 2017 from €73.9 million in the year ended December 31, 2016. €2.5 million of the R&D, S&M and G&A expenses relate to the acquiredACTech business. Excluding the ACTech business, R&D expenses increased from €17.7 million to €20.0 million, S&M expenses increased from€36.2 million to €38.1 million, and G&A expenses (including €0.6 million of ACTech acquisition cost) increased from €20.0 million to €24.0 million.Net other operating income. Net other operating income decreased from €6.2 million in the year ended December 31, 2016 to €5.6 million in theyear ended December 31, 2017. This decrease in other operating income was primarily attributable to net foreign currency exchange losses, related to ouroperating activities.Financial result (financial expenses and financial income). The net financial result decreased from €-0.4 million in the year ended December 31,2016 to €-1.5 million in the year ended December 31, 2017. The net financial result mainly relates to variances with respect to financial foreign currencyresults, which were primarily related to foreign exchange fluctuations on the portion of the initial public offering proceeds held in U.S. dollars.Income taxes. Income taxes in the year ended December 31, 2017 resulted in an expense of €0.5 million, which was a combination of deferred taxbookings, and income taxes due over the result for the period.Net profit. As a result of the factors described above, the net loss was €1.7 million in the year ended December 31, 2017 compared to a net loss of€3.0 million in the year ended December 31, 2016, a decrease of €1.3 million. The ACTech business contributed €0.3 million positively to this result.EBITDA. As a result of the factors described above, our consolidated EBITDA increased from €8.5 million in the year ended December 31, 2016to €13.5 million in the year ended December 31, 2017, an increase of €5.0 million or 59.1%, and our total segment EBITDA increased from €14.9 million inthe year ended December 31, 2016 to €23.3 million in the year ended December 31, 2017, an increase of €8.4 million, or 56.6%. The 2017 EBITDA includesthe ACTech business’s contribution of €2.1 million.Our Materialise Software segment’s EBITDA increased from €10.1 million in the year ended December 31, 2016 to €13.9 million in the yearended December 31, 2017, an increase of €3.8 million, or 37.5%. This segment’s EBITDA margin (the segment’s EBITDA divided by the segment’s revenue)increased from 33.6% for the year ended December 31, 2016 to 38.9% in the year ended December 31, 2017. The improvement of the EBITDA margin can beexplained by an increase of the gross margin of 22%, while operating expenses increased by 17%.Our Materialise Medical segment’s EBITDA increased from €0.9 million in the year ended December 31, 2016 to €4.4 million in the year endedDecember 31, 2017. The segment’s EBITDA margin increased from 2.4% in the year ended December 31, 2016 to 10.3% in the year ended December 31,2017, which was mainly the result of an increase of the segment’s gross margin by 7.5% compared to an increase of 4.5% across the segment’s operationalexpenses. The improvement of the EBITDA margin is due to the increase of both revenue and gross margin by 13%, and an increase in operating expenses ofonly 3%.Our Materialise Manufacturing segment’s EBITDA increased from €3.8 million in the year ended December 31, 2016 to €5.0 million in the yearended December 31, 2017. Excluding the ACTech business’s contribution of €2.1 million, the EBITDA margin of this segment decreased from 8.3% in theyear ended December 31, 2016 to 5.4% in the year ended December 31, 2017. The EBITDA margin of this segment decreased from 8.3% in the year endedDecember 31, 2016 to 7.8% in the year ended December 31, 2017. The lower margin is mainly due to the following elements: the effect of temporarymanufacturing inefficiencies while moving parts of our production to our new facilities in Belgium and Poland; the effect of higher cost of sales related tosales of eyewear scanners and the increased R&D efforts related to wearable developments; the cost related to the acquisition of ACTech; and the effect ofhigher cost of capacity in the fourth quarter where revenues excluding ACTech decreased 7%. 64Table of ContentsReconciliation of Net Profit to Segment EBITDA For the year endedDecember 31, in 000€ 2017* 2016 Net profit (2,117) (3,019) Income taxes 522 1,710 Finance costs 4,728 2,437 Finance income (3,210) (2,039) Share in loss of joint venture 469 1,018 Operating profit 392 107 Depreciation and amortization 12,576 8,374 Corporate research and development 2,017 1,673 Corporate headquarters costs 9,690 8,646 Other operating income (expense) (1,910) (3,928) Segment EBITDA (unaudited) 22,765 14,872 B. Liquidity and Capital ResourcesPrior to our initial public offering, we historically funded our operations principally from cash generated from operations and borrowings. OnJune 30, 2014, we completed our initial public offering of 8,000,000 ADSs at a public offering price of $12.00 per ADS, and received net proceeds ofapproximately $88.3 million. On July 19, 2018, we completed a private placement of 1,953,125 newly issued ordinary shares to BASF Antwerpen for grossproceeds of approximately $25 million. On July 27, 2018, we sold 3,450,000 ADSs in our follow-on public offering at a public offering price of $13.00 perADS, and received net proceeds of approximately $40.2 million. As we continue to grow our business, we envision funding our operations through multiplesources, including the remaining proceeds from our initial public offering, our private placement to BASF Antwerpen and our follow-on offering, and futureearnings and cash flow from operations and borrowings.We expect our main uses of cash in the future will be funding our business operations, capital expenditures and loan reimbursements,acquisitions and partnerships. We believe that we will have sufficient liquidity to satisfy the operating requirements of our business through the next12 months.Our liquidity plans are subject to a number of risks and uncertainties, including those described in the section of this annual report titled “Item 3.Key Information—D. Risk Factors,” some of which are outside of our control. Macro-economic conditions could hinder our business plans, which could, inturn, adversely affect our financing strategy.Cash FlowsThe table below summarizes our cash flows from operating activities, investing activities and financing activities for the years endedDecember 31, 2018, 2017 and 2016. For the year ended December 31, in 000€ 2018 2017* 2016 Net cash flow from operating activities 28,320 9,951 8,495 Net cash flow from/(used in) investing activities (22,133) (59,249) (12,640) Net cash flow from/(used in) financing activities 65,235 38,041 9,266 Net increase/decrease in cash and cash equivalents 71,422 (11,257) 5,121 Comparison of Years Ended December 31, 2018 and 2017Net cash flow from operating activities was €28.3 million in the year ended December 31, 2018 compared to €10.0 million in the year endedDecember 31, 2017, an increase of €18.4 million, or 184.6%, resulting from the increase in EBITDA (€9.4 million) and additional cash flow from workingcapital and taxes paid (€8.5 million). 65Table of ContentsNet cash flow used in investing activities was €22.1 million in the year ended December 31, 2018 compared to €59.2 million in the year endedDecember 31, 2017, a decrease of €37.1 million, or 62.6%. During 2017, the main cash flow used in investing activities related to the ACTech acquisition.Net cash flow from financing activities was €65.2 million in the year ended December 31, 2018 compared to €38.0 million in the year endedDecember 31, 2017, an increase of €27.2 million, or 71.6%. During 2018, the main cash flow from financing activity related to the follow-on public offeringand BASF Antwerpen private placement in July 2018.Comparison of Years Ended December 31, 2017 and 2016Net cash flow from operating activities was €10.0 million in the year ended December 31, 2017 compared to €8.5 million in the year endedDecember 31, 2016, an increase of €1.5 million, or 17.1%. The increase in cash flow from operating activities was primarily the result of a higher EBITDA (anincrease of €5.0 million), which was offset in part by increases in working capital and income taxes paid (€4.8 million).Net cash flow used in investing activities was €59.2 million in the year ended December 31, 2017 compared to €12.6 million in the year endedDecember 31, 2016, an increase of €46.6 million, or 368.7%. The increase in cash flow used in investing activities was primarily due to the acquisition of theACTech business (€27.2 million) and investments in land, buildings, machinery and equipment (€27.7 million).Net cash flow from financing activities was €38.0 million in the year ended December 31, 2017 compared to €9.3 million in the year endedDecember 31, 2016, an increase of €28.8 million, or 310.5%. The fluctuation in cash flow used in or from financing activities was primarily related toincreased proceeds from loans and borrowings of €54.3 million.Investments in Property, Plant & Equipment and Intangible AssetsThe table below describes our investments in property, plant & equipment and intangible assets for the years ended December 31, 2018, 2017and 2016: For the year ended December 31, in 000€ 2018 2017* 2016 Purchase of property, plant and equipment 18,557 30,517 15,306 Purchase of intangible assets 2,344 4,467 2,342 Total 20,901 34,984 17,648 66Table of ContentsIndebtednessAs of December 31, 2018, we had loans and borrowings in the total amount of €106.0 million, with mainly fixed interest rates. These loansinclude secured bank loans used to finance the acquisition of ACTech, the construction of office and production facilities in Belgium and Poland, theacquisition of production equipment and installations, and research and development projects.The following table sets forth our principal indebtedness: As of December 31 in 000€ 2018 2017 2016 K€28,000 acquisition bank loan 24,576 27,513 — K€18,000 secured bank loans 17,739 17,575 6,404 K€10,000 EIB bank loan 10,000 — — K€12,300 bank loans ACTech 12,300 9,247 — K€8,750 other facility loans 4,299 4,982 5,411 Bank investment loans - top 20 outstanding 23,801 21,441 9,467 Bank investment loans - other 3,808 2,289 2,927 Financial lease agreements 6,809 9,164 7,395 Institutional loan 1,492 1,105 936 Convertible bonds 1,000 1,000 1,000 Related party loan 214 241 266 Total loans and borrowings 106,038 94,557 33,806 Current 13,598 12,769 5,539 Non-Current 92,440 81,788 28,267 K€28,000 Acquisition loan (balance €24.6 million as of December 31, 2018)This bank loan has been concluded in October 2017 to finance the acquisition of ACTech. The loan includes a portion of €18.0 million, repayable monthlyover seven years, and a bullet portion of €10.0 million, payable at once in October 2024. The interest rate is fixed for the duration of the loan, and amounts to1.1% on average for both portions. The bank loans are secured with a business pledge mandate, a share pledge on Materialise Germany GMBH, and debtcovenants.K€18,000 secured bank loansThese two secured bank loans have been concluded in 2016 in two agreements to finance the construction of new facilities in Leuven (Belgium) and inPoland, both maturing in 2032. The agreement for the Belgian facility financing amounts to €12.0 million (drawn as of year-end 2018: €11.7 million; as ofyear-end 2017: €11.6 million), and with repayments only starting in December 2022. The agreement for the Polish facility financing amounts to €6.0 million(fully drawn as of year-end 2018; as of year-end 2017: €6.0 million), and with repayments only starting in June 2019. The average interest rate of bothagreements amounts to 1.2%. The bank loans are secured with a mortgage mandate on the Belgian facility buildings.K€10,000 EIB bank loanOn December 20, 2017, we entered into a finance contract with the European Investment Bank, or EIB, to finance future research and development programs.The contract provides a credit of up to €35.0 million drawable in two tranches. As part of the first tranche, an amount of €10.0 million was drawn in July of2018. The duration of the loan will be between six to eight years, and includes a two-year loan repayment grace period. Loans under the contract are made ata fixed rate, based on the Euribor rate at the time of the borrowing, plus a variable margin. The margin is initially equal to 1.86% and varies in function ofcertain EBITDA levels and debt ratios. The contract contains customary security, covenants and undertakings.K€12,300 bank loansIn March 2018, three bank loans originating from the acquired ACTech business were refinanced in their entirety for an aggregate amount of €9.3 million,with the maturity adjusted to May 2025 and the first repayments beginning in August 2020. The interest rate was fixed at approximately 1.6%, and pledgesincluding a €4.7 milllion mortgage on ACTech’s facilities and guaranteed by Materialise NV. In addition, a new investment credit of €3.0 million wasobtained from Commerzbank in June 2018, repayable as from January 2019 and with a fixed interest rate of 1.5%. 67Table of ContentsK€8,750—Other facility loansThree facility loans were contracted in 2005, 2006 and 2012 for the construction of Leuven office and production facilities (€2.0 million, €0.3 million and€5.0 million respectively) and another loan for the Czech Republic offices in 2008 (€1.8 million). The aggregate balance of the four loans amounted to€4.3 million as of December 31, 2018. All loans have a repayment schedule of 15 years and interest rates are fixed between 4.3% and 5.4% for the four loans.Bank investment loansThe 20 largest of these investment loans outstanding as of December 31, 2018 amount to a balance of €23.8 million. They were agreed in 2017, 2016 andprior years to finance various investments in machinery, printers, equipment, and software tools. The vast majority of the loans have a reimbursement periodover seven years, and are at fixed interest rates with weighted average below 1%.Finance lease obligations with third partiesWe have several finance lease obligations mainly with financial institutions and related to the financing of buildings and various other items of plant andequipment such as 3D printers. As of December 31, 2018 the balance of these financial lease agreements amounts to €6.8 million, and are mostly at fixedinterest rates with weighted average below 2%.K€2,000 institutional loanThis loan was contracted with a governmental institution in Germany to finance the production operations of Materialise Germany for a maximum amount of€2.0 million. The loan is repayable over a four year period, starting as of September 2017 with a fixed interest rate of 0.25% payable per quarter. As ofDecember 31, 2018, €1.9 million has been drawn with an outstanding balance of €1.5 million.K€1,000 convertible bonds held by related partyOn October 28, 2013, we issued 1,000 convertible bonds with a related party for a total amount of €1.0 million. The bonds have been fully subscribed by amember of our senior management.The conditions of the convertible bonds are summarized as follows: • Number of convertible bonds: 1,000 • Nominal value per bond: €1,000 • Contractual life: seven years • Interest: 3.7% per year • Conversion period: from January 1, 2017 until maturity • Conversion price: €1.97 per shareThe maximum number of ordinary shares that can be issued upon conversion is 508,904.We have estimated the fair value of a similar liability however without any conversion option by reference to a number of quoted peers in Belgium. The fairvalue was estimated at €0.9 million. Upon initial recognition, an amount of €93,000 was recognized in consolidated reserves reflecting the fair value of theconversion option.Finance lease obligations with related partiesIn October 2001, we entered into a finance lease agreement with Ailanthus NV to lease land and a portion of a new production building. The lease had a termof 15 years and included a purchase option for the land and the building. We determined that this lease was a finance lease because (i) the purchase option isassumed to be significantly lower than the fair value of the land and building and (ii) it was very likely at inception of the lease that we would exercise ourpurchase option. The amounts outstanding as of December 31, 2018 is €0.0 (2017: €0.0; 2016: €74,000). The interest expense for the year 2018 is €0.0(2017: €0.0; 2016: €4,000). The term of the lease expired on September 20, 2016 and we exercised a purchase option in respect of the land and building. Thenotary deed transferring the land and building was completed in the course of 2017. 68Table of ContentsRelated party loanAilanthus NV has granted us one other loan at fixed interest rate of 4.23% that matures in 2025. The purpose of the loan is to finance the purchase of abuilding in France. The amounts outstanding as of December 31, 2018 is €0.2 million (2017: €0.2 million; 2016: €0.3 million). The interest expense for theyear ended December 31, 2018 is €10,000 (2017: €11,000; 2016: €12,000).Material Unused Sources of LiquidityOur cash and cash equivalents as of December 31, 2018, 2017 and 2016 were €115.5 million, €43.2 million and €55.9 million, respectively. Ourunused lines of credit as of December 31, 2018, 2017 and 2016 were €1.0 million, €4.5 million and €3.1 million, respectively, and primarily consisted ofoverdraft facilities and a straight loan. This amount excludes the facility agreement with EIB, described below.On December 20, 2017, EIB and Materialise entered into a finance contract to support Materialise’s ongoing research and development programsfor growth from 2017 to 2020. The contract provides a credit of up to €35.0 million drawable in two tranches. The first tranche could not exceed€25.0 million and could be drawn during the first year of the contract. We drew €10.0 million of this first tranche in July 2018. The second tranche can bedrawn during the second year of the contract, subject to a specified debt ratio being met. The duration of the loan will be between six to eight years startingfrom the disbursement of the respective tranches, and includes a two-year loan reimbursement grace period. Loans under the contract will be made at a fixedrate, based on the Euribor rate at the time of the borrowing, plus a variable margin. The margin is initially equal to 1.86% and varies in function of certainEBITDA levels and debt ratios. The contract contains customary security, covenants and undertakings.Transfers from SubsidiariesThe amount of dividends payable by our subsidiaries to us is subject to, among other restrictions, general limitations imposed by the corporatelaws, capital transfer restrictions and exchange control restrictions of the respective jurisdictions where those subsidiaries are organized and operate. Forexample, China has very specific approval regulations for all capital transfers to or from the country and certain capital transfers to and from Ukraine aresubject to obtaining a specific permit. Dividends paid to us by certain of our subsidiaries may also be subject to withholding taxes in certain jurisdictions. Ofour cash and cash equivalents held outside of Belgium as of December 31, 2018, 2017 and 2016, the amount of cash that would have been subject towithholding taxes if transferred to us by way of dividends and the amount of cash that could not have been transferred by law, or the transfer of which wouldhave been subject to prior approval that was beyond our control, was in each case immaterial.C. Research and Development, Patents and LicensesFor information regarding our research and development program, see “Item 4. Information on the Company—B. Business Overview—Researchand Development.”D. Trend InformationOther than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that arereasonably likely to have a material effect on our revenues, profitability, liquidity or capital resources, or that would cause the disclosed financialinformation to be not necessarily indicative of future operating results or financial conditions.E. Off-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financialcondition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material toinvestors. 69Table of ContentsF. Tabular Disclosure of Contractual ObligationsThe table below sets forth our contractual obligations as of December 31, 2018: in 000€ Total Less than 1year 1-3 years 3-5 years More than 5years Loans and borrowings 99,229 10,769 35,996 30,306 22,158 Financial lease commitments 6,809 2,829 3,236 604 140 Scheduled interest payments(1) 8,059 894 2,867 2,726 1,572 Operating lease commitments 5,441 2,053 2,302 784 302 Purchase obligations 6,383 5,656 707 20 0 Total 125,921 22,201 45,108 34,440 24,172 (1)Scheduled interest payments comprises the interest payable on loans and borrowings and financial lease commitments. No interest is payable on theother contractual obligations in the above table.In relation to our property, plant & equipment, we had committed expenditures of €0.7 million as of December 31, 2017, related to the purchaseof land in Germany. In the course of 2018, this commitment was fulfilled and the land was purchased. As of the end of December 31, 2018, we had nosignificant purchase commitments related to property, plant & equipment.G. Safe HarborSee “Special Note Regarding Forward-Looking Information” on page 1 of this annual report. 70Table of ContentsITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA. Directors and Senior ManagementThe following table sets forth certain information with respect to the current members of our board of directors and senior management: Name Age Position Directors: Wilfried Vancraen 57 Founder, Director & Chief Executive Officer Peter Leys 54 Executive Chairman A Tre C CVOA, represented by Johan De Lille 56 Director Hilde Ingelaere 57 Director & Executive Vice President Pol Ingelaere 83 Director Jürgen Ingels 48 Director Jos Vander Sloten 56 Director Lieve Verplancke 59 Director Bart Luyten 43 Director Volker Hammes 56 Director Senior Management and Executive Committee Members: Wilfried Vancraen 57 Founder, Director & Chief Executive Officer Peter Leys 54 Executive Chairman Hilde Ingelaere 56 Director & Executive Vice President Seaquence BVBA, represented by Johan Pauwels 51 Executive Vice President Bart Van der Schueren 52 Executive Vice President, Chief TechnologyOfficer Alfinco BVBA, represented by Johan Albrecht 55 Executive Vice President, Chief FinancialOfficer Ioberan BVBA, represented by Stefaan Motte 44 Vice President, Materialise Softwaresegment De Vet Management bvba, represented by Brigitte de Vet-Veithen 48 Vice President, Materialise Medical segment Level 5 BVBA, represented by Jurgen Laudus 40 Vice President, Materialise Manufacturingsegment Eduard Crits 60 Chief Information Officer SoHo services, represented by Conny Hooghe 53 Vice President, Human Resources Carla Van Steenbergen 44 Vice President, Chief Legal Officer Volker Hammes was appointed as a director through the extraordinary general meeting of shareholders on November 28, 2018. Each of our othercurrent directors was appointed at the 2018 annual general meeting of shareholders. The term of the directorship of each member of our board of directors willexpire at the 2019 annual general meeting of shareholders. The business address of the members of our board of directors is the same as our business address:Technologielaan 15, 3001 Leuven, Belgium. Our board of directors has determined that three members of our board of directors, Jürgen Ingels, LieveVerplancke and A Tre C CVOA, represented by Johan De Lille are independent under Belgian law and the NASDAQ Stock Market listing requirements.The following is a brief summary of the business experience of the current members of our board of directors:Wilfried Vancraen. Wilfried Vancraen has served as one of our directors and as our Chief Executive Officer since founding our company in July1990. Mr. Vancraen previously worked as a research engineer and consultant at the Research Institute of the Belgian Metalworking Industry, where he wasintroduced to 3D printing. Passionate about this new technology and firm in his belief that it could help create a better and healthier world, he foundedMaterialise in July 1990. Mr. Vancraen holds several patents related to the technical and medical applications of 3D printing and remains committed to usingthe technology to make positive changes in people’s lives. In recent years, Mr. Vancraen has been awarded the RTAM/SME Industry Achievement Award,the highest honor in the 3D printing industry, has been selected as the most influential person in additive manufacturing by industry professionals and TCTMagazine, and has been listed one of the five leading players in his sector by the Financial Times. He is also the recipient of a 2013 Visionaries! award fromthe Museum of Art and Design in New York. Mr. Vancraen holds a Master of Science in Electro-Mechanical Engineering and a Master in BusinessAdministration from KU Leuven. Wilfried Vancraen was chosen in the TCT Hall of Fame in 2017 for his contributions to the 3D printing industry. In 2018,he was chosen by the Additive Manufacturing Users Group (AMUG) as the Innovators Showcase and received the Industry Dino Award. 71Table of ContentsPeter Leys. Peter Leys has served as one of our directors and as our Executive Chairman since 2013. Previously, from 1990 to 2013, Mr. Leys wasat the Brussels office of Baker & McKenzie CVBA, where he focused on mergers and acquisitions, and capital markets. Mr. Leys lectures a contractnegotiation course at the KU Leuven. Mr. Leys holds a Candidacy Degree in Philosophy from KU Leuven and Master of Law degrees from KU Leuven andthe University of Georgia.Johan De Lille. Johan De Lille has represented A Tre C CVOA as one of our directors since July 2006, and A Tre C CVOA has been anindependent director of Materialise since 2006. Mr. De Lille started his professional career as an auditor at Arthur Andersen LLP in 1988. In 1994, he becameVice President & Group Controller of Ackermans & van Haaren NV, a Belgian public holding company. In 1999, he became Chief Financial Officer ofEasdaq/Nasdaq Europe and took on the role of Chief Financial Officer of Option NV, a Belgian public technology company, in 2001. Mr. De Lille joinedDelhaize Group, a Belgian public company, as Vice President & Controller in September 2002, and later became Chief Internal Auditor of the DelhaizeGroup in August 2006, and Chief Financial Officer of Delhaize Belgium in January 2009. Since 2013, Mr. De Lille has acted as Chief Financial &Information Officer of BMT Group, an industrial family owned holding company active in high-precision machining. Mr. De Lille serves as an independentdirector on the board of directors of Boma NV, a Belgian private company specializing in cleaning products. In 1988, Mr. De Lille was the award winner forthe best final paper of the Department of Economics from KU Leuven. In 2010, he received the CFO Magazine Award for the Best Finance Team of the yearfor Working Capital in Belgium. Mr. De Lille holds a Master’s degree in Economics, with a major in Econometrics and Mathematical Economics, from KULeuven.Hilde Ingelaere. Hilde Ingelaere co-founded Materialise in 1990, together with the company’s Chief Executive Officer, Wilfried Vancraen, andhas served as one of our directors since 1997. In her early years at Materialise, Ms. Ingelaere managed several staff departments including human resources,finance and legal. Today as the Executive Vice President of Materialise, she plays an important role in strategic negotiations with a focus on partnerships andapplications in the medical domain. Prior to joining Materialise, Ms. Ingelaere conducted cardiovascular clinical research at Bristol-Myers Squibb from 1986to 1989. She then worked as a business analyst with Plant Genetic Systems from 1989 to 1992. Ms. Ingelaere holds a Master’s degree in Bioengineering fromKU Leuven, where she focused on Biotechnology, and a Master’s degree in Business Administration from KU Leuven.Pol Ingelaere. Pol Ingelaere has served as one of our directors since 2011. Mr. Ingelaere has been involved for many years in education and thesciences, teaching physics, chemistry and biology to final grade college students in Belgium. In 1981 Mr. Ingelaere was appointed as an inspector for allscience teachers in West Flanders, Belgium. Mr. Ingelaere has been an active member of a number of educational commissions. Mr. Ingelaere holds a Master’sdegree in Biology from the University of Ghent and an International Certificate in Human Ecology from the Free University of Brussels.Jürgen Ingels. Jürgen Ingels has served as one of our independent directors since November 2013. Mr. Ingels is Founder and Managing Partnerof SmartFin Capital, a growth stage private equity fund that was set up in December 2014. In October 2014, Mr. Ingels sold Clear2Pay NV/S.A., a globalinnovative payments software technology company he founded in 2000, to FIS Global. The clients of Clear2Pay include global and major regional financialinstitutions such as ING Group, Banco Santander, S.A., Crédit Agricole S.A., BNP Paribas, The U.S. Federal Reserve, Royal Bank of Scotland, The People’sBank of China (PBOC). In 2012 Mr. Ingels co-founded NGdata, Inc., a global big data technology company. Mr. Ingels started his career in private equity in1997 at Dexia NV/S.A., where his role was focused on investing in technology companies. Mr. Ingels currently serves as a director on the board of directorsfor UnifiedPost NV, Guardsquare NV, Projective NV, Itineris NV, Newtec NV, Itiviti AB, Willemen Groep, Ghelamco NV, WDP (Euronext), Vavato and MariaDB. In 2015, Mr. Ingels co-founded The Glue, a provider of infrastructure solutions for financial institutions. In 2016 Mr. Ingels founded B-Hive, a Europeanfintech hub based in Brussels. In 2018, Mr. Ingels founded Scale-Ups.eu and organized Supernova, a four-day technology event in Antwerp with over 30.000visitors. Mr. Ingels holds a Master’s degree in Business Administration and a Master’s degree in Political and Social Sciences from the University of Antwerp.Jos Vander Sloten. Jos Vander Sloten has served as one of our directors since January 2007. Mr. Vander Sloten is a full professor at the Facultyof Engineering Science, KU Leuven and chaired the Division of Biomechanics for two terms from 2006 to 2014. He chaired the Leuven Medical TechnologyCentre (L-MTC), which he founded in 2008 until the end of his two terms in 2016. Mr. Vander Sloten teaches engineering mechanics, problem solving andengineering design, computer integrated surgery systems, and medical device design including regulatory affairs. From 2006 to 2012, he served as programdirector of the Master in Biomedical Engineering at KU Leuven. His research interests are computer applications in musculoskeletal biomechanics andcomputer integrated surgery, on which he authored more than 160 journal papers. Mr. Vander Sloten is a Founding Fellow of the European Alliance forMedical and Biological Engineering and Science, where he previously served as president in 2006, president-elect in 2005 and secretary-general from 2003to 2004. In 2015, he was elected as a member of the International Academy for Medical and Biological Engineering. Mr. Vander Sloten holds a Master’sdegree in Mechanical Engineering and a PhD in Mechanical Engineering – Biomedical Engineering from KU Leuven. Since 2016, he is Vice-Dean forInternational Affairs at the Faculty of Engineering Science, KU Leuven.Lieve Verplancke. Godelieve (Lieve) Verplancke has served as one of our independent directors since June 2015. Ms. Verplancke began hercareer in 1984 with The Beecham Group (now part of GlaxoSmithKline), and has since held key management positions with Merck & Co., as well as Bristol-Myers Squibb, where she served as Managing Director, leading their Belgian/GDL subsidiary, until 2012. Ms. Verplancke has also served as a board memberfor Brussels-based Europe Hospitals, the Imelda Hospital in Bonheiden, the Euronext fund, Quest for Growth, MDxHealth and the Stichting tegen Kanker.She is also the founder and managing director of Qaly@Beersel, an elderly care center in Belgium. In addition to being a medical doctor (MD – KU Leuven),Ms. Verplancke holds a postgraduate degree in Economics and a Master in Business Administration from the University of Antwerp. She has also completedcourses at INSEAD, CEDEP, Columbia University and the Vlerick Business School, and is a certified Executive Coach (PCC). 72Table of ContentsBart Luyten. Bart Luyten has served as one of our independent directors since June 2017 and also previously served as representative of one ofour directors from 2012 to 2015. Mr. Luyten is Founder and Managing Partner of SmartFin Capital, a private equity fund investing in growth stagetechnology companies. Previously, Mr. Luyten was the Founder and Managing Director of Sniper Investments NV, a smart technologies venture capital fundthat was liquidated in 2016. Mr. Luyten has experience as Investment Director of Partners At Venture, Managing Partner of Privast Capital Partners andGeneral Partner of Nausicaa Ventures, all Belgian-based private equity and venture capital funds with a focus on technology investments. Mr. Luytencurrently holds positions on the boards of directors of a number of European technology companies and serves on the advisory board of Boston MillenniaPartners II, a U.S. based venture capital and private equity firm he was associated with earlier in his career. Mr. Luyten holds a Master of Science degree inApplied Economics from the University of Antwerp and a postgraduate Master degree in SME management from VIZO Brussels.Volker Hammes. Volker Hammes, has served as one of our directors since November 2018. Mr. Hammes has served as a Managing Director ofBASF New Business GmbH, a subsidiary of BASF SE, the German chemical conglomerate (FWB: BAS), since January 2016 and a Managing Director ofBASF 3D Printing Solutions GmbH, another subsidiary of BASF, since August 2017. Between 2012 and 2016, Mr. Hammes also served as director or officerof various BASF affiliates, including as Chief Executive Officer and Managing Director, Head of Business Center Turkey, Middle East and North Africa ofBASF Turk Kimya San. Ltd. Sti. In addition, Mr. Hammes has served as a director on the boards of directors of BigRep GmbH, a manufacturer of 3D printers,since December 2017 and Essentium Inc., a provider of industrial 3D printing solutions, since December 2017. Mr. Hammes holds a Master of Science degreein Mechanical Engineering, Polymer Technology from RWTH Aachen.Our board of directors has established an Executive Committee, within the meaning of article 524bis of the Belgian Companies Code. Thefollowing is a brief summary of the professional experience of the members of our Executive Committee, which was established effective as of January 1,2017:Johan Pauwels. Johan Pauwels has served as an Executive Vice President of our company since January 2011 and has been with our companysince our founding. In 1990, Mr. Pauwels completed his Master’s thesis on stereolithography on the very first 3D printing machine at Materialise. Aftergraduating in 1991, Mr. Pauwels stayed on with our company, focusing on software development to support our 3D printing services. Throughout his careerwith our company, Mr. Pauwels has held several positions, including Software Sales Manager and Director of Sales, and is currently an Executive VicePresident responsible for global sales organization and our sales offices around the world. Mr. Pauwels holds a Master’s degree in Electro-MechanicalEngineering from KU Leuven.Bart Van der Schueren. Bart Van der Schueren has served as an Executive Vice President of our company since January 2011 and as our ChiefTechnology Officer since 2016. Prior to joining Materialise, Mr. Van der Schueren was at KU Leuven as a liaison engineer for the newly founded Materialiseand established the basic research activities for the company while also founding the research activities in 3D printing at the KU Leuven. Mr. Van derSchueren then went on to obtain a PhD in selective laser metal sintering. In 1995, Mr. Van der Schueren officially joined Materialise and ran the servicebureau. Over the years, his dedication and expertise has grown the service bureau from a regional player to one of the most prominent additive manufacturingfacilities in Europe. In 2011, Mr. Van der Schueren became an Executive Vice President of our company, responsible for the Materialise Manufacturingsegment and focusing on production and engineering services. Since 2018, Mr. Van der Schueren is globally responsible for the research activities ofMaterialise. Mr. Van der Schueren holds a PhD in Selective Laser Metal Sintering and a Master’s degree in Mechanical Engineering from KU Leuven.Johan Albrecht. Johan Albrecht has represented Alfinco BVBA as our Chief Financial Officer since August 2015. Mr. Albrecht joinedMaterialise from BARC NV, a global central laboratory that supports the pharmaceutical and biotech industry in the development of new drugs, where heserved as Chief Financial Officer between 1989 and 2015, with responsibility for its worldwide financial and business reporting and controlsystems. Mr. Albrecht was also a member of BARC NV’s executive committee and a director in its subsidiaries in Belgium, the United States, China,Australia, Singapore and South Africa. After Cerba European Lab, a network of 200 laboratories, acquired BARC NV in 2007, Mr. Albrecht also joined CerbaEuropean Lab’s executive committee in 2011. Prior to joining BARC NV, Mr. Albrecht served in various financial capacities with Pizzaland Benelux (UnitedBiscuits), Applied Data Research and Minit International. Mr. Albrecht holds a postgraduate degree in corporate finance from KU Leuven and a Bachelor ofScience in Business Administration from HU Brussels University.Stefaan Motte. Stefaan Motte serves as Vice President and General Manager of the Materialise Software segment, and as such is responsible forthe general strategic management of that segment. Mr. Motte joined us in April 2010, with an initial focus on growing our cranio-maxillofacial business.From 2012 onwards, Mr. Motte’s scope broadened to orthopaedic applications as he took up the role of Director of the Clinical Business Unit. From 2015onwards, Mr. Motte assumed his current role leading the Software business. Mr. Motte has been a member of the Materialise Executive Committee since2010. Prior to joining Materialise, Mr. Motte was a software architect and project manager with Koninklijke Philips NV from 2001 to 2006. From 2006 to2010, Mr. Motte worked with NXP semiconductors as a competence center manager, and a member of the NXP Belgium management team. Mr. Motte holds aMaster of Science degree in Mathematics from KU Leuven and a Master of Science degree in Applied Informatics from KU Leuven. In 2017 Mr. Motte wasappointed Fellow of the Faculty of Science, KU Leuven.Brigitte de Vet-Veithen. Brigitte de Vet-Veithen has represented De Vet Management bvba as Vice President Medical since June 2016. Mrs deVet-Veithen has 20 years of experience in the Healthcare and Life Sciences Sector. She has worked in various management roles for Johnson & Johnson,ultimately serving as Vice President for the EMEA region of Cordis Neurovascular and General Manager of Cordis in Germany. Before joining Materialiseshe has held various leadership roles as representative of De Vet Management bvba including the role of Chief Executive Officer of Acertys group, a providerof medical devices, software, services and supplies to hospitals and medical professionals. Mrs de Vet-Veithen holds a Master of Business Administrationwith a Major in Engineering from HEC Liege and an MBA from INSEAD. 73Table of ContentsJurgen Laudus. Jurgen Laudus serves as Vice-President of our Materialise Manufacturing segment. Mr. Laudus joined us in August 2001 asproject manager and continued to our U.K. office to become Rapid Tooling manager in 2003. For two years, Mr Jurgen was responsible for both our RapidTooling sales support and production management. In 2005, Mr Jurgen returned to Belgium to become international production manager for our additivemanufacturing services and later on sales manager, playing an active role in the growth of the additive manufacturing production activities of Materialise.Mr. Laudus holds a Master of Science degree in Engineering from the KU Leuven.Eddy Crits. Eduard (Eddy) Crits has served as our Chief Information Officer since August 2018. For the past 30 years of his career, Mr. Crits heldmanagerial and executive positions in ICT, Product Development, Operations and Engineering in global technological companies such as Agfa, IPTE andIBA. Mr. Crits holds a PhD degree in Physics from KU Leuven and an Executive MBA degree from the University of Antwerp.Conny Hooghe. Conny Hooghe represented SoHo Services as our Global HR Director since September 2017. She holds a Master of IndustrialPsychology from the University of Ghent. Previously she has held several human resources management positions within technological oriented or ITcompanies like Wolters Kluwer, Fujitsu Services and Atos Origin.Carla Van Steenbergen. Carla Van Steenbergen has served as our in-house counsel since 2003, and her role has gradually evolved into our ChiefLegal Officer. Ms. Van Steenbergen has served as our Compliance Officer since June 2014, and is a member of our Executive Committee in addition to beingsecretary to the board of directors. Ms. Van Steenbergen graduated from the law faculty of KU Leuven in 1999. After having worked for three years atBrussels’ based law firm Marx Van Ranst Vermeersch & Partners, she temporarily moved to London to earn a LLM degree at King’s College London. Uponher return to Belgium, she started working as in-house legal counsel for our company, a position which she holds to this day. Over the years, our legaldepartment has expanded, changing Ms. Van Steenbergen’s role from the sole company lawyer to that of a legal team manager.Family RelationshipsWilfried Vancraen and Hilde Ingelaere are spouses. Pol Ingelaere is the father of Hilde Ingelaere. No other family relationship exists between anymembers of our board of directors or senior management. 74Table of ContentsB. CompensationCompensation of DirectorsOur Remuneration and Nomination Committee recommends the level of remuneration for directors. These recommendations are subject toapproval by our board of directors and, subsequently, by our shareholders at the annual general meeting. During the year ended December 31, 2018, only thedirectorships of Mr. Vancraen, Mr. Leys, Ms. Ingelaere, Mr. De Lille, Mr. Vander Sloten, Mr. Ingels, Mr. Luyten and of Ms. Verplancke were remunerated. See“—Compensation of Senior Management and Executive Committee” for more information about the remuneration of the directorships of Mr. Vancraen,Mr. Leys and Ms. Ingelaere. During the year ended December 31, 2018, Mr. De Lille, Mr. Vander Sloten, Mr. Ingels, Mr. Luyten and Ms. Verplancke eachreceived annual remuneration equal to €10,000. In addition, Mr. De Lille, Mr. Vander Sloten, Mr. Ingels, Mr. Luyten and Ms. Verplancke each received aremuneration of €1,250 per physical board meeting that he or she attends and €625 for each board meeting held via conference call (lasting more than onehour) that he or she attends.In addition, the Chairman of the Audit Committee and the Chairman of the Remuneration and Nomination Committee received annualremuneration of €7,500 and €2,500, respectively. Each independent member (including the Chairman) of the Audit Committee or the Remuneration andNomination Committee received a remuneration of €1,250 for each physical committee meeting that he or she attends, and €625 for each committee meetingthat is held via conference call (lasting more than one hour) and that he or she attends. The Remuneration and Nomination Committee benchmarks directors’compensation against peer companies to ensure that it is competitive. In addition, our board of directors sets and revises, from time to time, the rules and levelof compensation for directors carrying out a special mandate or sitting on one or more of the board of directors committees and the rules for reimbursement ofdirectors’ business-related out-of-pocket expenses.Compensation of Senior Management and Executive CommitteeIn 2018, our senior management received in the aggregate total gross compensation of €2.41 million, which included base salary, bonuspayments, company car allowance and other benefits. This amount also includes the remuneration of the directorships of Mr. Vancraen, Mr. Leys andMs. Ingelaere and the compensation for the members of the Executive Committee.We have entered into services agreements (Contracts for Paid Office as a member of the Executive Committee) with each member of ourExecutive Committee. The terms of these agreements are substantially similar. These agreements generally provide for an annual base salary. In addition tothe fixed remuneration components, under the terms of these agreements, members of our Executive Committee are entitled to certain additional benefits(including mobile phone and director and officer liability insurance) and reimbursement of necessary and reasonable expenses. These services agreementswith members of our Executive Committee provide for payments and benefits (including upon termination of employment) that we believe are in line withcustomary market practice for similar companies who are operating in our industry. 75Table of ContentsC. Board PracticesService ContractsExcept as described above under “—B. Compensation—Compensation of Senior Management and Executive Committee,” we do not haveservice contracts with any member of our board of directors or Executive Committee.Board of Directors PracticesDecisions are generally made by our board of directors as a whole. However, decisions on certain matters may be delegated to committees of ourboard of directors or to the Executive Committee to the extent permitted by law and our articles of association. The chairperson, or if he or she is preventedfrom doing so, the vice chairperson, chairs the meetings of our board of directors and determines the order in which the agenda items are discussed, themethod and order of the voting, any adjournment of the discussion and passing of resolutions on individual agenda items after a due assessment of thecircumstances.Our board of directors transferred management powers to the Executive Committee, except for the general policy of the company and otherpowers which are reserved by Belgian company law to the board of directors. The Executive Committee is supervised by our board of directors. Thefollowing actions are comprised under general policy of our company and are thus excluded from the powers of the Executive Committee: • mergers and acquisitions; • transfer and waive of intellectual property rights to third parties; • granting of exclusivity rights to third parties with an important impact on the freedom of a particular business segment; • nomination and removal of members of the Executive Committee; • opening of offices abroad and nomination and removal of managers thereof; • conclusion of financial loans; • sale and purchase of real estate; and • cancellation of a particular product line.Our board of directors entrusted the daily management of the company to Wilfried Vancraen, our Chief Executive Officer, in conformity witharticle 525 of the Belgian Companies Code.Pursuant to our articles of association, our board of directors may form committees from among its members and charge them with theperformance of specific tasks. The committees’ tasks, authorizations and processes are determined by our board of directors. Where permissible by law andour articles of association, important powers of our board of directors may also be transferred to committees.Audit CommitteeThe Audit Committee consists of three members: Johan De Lille (Chairman), Lieve Verplancke and Jürgen Ingels. Our board of directors hasdetermined that Messrs. De Lille and Ingels and Ms. Verplancke are independent under Rule 10A-3 of the Exchange Act and the applicable rules of theNASDAQ Stock Market and that each of Messrs. De Lille and Ingels and Ms. Verplancke qualifies as an “audit committee financial expert” as defined underthe Exchange Act.Our Audit Committee assists our board of directors in overseeing the accuracy and integrity of our accounting and financial reporting processesand audits of our consolidated financial statements, the implementation and effectiveness of an internal control system and our compliance with legal andregulatory requirements, the independent auditors’ qualifications and independence and the performance of the independent auditors.The Audit Committee’s duties and responsibilities to carry out its purposes include, among others: • the review of our accounting processes; • the review of the effectiveness of our internal systems of control, risk management and compliance; • the consideration and recommendation of the nomination, compensation, retention and termination of the Company’s statutory auditorfor Belgian company law purposes and the Company’s independent auditor for SEC purposes, the commissioning of the auditors toconduct audits, agreeing on additional services to be provided by the auditors under their respective engagements, the establishment ofthe scope and the main review points of the audit and oversight of the auditors’ work (including resolution of disagreements with theauditors); 76Table of Contents • the preparation of our board of directors’ resolution on our consolidated financial statements; • reviewing our interim consolidated financial statements that are made public or otherwise filed with any securities regulatory authority; • discussing any flaws relating to our internal control systems, as reported by our board of directors to the audit committee; • monitoring our bookkeeping and records; and • the establishment of procedures for (i) the receipt, retention and treatment of complaints we receive regarding accounting, internalaccounting controls or auditing matters and (ii) the confidential, anonymous submission by our employees of concerns regardingquestionable accounting or auditing matters.Our Audit Committee is entitled to review information on any point it wishes to verify, and is authorized to acquire such information from any ofour employees. It is also authorized to obtain independent advice, including legal advice, if this is necessary for an inquiry into any matter under itsresponsibility. It is entitled to call on the resources that will be needed for this task. It is entitled to receive reports directly from the auditors, includingreports with recommendations on how to improve our control processes.Remuneration and Nomination CommitteeOur Remuneration and Nomination Committee consists of three members: Wilfried Vancraen, Jozef Vander Sloten and Johan De Lille. Our boardof directors has determined that Mr. De Lille is independent under the applicable rules of the NASDAQ Stock Market.Our Remuneration and Nomination Committee assists our board of directors in its decisions relating to the remuneration policy and individualremuneration packages for our board of directors and Chief Executive Officer, the appointment of directors, the Chief Executive Officer and the othermembers of senior management.The Remuneration and Nomination Committee’s duties and responsibilities to carry out its purposes include, among others: • identifying individuals qualified to become members of our board of directors, consistent with criteria approved by our board ofdirectors; • recommending to our board of directors the director nominees for each annual general meeting, taking into account any nominationrights that certain shareholders may have under our articles of association; • recommending to our board of directors director nominees to fill vacancies; • recommending to our board of directors qualified and experienced directors for service on the committees of the board of directors; • recommending to our board of directors the compensation of the members of senior management; • recommending to our board of directors any incentive compensation plans and equity-based plans, and awards thereunder, and profit-sharing plans for our employees; • evaluating the performance of our Chief Executive Officer; and • advising our board of directors on other compensation issues. 77Table of ContentsD. EmployeesThe table below sets out information about the number of FTEs and fully dedicated consultants, which consultants included individualprofessionals who are registered as private entrepreneurs in Ukraine and who work exclusively with our company. FTEs who are a part of one or more of ourthree core competencies are allocated to one of our segments and therefore included in our segment reporting. For the year ended December 31, 2018(1) 2017(2) 2016 Total 2,009 1,862 1,432 Segments: Materialise Software 273 256 251 Materialise Medical 634 542 523 Materialise Manufacturing 783 775 426 Additional staff 319 289 232 (1)Includes 349 ACTech FTEs.(2)Includes 341 ACTech FTEs.We currently do not have a work council or trade union delegation. We have a health and safety committee entitled to certain information andconsultation rights under Belgian law, at our Belgian headquarters. We consider our employee relations to be good and have never experienced a workstoppage.E. Share OwnershipThe following table sets forth information relating to beneficial ownership of our ordinary shares, as of April 12, 2019, for each member of ourboard of directors and senior management as of April 12, 2019: Ordinary Shares BeneficiallyOwned as of April 12, 2019 Name of beneficial owner(1) Number(2) Percent(2) Wilfried Vancraen(3) 33,068,964 62.5 Peter Leys(4) 576,404 1.1 A Tre C CVOA, represented by Johan De Lille(5) — — Pol Ingelaere(6) 13,988 * Jürgen Ingels(7) 11,007 * Jos Vander Sloten 12,000 * Lieve Verplancke — — Hilde Ingelaere(3) 33,068,964 62.5 Bart Luyten — — Volker Hammes — — Johan Pauwels(8) 181,688 * Bart Van der Schueren(9) 202,552 * Johan Albrecht — — Jurgen Laudus(10) 16,345 * Carla Van Steenbergen(11) 29,264 * Stefaan Motte(12) 1,500 * Brigitte de Vet-Veithen — — Conny Hooghe — — Eddy Crits — — 78Table of Contents *Less than 1%(1)Except as otherwise indicated, the address for each of the persons named above is Technologielaan 15, 3001 Leuven, Belgium.(2)Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned bya person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of April 12, 2019,including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included inthe computation of the percentage ownership of any other person. Except as otherwise indicated, we believe the persons named in this table have solevoting and investment power with respect to all ordinary shares shown as beneficially owned by them, subject to community property laws whereapplicable and to the information contained in the footnotes to this table.(3)Consists of (i) 5,331,164 ordinary shares held by Mr. Vancraen, (ii) 277,500 ordinary shares held by Ms. Ingelaere, (iii) 10,000 ADSs jointly held byMr. Vancraen and Ms. Ingelaere, (iv) 14,021,612 ordinary shares jointly held by Mr. Vancraen and Ms. Ingelaere through Idem, a civil partnership(burgerlijke maatschap / société civile de droit commun) that is controlled and managed by Mr. Vancraen and Ms. Ingelaere, and (v) 13,428,688ordinary shares held by Ailanthus NV, which is owned and controlled by Mr. Vancraen and Ms. Ingelaere. Mr. Vancraen and Ms. Ingelaere may bedeemed to share voting power and investment power over these shares. Does not include (i) 1,125 warrants issued and granted to Mr. Vancraen or 1,125warrants issued and granted to Ms. Ingelaere under the 2013 Warrant Plan, that will be exercisable upon vesting for an aggregate of 4,500 ordinaryshares and 4,500 ordinary shares, respectively, at €2.14 per share, which vests in thirds on a yearly basis beginning in October 2018 and that expire in2023, (ii) 18,180 warrants issued and granted to Mr. Vancraen or 18,180 warrants issued and granted to Ms. Ingelaere under the 2014 Warrant Plan,which warrants are exercisable for 18,180 ordinary shares and 18,180 ordinary shares, respectively, at €8.81 per share, vest 25% on a yearly basisbeginning in October 2018 and expire in 2024 or (iii) 15,000 warrants issued and granted to Mr. Vancraen or 15,000 warrants issued and granted toMs. Ingelaere under the 2015 Warrant Plan, which warrants are exercisable for 15,000 ordinary shares and 15,000 ordinary shares, respectively, at €6.45per share, vested or will vest 10% on September 2018, 20% on September 2019, 30% on September 2020 and 40% on September 2021, and expire in2025.(4)Consists of (i) 67,500 ADSs and (ii) 508,904 ordinary shares issuable upon conversion of 1,000 convertible bonds which have been issued to andsubscribed by Mr. Leys and Ms. Kindt and which can be converted at a conversion price of €1.97 per share and mature in 2020. Does not include (i)54,635 warrants issued and granted to Mr. Leys under the 2013 Warrant Plan, that will be exercisable upon vesting for an aggregate of 218,540ordinary shares at €1.97 per share, which vests in thirds on a yearly basis beginning in October 2018, and that expire in 2023, or (ii) 15,000 warrantsissued and granted to Mr. Leys under the 2015 Warrant Plan, which warrants are exercisable for 15,000 ordinary shares at €6.45 share, vested or willvest 10% on September 2018, 20% on September 2019, 30% on September 2020 and 40% on September 2021, and expire in 2025.(5)The address for A Tre C CVOA is Timmermansstraat 32, 8340 Damme, Belgium.(6)Consists of 13,988 ADSs held by Mr. Ingelaere and Mr. Ingelaere’s spouse Anne Verfaillie.(7)Consists of 11,007 ADSs held by Jinvest BVBA. The address for Jinvest BVBA is Clemenceauxstraat 177A, 2860 Sint-Katelijne-Waver, Belgium.(8)Consists of (i) 159,688 ordinary shares held jointly with Mr. Pauwels’ spouse Kristine Van Muylder and (ii) 22,000 ADSs held jointly with Ms. VanMuylder. Mr. Pauwels and Ms. Van Muylder may be deemed to share voting power and investment power over these shares. Does not include (i) 750warrants issued and granted to Mr. Pauwels under the 2013 Warrant Plan, that will be exercisable upon vesting for an aggregate of 3,000 ordinaryshares at €2.14 per share, which vests in thirds on a yearly basis beginning in October 2018, and that expire in 2023, and (ii) 18,180 warrants issuedand granted to Mr. Pauwels under the 2014 Warrant Plan, which warrants are exercisable for 18,180 ordinary shares at €8.81 per share, vest 25% on ayearly basis beginning in October 2018 and expire in 2024.(9)Consists of (i) 197,552 ordinary shares held by Mr. Van der Schueren and (ii) 5000 ADSs held by Mr. Van der Scheuren. Does not include (i) 1,125warrants issued and granted to Mr. Van der Schueren under the 2013 Warrant Plan, that will be exercisable upon vesting for an aggregate of 4,500ordinary shares at €2.14 per share, which vests in thirds on a yearly basis beginning in October 2018, and that expire in 2023, (ii) 18,180 warrantsissued and granted to Mr. Van der Schueren under the 2014 Warrant Plan, which warrants are exercisable for 18,180 ordinary shares at €8.81 per share,vest 25% on a yearly basis beginning in October 2018 and expire in 2024 or (iii) 15,000 warrants issued and granted to Mr. Van der Schueren under the2015 Warrant Plan, which warrants are exercisable for 15,000 ordinary shares at €6.45 per share, vested or will vest 10% on September 2018, 20% onSeptember 2019, 30% on September 2020 and 40% on September 2021, and expire in 2025. 79Table of Contents(10)Consists of (i) 6,045 ordinary shares held by Mr. Laudus and (ii) 10,300 ADSs held by Mr. Laudus. Does not include (i) 750 warrants issued andgranted to Mr. Laudus under the 2013 Warrant Plan, that will be exercisable upon vesting for an aggregate of 3,000 ordinary shares at €2.14 per share,which vests in thirds on a yearly basis beginning in October 2018, and that expire in 2023, (ii) 13,635 warrants issued and granted to Mr. Laudus underthe 2014 Warrant Plan, which warrants are exercisable for 13,635 ordinary shares at €8.81 per share, vest 25% on a yearly basis beginning in October2018 and expire in 2024 or (iii) 15,000 warrants issued and granted to Mr. Laudus under the 2015 Warrant Plan, which warrants are exercisable for4,000 ordinary shares at €6.45 per share, vested or will vest 10% on September 2018, 20% on September 2019, 30% on September 2020 and 40% onSeptember 2021, and expire in 2025.(11)Consists of (i) 27,764 ordinary shares held by Ms. Van Steenbergen and (ii) 1,500 ADSs held by Ms. Van Steenbergen. Does not include (i) 1,125warrants issued and granted to Ms. Van Steenbergen under the 2013 Warrant Plan, that will be exercisable upon vesting for an aggregate of 4,500ordinary shares at €2.14 per share, which vests in thirds on a yearly basis beginning in October 2018, and that expire in 2023, (ii) 18,180 warrantsissued and granted to Ms. Van Steenbergen under the 2014 Warrant Plan, which warrants are exercisable for 18,180 ordinary shares at €8.81 per share,vest 25% on a yearly basis beginning in October 2018 and expire in 2024 or (iii) 15,000 warrants issued and granted to Ms. Van Steenbergen under the2015 Warrant Plan, which warrants are exercisable for 4,000 ordinary shares at €6.45 per share, vested or will vest 10% on September 2018, 20% onSeptember 2019, 30% on September 2020 and 40% on September 2021, and expire in 2025.(12)Consists of 1,500 ADSs held by Mr. Motte. Does not include (i) 1,125 warrants issued and granted to Mr. Motte under the 2013 Warrant Plan that willbe exercisable upon vesting for an aggregate of 4,500 ordinary shares at €2.14 per share, which vests in thirds on a yearly basis beginning in October2018, and that expire in 2023, (ii) 18,180 warrants issued and granted to Mr. Motte under the 2014 Warrant Plan, which warrants are exercisable for18,180 ordinary shares at €8.81 per share, vest 25% on a yearly basis beginning in October 2018 and expire in 2024 or (iii) 5,000 warrants issued andgranted to Mr. Motte under the 2015 Warrant Plan, which warrants are exercisable for 5,000 ordinary shares at €6.45 per share, vested or will vest 10%on September 2018, 20% on September 2019, 30% on September 2020 and 40% on September 2021, and expire in 2025. 80Table of ContentsITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA. Major ShareholdersThe following table sets forth information relating to beneficial ownership of our ordinary shares, as of April 12, 2019, for each person who isknown by us to own beneficially 5% or more of our outstanding ordinary shares: Ordinary Shares BeneficiallyOwned as of April 12, 2019 Name of Beneficial Owner(1) Number(2) Percent(2) Wilfried Vancraen(3) 33,068,964 62.5 Hilde Ingelaere(3) 33,068,964 62.5 (1)Except as otherwise indicated, the address for each of the persons named above is Technologielaan 15, 3001 Leuven, Belgium.(2)Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned bya person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of April 12, 2019,including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included inthe computation of the percentage ownership of any other person. Except as otherwise indicated, we believe the persons named in this table have solevoting and investment power with respect to all ordinary shares shown as beneficially owned by them, subject to community property laws whereapplicable and to the information contained in the footnotes to this table.(3)Consists of (i) 5,331,164 ordinary shares held by Mr. Vancraen, (ii) 277,500 ordinary shares held by Ms. Ingelaere, (iii) 10,000 ADSs jointly held byMr. Vancraen and Ms. Ingelaere, (iv) 14,021,612 ordinary shares jointly held by Mr. Vancraen and Ms. Ingelaere through Idem, a civil partnership(burgerlijke maatschap / société civile de droit commun) that is controlled and managed by Mr. Vancraen and Ms. Ingelaere, and (v) 13,428,688ordinary shares held by Ailanthus NV, which is owned and controlled by Mr. Vancraen and Ms. Ingelaere. Mr. Vancraen and Ms. Ingelaere may bedeemed to share voting power and investment power over these shares. Does not include (i) 1,125 warrants issued and granted to Mr. Vancraen or 1,125warrants issued and granted to Ms. Ingelaere under the 2013 Warrant Plan, that will be exercisable upon vesting for an aggregate of 4,500 ordinaryshares and 4,500 ordinary shares, respectively, at €2.14 per share, which vest in thirds on a yearly basis beginning in October 2018 and that expire in2023, (ii) 18,180 warrants issued and granted to Mr. Vancraen or 18,180 warrants issued and granted to Ms. Ingelaere under the 2014 Warrant Plan,which warrants are exercisable for 18,180 ordinary shares and 18,180 ordinary shares, respectively, at €8.81 per share, vest 25% on a yearly basisbeginning in October 2018 and expire in 2024 or (iii) 15,000 warrants issued and granted to Mr. Vancraen or 15,000 warrants issued and granted toMs. Ingelaere under the 2015 Warrant Plan, which warrants are exercisable for 15,000 ordinary shares and 15,000 ordinary shares, respectively, at €6.45per share, vested or will vest 10% on September 2018, 20% on September 2019, 30% on September 2020 and 40% on September 2021, and expire in2025.None of our shareholders have different voting rights from other shareholders, except that as long as the Family Shareholders control, directly orindirectly, in the aggregate at least 20% of the voting rights attached to our ordinary shares, a majority of our directors must be appointed by our shareholdersfrom a list of candidates proposed by the Family Shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change ofcontrol of our company.As of December 31, 2018, there were 104 individual holders of record entered in our share register. The number of individual holders of record isbased exclusively upon our share register and does not address whether a share or shares may be held by the holder of record on behalf of more than oneperson or institution who may be deemed to be the beneficial owner of a share or shares in our company. As of December 31, 2018, 68% of our outstandingordinary shares were held in Belgium by 104 holders of record. As of December 31, 2018, assuming that all of our ordinary shares represented by ADSs areheld by residents of the United States, approximately 32% of our outstanding ordinary shares were held in the United States by one holder of record, the Bankof New York Mellon, depositary of the ADSs. At such date, there were outstanding 16,940,070 ADSs, each representing one of our ordinary shares, and in theaggregate representing approximately 32% of our outstanding ordinary shares. The actual number of holders is greater than these numbers of record holders,and includes beneficial owners whose ADSs are held in street name by brokers and other nominees. This number of holders of record also does not includeholder whose shares may be held in trust by other entities. 81Table of ContentsB. Related Party TransactionsSince January 1, 2018, there has not been, nor is there currently proposed, any material transaction or series of similar material transactions towhich we were or are a party in which any of the members of our board of directors or senior management, holders of more than 10% of any class of our votingsecurities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than thecompensation and shareholding arrangements we describe in “Item 6. Directors, Senior Management and Employees” and “—A. Major Shareholders,” andthe transactions we describe below.Ailanthus NVAilanthus NV, a shareholder and director that is owned and controlled by Mr. Vancraen and Ms. Ingelaere, has previously provided several loansand financial leases to us for the purchase of machinery and a portion of our office and production buildings.Ailanthus NV has granted us one loan at a fixed interest rate of 4.23% that matures in 2025. The purpose of the loan is to finance the purchase ofa building in France. For additional information, see Note 15 to our audited consolidated financial statements.We rent apartments on a regular basis from Ailanthus NV in order to host our employees from foreign subsidiaries who are visiting ourheadquarters in Leuven. The total amount paid to Ailanthus NV for rent in 2018 was €0.12 million.Convertible Bonds IssuanceOn October 28, 2013, we issued to Mr. Leys and his spouse 1,000 convertible bonds at an issuance price of €1,000 per bond. The bonds have amaturity of seven years, bear an annual interest rate of 3.7% and can be converted into ordinary shares at a conversion price of €1.97 per share.Registration Rights AgreementOn September 15, 2016, we entered into a registration rights agreement with certain holders of our ordinary shares, warrants and convertiblebonds, including certain of our directors, senior management and consultants, which we refer to as the Registration Rights Agreement. In accordance with theterms of the Registration Rights Agreement, we filed a shelf registration statement on Form F-3 to register up to 35,032,250 ordinary shares represented by35,032,250 ADSs to be sold by the selling shareholders from time to time. These ordinary shares consist of ordinary shares previously issued to and ordinaryshares issuable upon exercise of warrants or conversion of convertible bonds held by the selling shareholders, as well as ordinary shares underlying ADSs thatwere acquired by the selling shareholders on the NASDAQ Global Select Market.C. Interests of Experts and CounselNot applicable. 82Table of ContentsITEM 8. FINANCIAL INFORMATIONA. Consolidated Financial Statements and Other InformationSee “Item 3.A. Key Information—A. Selected Financial Data” and “Item 18. Financial Statements.”Legal or Arbitration ProceedingsFrom time to time, we may be subject to various claims or legal or arbitration proceedings that arise in the ordinary course of our business. Weare currently involved in a legal proceeding with Dentsply Implants NV regarding the alleged wrongful termination of a supply agreement we entered intowith Dentsply Implants NV in 2010. The court of first instance ruled in favor of Dentsply Implants NV that we have wrongfully terminated the relationship.We have appealed this decision before the court has pronounced itself on the monetary damages. The amount of damages which Dentsply Implants NV isclaiming is €2.7 million. While we are confident that the first instance decision will be overruled, we believe that, in the event that the first instance decisionwould be confirmed, the amount of monetary damages that we would be exposed to will not have a material adverse effect on our business, financialconditions or results of operations.We are currently not a party to, and we are not aware of any threat of, any other legal or arbitration proceedings, which, in the opinion of ourmanagement, is likely to have or could reasonably possibly have a material adverse effect on our business, financial condition or results of operations.Policy on Dividend DistributionWe have never declared or paid any cash dividends on our shares, and we have no present intention of declaring or paying any dividends in theforeseeable future. Any recommendation by our board of directors to pay dividends, subject to compliance with applicable law and any contractualprovisions that restrict or limit our ability to pay dividends, including under agreements for indebtedness that we may incur, will depend on many factors,including our financial condition, results of operations, legal requirements, capital requirements, business prospects and other factors that our board ofdirectors deems relevant.All of the shares represented by the ADSs have the same dividend rights as all of our other outstanding shares. In general, distributions ofdividends proposed by our board of directors require the approval of our shareholders at a shareholders’ meeting, although our board of directors may declareinterim dividends without shareholder approval.Furthermore, pursuant to Belgian law, the calculation of amounts available for distribution to shareholders, as dividends or otherwise, must bedetermined on the basis of our non-consolidated statutory Belgian GAAP financial statements. In addition, in accordance with Belgian law and our articles ofassociation, we must allocate each year an amount of at least 5% of our annual net profit under our statutory non-consolidated accounts (prepared inaccordance with Belgian GAAP) to a legal reserve until the reserve equals 10% of our share capital. As a consequence of these facts there can be no assuranceas to whether dividends or other distributions will be paid out in the future or, if they are paid, their amount.For information regarding the Belgian withholding tax applicable to dividends and related U.S. reimbursement procedures, see “Item 10.Additional Information—E. Taxation—Belgian Taxation.”B. Significant ChangesNone. 83Table of ContentsITEM 9. THE OFFER AND LISTINGA. Offer and Listing DetailsPrice HistoryThe ADSs, each representing one ordinary share, have been listed on the NASDAQ Global Select Market under the symbol “MTLS” sinceJune 25, 2014. Prior to that date, there was no public trading market for ADSs or our ordinary shares.B. Plan of DistributionNot applicable.C. MarketsThe ADSs have been listed on the NASDAQ Global Select Market under the symbol “MTLS” since June 25, 2014.D. Selling ShareholdersNot applicable.E. DilutionNot applicable.F. Expenses of the IssueNot applicable. 84Table of ContentsITEM 10. ADDITIONAL INFORMATIONA. Share CapitalNot applicable.B. Memorandum and Articles of AssociationThe information called for by this item has been reported previously in our registration statement on Form F-1 (Registration No. 333-194982)under the heading “Description of Share Capital,” which is incorporated herein by reference, and is supplemented by the following additional informationrelated to changes in our share capital:The share capital of Materialise NV was increased following the exercise of warrants previously issued under our 2007 Warrant Plan onNovember 27, 2014, with €73,696 (including issuance premium) against the issuance of 75,200 new ordinary shares, and on November 20, 2015 with€96,040 (including issuance premium) against the issuance of 98,000 new ordinary shares. The 2007 Warrant Plan 2007 is now terminated. There are nooutstanding warrants issued under this plan.On March 5, 2015, the board of directors increased the share capital of Materialise NV by €578,917 (including issuance premium) against theissuance of 80,182 new ordinary shares, pursuant to the powers granted to it by the extraordinary general meeting of shareholders held on April 23, 2014.On December 18, 2015, the board of directors adopted a new warrant plan, our 2015 Warrant Plan, and issued 1,400,000 warrants, which warrantsare exercisable for 1,400,000 new ordinary shares, pursuant to the powers granted to it by the extraordinary general meeting of shareholders held on April 23,2014. As of December 31, 2018, 352,000 of the warrants were granted.On March 30, 2018, the board of directors increased the share capital of Materialise NV by €207,263.05 (including issuance premium) againstthe issuance of 102,856 new ordinary shares, pursuant to the powers granted to it by the extraordinary general meeting of shareholders held on April 23,2014.On July 18, 2018, the board of directors decided to increase the share capital of Materialise NV, which capital increase was confirmed on July 26and July 27, 2018, by €33,361,847.73 (including issuance premium) and €4,993,171.73 (including issuance premium), respectively, against the issuance of3,000,000 and 450,000 new ordinary shares, respectively, pursuant to the powers granted to it by the extraordinary general meeting of shareholders held onApril 23, 2014.On July 19, 2018, the board of directors increased the share capital of Materialise NV by €21,531,306.52 (including issuance premium) againstthe issuance of 1,953,125 new ordinary shares, pursuant to the powers granted to it by the extraordinary general meeting of shareholders held on April 23,2014.On December 28, 2018, the board of directors increased the share capital of Materialise NV following the exercise of warrants previously issuedunder the 2013 Warrant Plan and the 2014 Warrant Plan by €40,778.50 (including issuance premium) and €354,532.02 (including issuance premium),respectively, against the issuance of 19,100 and 40,242 new ordinary shares, respectively, pursuant to the powers granted to it by the extraordinary generalmeeting of shareholders held on April 23, 2014.C. Material ContractsWe have not entered into any material contracts in the prior two years other than in the ordinary course of business and other than thosedescribed elsewhere in “—B. Memorandum and Articles of Association,” “Item 7. Major Shareholders and Related Party Transactions—B. Related PartyTransactions,” or elsewhere in this annual report.D. Exchange ControlsThere are no Belgian exchange control regulations that impose limitations on our ability to make, or the amount of, cash payments to residentsof the United States. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Transfers from Subsidiaries” for adiscussion of various restrictions applicable to transfers of funds by our subsidiaries. 85Table of ContentsE. TaxationBelgian TaxationThe following paragraphs are a summary of material Belgian tax consequences of the ownership of ADSs by an investor. The summary is basedon laws, treaties and regulatory interpretations in effect in Belgium on the date of this document, all of which are subject to change, including changes thatcould have retroactive effect.The summary only discusses Belgian tax aspects which are relevant to U.S. holders of ADSs, or Holders. This summary does not address Belgiantax aspects which are relevant to persons who are residents in Belgium or engaged in a trade or business in Belgium through a permanent establishment or afixed base in Belgium. This summary does not purport to be a description of all of the tax consequences of the ownership of ADSs, and does not take intoaccount the specific circumstances of any particular investor, some of which may be subject to special rules, or the tax laws of any country other thanBelgium. This summary does not describe the tax treatment of investors that are subject to special rules, such as banks, insurance companies, collectiveinvestment undertakings, dealers in securities or currencies, persons that hold, or will hold, ADSs in a position in a straddle, share-repurchase transaction,conversion transactions, synthetic security or other integrated financial transactions. Investors should consult their own advisers regarding the taxconsequences of an investment in ADSs in the light of their particular circumstances, including the effect of any state, local or other national laws. 86Table of ContentsIn addition to the assumptions mentioned above, it is also assumed in this discussion that for purposes of the domestic Belgian tax legislation,the owners of ADSs will be treated as the owners of the ordinary shares represented by such ADSs. However, the assumption has not been confirmed orverified with the Belgian Tax Administration.Dividend Withholding TaxAs a general rule, a withholding tax of 30% is levied on the gross amount of dividends paid on the ordinary shares represented by the ADSs,subject to such relief as may be available under applicable domestic or tax treaty provisions. Dividends subject to the dividend withholding tax include allbenefits attributed to the ordinary shares represented by the ADSs, irrespective of their form. A reimbursement of fiscal capital made in accordance with theBelgian Company Code is partly considered to be a distribution of the existing taxed reserves (irrespective whether incorporated into the capital or not)and/or the tax-free reserves incorporated into the capital. The proportion is determined on the basis of the ratio between certain taxed reserves and tax-freereserves incorporated into the capital on the one hand and, on the other hand, the aggregate of such reserves and the fiscal capital. In principle, fiscal capitalincludes paid-up statutory share capital, and subject to certain conditions, the paid-up issue premiums and the cash amounts subscribed to at the time of theissue of profit sharing certificates.In case of a redemption by us of own shares represented by ADSs, the redemption distribution (after deduction of the portion of fiscal capitalrepresented by the redeemed shares) will be treated as a dividend which in certain circumstances may be subject to a withholding tax of 30%, subject to suchrelief as may be available under applicable domestic or tax treaty provisions. In case of a liquidation of our Company, any amounts distributed in excess ofthe fiscal capital will be subject to a 30% withholding tax, subject to such relief as may be available under applicable domestic or tax treaty provisions.For non-resident individuals and companies, the dividend withholding tax will be the only tax on dividends in Belgium, unless the non-residentholds ADSs in connection with a business conducted in Belgium, through a fixed base in Belgium or a Belgian permanent establishment.Relief of Belgian Dividend Withholding TaxUnder the Belgium-United States Tax Treaty, or the Treaty, there is a reduced Belgian withholding tax rate of 15% on dividends paid by us to aU.S. resident which beneficially owns the dividends and is entitled to claim the benefits of the Treaty under the limitation of benefits article included in theTreaty (which we refer to as a Qualifying Holder). If such Qualifying Holder is a company that owns directly at least 10% of our voting stock, the Belgianwithholding tax rate is further reduced to 5%. No withholding tax is however applicable if the Qualifying Holder, is: (i) a company that is a resident of theUnited States that has owned directly ADSs representing at least 10% of our capital for a 12-month period ending on the date the dividend is declared, or(ii) a pension fund that is a resident of the United States, provided that such dividends are not derived from the carrying on of a business by the pension fundor through an associated enterprise.Under the normal procedure, we or our paying agent must withhold the full Belgian withholding tax (without taking into account the Treatyrate). Qualifying Holders may make a claim for reimbursement for amounts withheld in excess of the rate defined by the Treaty. The reimbursement form(Form 276 Div-Aut.) may be obtained from the Centre Etrangers, Kruidtuinlaan 50, PO 3429, 1000 Brussels, Belgium or online on the website of the Belgiantax authorities. Qualifying Holders may also, subject to certain conditions, obtain the reduced Treaty rate at source. Qualifying Holders should deliver a dulycompleted Form 276 Div-Aut. no later than ten days after the date on which the dividend is paid. U.S. holders should consult their own tax advisors as towhether they qualify for reduction in withholding tax upon payment or attribution of dividends, and as to the procedural requirements for obtaining areduced withholding tax upon the payment of dividends or for making claims for reimbursement.Withholding tax is also not applicable, pursuant to Belgian domestic tax law, on dividends paid to certain U.S. pension funds provided that theU.S. pension fund (i) qualifies as a non-resident saver for Belgian withholding tax purposes (i.e., it has a separate legal personality and fiscal residenceoutside of Belgium), (ii) has a corporate purpose that consists solely in managing and investing funds collected in order to pay legal or complementarypensions, (iii) has activity that is limited to the investment of funds collected in the exercise of its statutory purpose, without any profit making activity and(iv) is exempt from income taxes in the United States. Furthermore, such pension fund may not contractually be obligated to redistribute the dividends to anybeneficial owner of such dividends for whom it would manage the ADSs and subject to certain procedural formalities.Under Belgian domestic tax law, a withholding tax exemption is available to dividends paid to a non-resident corporate shareholder (located inthe EEA or in a country with which Belgium has entered in a double tax treaty including sufficient information exchange provisions) provided that (i) at thedate of payment or attribution of the dividend it holds a participation in our company representing at least 10% of our share capital, (ii) this holding has beenheld in full ownership for an uninterrupted period of at least one year, (iii) this non-resident corporate shareholder is subject to a corporate income tax regimesimilar to Belgian corporate income tax regime without benefitting from a notably advantageous tax regime as compared to the ordinary income tax regimeand (iv) its legal form is (similar to one of the legal forms) listed in the annex of the E.U. directive dated 23 July 1990 (90/435/EC) as amended by thedirective of 22 December 2003 (2003/123/EC). This reduced withholding tax will apply provided that certain procedural formalities are complied with.Finally, a withholding tax exemption is available, pursuant to Belgian domestic tax law, to dividends paid to a non-resident corporateshareholder (located in the EEA or in a country with which Belgium has entered in a double tax treaty including sufficient information exchange provisions)to the extent that at the date of payment or attribution of the dividend it holds a participation in our company representing less than 10% 87Table of Contentsof our share capital but the acquisition value of which is at least €2.5 million and provided that certain other conditions are met, i.e., that (i) this holding hasbeen held in full ownership for an uninterrupted period of at least one year (ii) this non-resident corporate shareholder is subject to a corporate income taxregime similar to Belgian corporate income tax regime without benefitting from a notably advantageous tax regime as compared to the ordinary income taxregime, and (iii) its legal form is (similar to one of the legal forms) listed in the annex I, part A, of the E.U. directive dated 30 November 2011 (2011/96/EU) asamended by the directive of 8 July 2014 (2014/86/EU). This reduced withholding tax will apply only if and to the extent that the ordinary Belgianwithholding tax cannot be credited or reimbursed to the non-resident corporate shareholder referred to below and subject to certain procedural formalities.Capital Gains and LossesPursuant to the Treaty, capital gains and/or losses realized by a Qualifying Holder from the sale, exchange or other disposition of ADSs do notfall within the scope of application of Belgian domestic tax law.Capital gains realized on ADSs by a corporate Holder which is not entitled to claim the benefits of the Treaty under the limitation of benefitsarticle included in the Treaty are generally not subject to taxation in Belgium unless the corporate Holder is acting through a Belgian permanentestablishment. Capital losses are not deductible.Private individual Holders who are not entitled to claim the benefits of the Treaty under the limitation of benefits article included in the Treatyand which are holding ADSs as a private investment will, as a rule, not be subject to tax on any capital gains arising out of a disposal of ADSs. Losses will, asa rule, not be deductible in Belgium.However, if the gain realized by such individual Holders on ADSs is deemed to be realized outside the scope of the normal management of suchindividual’s private estate and the capital gain is obtained or received in Belgium, the gain will in principle be taxable at 33%. The Official Commentary tothe ITC 1992 stipulates that occasional transactions on a stock exchange regarding ADSs should not be considered as transactions realized outside the scopeof normal management of one’s own private estate.Capital gains realized by such individual Holders on the disposal of ADSs for consideration, outside the exercise of a professional activity, to anon-resident company (or a body constituted in a similar legal form), to a foreign state (or one of its political subdivisions or local authorities) or to anon-resident legal entity who is established outside the EEA, are in principle taxable at a rate of 16.5% if, at any time during the five years preceding the sale,such individual Holders has owned directly or indirectly, alone or with his/her spouse or with certain relatives, a substantial shareholding in us (that is, ashareholding of more than 25% of our shares).Capital gains realized by a Holder upon the redemption of ADSs or upon our liquidation will generally be taxable as a dividend. See section“Dividend Withholding Tax.”Estate and Gift TaxThere is no Belgian estate tax on the transfer of ADSs upon the death of a Belgian non-resident.Donations of ADSs made in Belgium may or may not be subject to gift tax in Belgium depending on the modalities under which the donation iscarried out.Belgian Tax on Stock Exchange TransactionsA tax on stock exchange transactions (taxe sur les opérations de bourse/taks op de beursverrichtingen) is generally levied on the purchase andthe sale and on any other acquisition and transfer for consideration of existing ADSs on the secondary market carried out by a Belgian resident investorthrough a professional intermediary if (i) executed in Belgium through a professional intermediary, or (ii) deemed to be executed in Belgium, which is thecase if the order is directly or indirectly made to a professional intermediary established outside of Belgium, either by private individuals having their usualresidence in Belgium, or legal entities for the account of their seat or establishment in Belgium.The applicable rate amounts to 0.35% of the consideration paid but with a cap of €1,600 per transaction and per party. The tax is due separatelyfrom each party to any such transaction, i.e., the seller (transferor) and the purchaser (transferee), both collected by the professional intermediary.However, if the intermediary is established outside of Belgium, the tax will in principle be due by the ordering private individual or legal entity,unless that individual or entity can demonstrate that the tax has already been paid. Professional intermediaries established outside of Belgium can, subject tocertain conditions and formalities, appoint a Belgian representative for tax purposes, which will liable for the tax on stock exchange transactions in respect ofthe transactions executed through the professional intermediary. 88Table of ContentsBelgian non-residents who purchase or otherwise acquire or transfer, for consideration, ADSs in Belgium for their own account through aprofessional intermediary may be exempt from the stock market tax if they deliver a sworn affidavit to the intermediary in Belgium confirming theirnon-resident status.A tax on repurchase transactions (taxe sur les reports/taks op de reportverrichtingen) at the rate of 0.085%. will be due from each party to anysuch transaction entered into or carried out in Belgium by a Belgian resident investor in which a stockbroker acts for either party (with a maximum amount of€1,600 per transaction and per party).No stock exchange tax, nor tax on repurchase transactions is payable by: (i) professional intermediaries described in Article 2, 9° and 10° of theLaw of August 2, 2002 acting for their own account, (ii) insurance companies described in Article 2, §1 of the Law of 9 July 1975 acting for their ownaccount, (iii) professional retirement institutions referred to in Article 2, 1° of the Law of October 27, 2006 relating to the control of professional retirementinstitutions acting for their own account, (iv) collective investment institutions acting for their own account, or (v) regulated real estate companies (for thestock exchange tax only).No stock exchange tax, nor tax on repurchase transactions will thus be due by Holders on the subscription, purchase or sale of ADSs, if theHolders are acting for their own account. In order to benefit from this exemption, the Holders must file with the professional intermediary in Belgium a swornaffidavit evidencing that they are non-residents for Belgian tax purposes.Belgian Tax on Securities AccountsPursuant to the law of February 7, 2018 introducing a tax on securities accounts, a tax of 0.15%. is levied on Belgian resident and non-residentindividuals on their share in the average value of the qualifying financial instruments (including but not limited to shares, certificates thereof, notes and unitsof undertakings for collective investment) held on one or more securities accounts during a reference period of 12 consecutive months starting on October 1and ending on September 30 of the subsequent year (which we refer to as Tax on Securities Accounts). The first reference period started on the day of entryinto effect of the Law (i.e., March 10, 2018) and ended on September 30, 2018.No Tax on Securities Accounts is due provided the holder’s share in the average value of the qualifying financial instruments on those accountsamounts to less than €500,000. If, however, the holder’s share in the average value of the qualifying financial instruments on those accounts amounts to€500,000 or more, the Tax on Securities Accounts will be due on the entire share of the holder in the average value of the qualifying financial instruments onthose accounts (and, hence, not only on the part which exceeds the €500,000 threshold).Qualifying financial instruments held by non-resident individuals only fall within the scope of the Tax on Securities Accounts provided they areheld on securities accounts with a financial intermediary established or located in Belgium. Note that pursuant to certain double tax treaties, Belgium has noright to tax capital. Hence, to the extent the Tax on Securities Accounts is viewed as a tax on capital within the meaning of these double tax treaties, treatyprotection may, subject to certain conditions, be claimed.A financial intermediary is defined as (i) a credit institution or a stockbroking firm as defined by Article 1, §2 and §3 of the Law of 25 April 2014on the status and supervision of credit institutions and investment companies and (ii) the investment companies as defined by Article 3, §1 of the Law of25 October 2016 on access to the activity of investment services and on the legal status and supervision of portfolio management and investment advicecompanies, which are, pursuant to national law, admitted to hold financial instruments for the account of customers.The Tax on Securities Accounts is in principle due by the financial intermediary established or located in Belgium if (i) the holder’s share in theaverage value of the qualifying financial instruments held on one or more securities accounts with said intermediary amounts to €500,000 or more or (ii) theholder instructed the financial intermediary to levy the Tax on Securities Accounts due (e.g. in case such holder holds qualifying financial instruments onseveral securities accounts held with multiple intermediaries of which the average value does not amount to €500,000 or more, but of which the holder’sshare in the total average value of these accounts amounts to at least €500,000). Otherwise, the Tax on Securities Accounts would have to be declared andwould be due by the holder itself unless the holder provides evidence that the Tax on Securities Accounts has already been withheld, declared and paid by anintermediary which is not established or located in Belgium. In that respect, intermediaries located or established outside of Belgium could appoint a Tax onthe Securities Accounts representative in Belgium, subject to certain conditions and formalities (which we refer to as a Tax on the Securities AccountsRepresentative). Such a Tax on the Securities Accounts Representative will then be liable towards the Belgian Treasury for the Tax on the SecuritiesAccounts due and for complying with certain reporting obligations in that respect.Belgian resident individuals will have to report in their annual income tax return various securities accounts held with one or more financialintermediaries of which they are considered as a holder within the meaning of the Tax on Securities Accounts. Non-resident individuals have to report in theirannual Belgian non-resident income tax return various securities accounts held with one or more financial intermediaries established or located in Belgiumof which they are considered as a holder within the meaning of the Tax on Securities Accounts.U.S. holders should consult their own tax advisors as to whether they are subject to the Tax on Securities Accounts. 89Table of ContentsProposed Financial Transactions TaxOn February 14, 2013, the European Commission has published a proposal for a Directive for a common financial transactions tax, or FTT, inBelgium, Germany, Greece, Spain, France, Italy, Austria, Portugal, Slovenia, Estonia and Slovakia, or collectively, the Participating Member States. OnDecember 8, 2015, Estonia declared that it will no longer support the FTT.The proposed FTT has a very broad scope and could, if introduced in its current form, apply to certain dealings in ADSs in certain circumstances.The FTT could apply in certain circumstances to persons both within and outside of the Participating Member States. Generally, it would apply to certaindealings in ADSs where at least one party is a financial institution, and at least one party is established in a Participating Member State.A financial institution may be, or be deemed to be, “established” in a Participating Member State in a broad range of circumstances, including bytransacting with a person established in a Participating Member State.Currently, the proposed FTT remains subject to further negotiations between the Participating Member States (excluding Estonia). It maytherefore be adjusted prior to any implementation, of which the timing and fate remains unclear. Moreover, additional E.U. Member States could decide toparticipate or drop out of the negotiations. Prospective Holders of ADSs are advised to seek their own professional advice in relation to the FTT.U.S. TaxationThe following is a discussion of the material U.S. federal income tax considerations to U.S. holders (as defined below) of acquiring, holding anddisposing of the ADSs. The following discussion applies only to U.S. holders that purchase ADSs, will hold ADSs as capital assets for U.S. federal income taxpurposes (generally, assets held for investment) and that are not residents of, or ordinarily resident in, Belgium for tax purposes nor hold their ADSs as part ofa permanent establishment in Belgium. The discussion also does not address any aspect of U.S. federal taxation other than U.S. federal income taxation. Inparticular, this summary does not address all tax considerations applicable to investors that own (directly or by attribution) 10% or more of our stock by voteor value, nor does this summary discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under theU.S. federal income tax laws (such as financial institutions, insurance companies, real estate investment trusts, regulated investment companies, investorsliable for the alternative minimum tax, certain U.S. expatriates, individual retirement accounts and other tax-deferred accounts, partnerships or other pass-through entities for U.S. federal income tax purposes, tax-exempt organizations, dealers in securities or currencies, securities traders that elect mark-to-markettax accounting, investors that will hold the ADSs as part of constructive sales, straddles, hedging, integrated or conversion transactions for U.S. federalincome tax purposes or investors whose “functional currency” is not the U.S. dollar).The following summary is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, U.S. Treasury Regulations thereunder,published rulings of the U.S. Internal Revenue Service, or the IRS, the income tax treaty between the United States and Belgium, or the U.S.-Belgium Treaty,and judicial and administrative interpretations thereof, in each case as available on the date of this annual report. Changes to any of the foregoing, or changesin how any of these authorities are interpreted, may affect the tax consequences set out below, possibly retroactively. No ruling will be sought from the IRSwith respect to any statement or conclusion in this discussion, and there can be no assurance that the IRS will not challenge such statement or conclusion inthe following discussion or, if challenged, a court will uphold such statement or conclusion.For purposes of the following summary, a “U.S. holder” is a beneficial owner of ADSs that is for U.S. federal income tax purposes: (i) a citizen orindividual resident of the United States, (ii) a corporation or other entity treated as a corporation for U.S. federal income tax purposes created or organized inor under the laws of the United States or any state thereof (including the District of Columbia), (iii) an estate, the income of which is subject to U.S. federalincome taxation regardless of its source or (iv) a trust if (x) a court within the United States is able to exercise primary supervision over its administration and(y) one or more United States persons (as defined in the Code) have the authority to control all of the substantial decisions of such trust.If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) holds ADSs, the U.S. federal income taxconsequences to the partners of such partnership will depend on the activities of the partnership and the status of the partners. A partnership considering aninvestment in ADSs, and partners in such partnership, should consult their own tax advisers about the consequences of the investment.We do not expect to be a passive foreign investment company, or a PFIC, and the discussion under “—Distributions by Us” and “—Proceedsfrom the Sale, Exchange or Retirement of the ADSs” below assumes we will not be a PFIC. See “—Passive Foreign Investment Company” discussion below. 90Table of ContentsProspective purchasers of ADSs should consult their own tax advisers with respect to the U.S. federal, state, local and non-U.S. taxconsequences to them in their particular circumstances of acquiring, holding, and disposing of, ADSs.Ownership of ADSs in GeneralThe discussion below is based, in part, on representations by the Depositary and assumes that each obligation under the deposit agreement andany related agreement will be performed in accordance with its terms.For U.S. federal income tax purposes, an owner of ADSs generally will be treated as the owner of the ordinary shares represented by such ADSs.However, the U.S. Treasury has expressed concerns that parties to whom interests such as the ADSs are delivered in transactions similar to pre-releasetransactions may be taking actions that are inconsistent with the claiming of foreign tax credits for U.S. holders of ADSs. Accordingly, the analysis of thecreditability of Belgian taxes could be affected by actions taken by parties to whom the ADSs are pre-released. No gain or loss will be recognized if youexchange ADSs for the ordinary shares represented by those ADSs. Your tax basis in such ordinary shares will be the same as your tax basis in such ADSs, andthe holding period in such ordinary shares will include the holding period in such ADSs.Distributions by UsSubject to the application of the PFIC rules discussed below, the U.S. dollar value of distributions paid by us (including the amount of any taxeswithheld) out of its earnings and profits, as determined under U.S. federal income tax principles, will be subject to tax as foreign source ordinary dividendincome and will be includible in your gross income upon receipt by the Depositary. However, we do not maintain calculations of its earnings and profits inaccordance with U.S. federal income tax accounting principles. U.S. holders should therefore assume that any distribution by us with respect to ordinaryshares or ADSs will constitute ordinary dividend income. Subject to applicable limitations, so long as the ADSs are regularly traded on the NASDAQ GlobalSelect Market, we expect that dividends paid by us will be classified as “qualified dividend income” generally subject to tax at lower rates than other items ofordinary income when received by individuals and other non-corporate U.S. holders. Dividends received on the ordinary shares or ADSs will not be eligiblefor the dividends received deduction allowed to corporations receiving dividends from U.S. corporations.The U.S. dollar value of distributions paid by us will be calculated by reference to the exchange rate in effect on the date the dividenddistribution is received by the Depositary, regardless of when the Depositary converts the payments into U.S. dollars. If the foreign currency is converted bythe Depositary on a later date, a U.S. holder will be required to recognize foreign currency gain or loss in respect of the foreign currency based on thedifference between the rate at which it is converted and the rate on the date the dividend was received by the Depositary.Subject to certain limitations, Belgian withholding tax, if any, paid in connection with any distribution with respect to ordinary shares or ADSsmay be claimed as a credit against your U.S. federal income tax liability if you elect not to take a deduction for any non-U.S. income taxes for that taxableyear; otherwise, such Belgian withholding tax may be taken as a deduction. If you are eligible for benefits under the Treaty or are otherwise entitled to arefund for the taxes withheld, you will not be entitled to a foreign tax credit or deduction for the amount of any Belgian taxes withheld in excess of themaximum rate under the Treaty or for the taxes with respect to which you can obtain a refund from the Belgian taxing authorities. As the relevant rules arevery complex, you should consult your own tax advisor concerning the availability and utilization of the foreign tax credit or deductions for non-U.S. taxesin your particular circumstances.Proceeds from the Sale, Exchange or Retirement of the ADSsUpon the sale, exchange or retirement of ADSs, a U.S. holder will generally recognize U.S. source capital gain or loss equal to the difference, ifany, between the U.S. dollar amount realized on the sale, exchange or retirement and the U.S. holder’s tax basis in the ADSs (generally their cost in U.S.dollars). Any gain or loss generally will be long-term capital gain or loss if the ADSs have been held for more than a year. The deductibility of capital lossesis subject to limitations.Gain or loss you recognize on the sale, exchange or retirement of ADSs will generally be U.S. source. If any taxes are withheld from such amountsbut are eligible to be refunded, you will not be entitled to a foreign tax credit or deduction with respect to such taxes. If there are amounts withheld that arenot eligible to be refunded, you still may not be able to claim a foreign tax credit with respect to such amounts unless you have excess foreign source incomeof the correct type from other sources because foreign tax credits generally cannot be used against U.S. source income. As the relevant rules are very complex,you should consult your own tax advisor concerning the availability and utilization of the foreign tax credit or deductions for non-U.S. taxes in yourparticular circumstances. 91Table of ContentsPassive Foreign Investment CompanyWe believe that we were not a PFIC for the tax year ended December 31, 2018, and we do not expect to be classified as a PFIC for U.S. federalincome tax purposes for the current tax year ending December 31, 2019, or for the foreseeable future. However, the application of the relevant rules to ourbusinesses is not entirely clear and certain aspects of the relevant tests will be outside our control; therefore, no assurance can be given that we will not be aPFIC for any taxable year. If we are a PFIC at any time during the holding period of a U.S. holder, the U.S. holder would be subject to potentially materiallygreater amounts of tax and subject to additional U.S. tax form filing requirements. In addition, a non-corporate U.S. holder will not be eligible for qualifieddividend income treatment on dividends received from us if we are treated as a PFIC for the taxable year in which the dividends are received or for thepreceding taxable year.A non-U.S. corporation is a PFIC in any taxable year in which, after taking into account certain look-through rules, either (i) at least 75% of itsgross income is passive income or (ii) at least 50% of the average value (determined on a quarterly basis) of its assets is attributable to assets that produce orare held to produce passive income. Passive income generally includes dividends, interest, rents, royalties, gross income from certain commoditiestransactions, and capital gains. If a non-U.S. corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated forpurposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the othercorporation’s income. Although the determination of whether a non-U.S. corporation is a PFIC for a given taxable year is based on its income and assets forthat taxable year, as determined under the PFIC rules, once a non-U.S. corporation is a PFIC for any taxable year, it generally remains a PFIC for any investorsthat owned interests in all or a portion of such taxable year even if it would not otherwise qualify as a PFIC in later taxable years. We do not undertake tomonitor our PFIC status on an ongoing basis.The Code imposes additional taxes on gains from the sale or other disposition of, and “excess distributions” with respect to, shares of a PFICowned directly (or deemed to be owned directly or indirectly under certain attribution rules) by a U.S. holder. In general, an excess distribution is anydistribution to the U.S. holder that is greater than 125% of the average annual distributions received by the U.S. holder (including return of capitaldistributions) during the three preceding taxable years or, if shorter, the U.S. holder’s holding period for the ADSs. If we were a PFIC in any year in which aU.S. holder held the ADSs (i) the gain or excess distribution would be allocated ratably over the U.S. holder’s holding period for the ADSs, (ii) the amountallocated to the taxable year in which the gain or excess distribution was realized and to any year before we became a PFIC would be taxable as ordinaryincome, (iii) the amount allocated to each other prior year would be subject to tax at the highest rate in effect for that year and (iv) the interest chargegenerally applicable to underpayments of tax would be imposed in respect of the tax allocated to each such year. For these purposes, a U.S. holder who usesthe ADSs as collateral for a loan would be treated as having disposed of such ADSs.Different rules apply to a U.S. holder that makes a valid mark-to-market election with respect to the ADSs. This election can be made if the ADSsare considered to be “marketable securities” for purposes of the PFIC rules. The ADSs should be marketable securities for these purposes to the extent they are“regularly traded” on the NASDAQ Global Select Market. Generally, shares are treated as “regularly traded” in any calendar year in which more than a deminimis quantity of the shares are traded on a qualified exchange on at least 15 days during each calendar quarter. Subject to certain limitations, a U.S. holderthat makes a valid mark-to-market election with respect to the ADSs would be required to take into account the difference, if any, between the fair marketvalue at the end of each taxable year and the fair market value at the end of the preceding taxable year (or the acquisition price in the first year the election isin effect) of those ADSs, as ordinary income or ordinary loss (but only to the extent of the net amount previously included as income by the U.S. holder as aresult of the mark-to-market election). A U.S. holder’s basis in the ADSs will be increased by the amount of any ordinary income inclusion and decreased bythe amount of any ordinary loss taken into account under the mark-to-market rules. Gains from an actual sale or other disposition of the ADSs for which thiselection has been properly made would be treated as ordinary income, any losses incurred on a sale or other disposition of the ADSs would be treated as anordinary loss to the extent of any net mark-to-market gains for prior years and any additional loss would be capital loss.Even if a valid mark-to-market election is made with respect to the ADSs, there is a significant risk that indirect interests in any of oursubsidiaries that are PFICs will not be covered by this election but will be subject to the excess distribution rules described above. Under these rules,distribution from, and dispositions of interests in, these subsidiaries, as well as certain other transactions, generally will be treated as a distribution ordisposition subject to the discussion above regarding excess distributions.Investors in certain PFICs are able to make an election to treat the PFIC as a “qualified electing fund,” or QEF, which may mitigate theconsequences of the rules described above. However, if we are classified as a PFIC, U.S. holders will not be able to make this election.Prospective U.S. holders are urged to consult their own tax advisers about the consequences of holding the ADSs if we are considered a PFIC inany taxable year, including the availability of the mark-to-market election, and whether making the election would be advisable in their particularcircumstances. In particular, U.S. holders should consider carefully the impact of a mark-to-market election with respect to their ADSs given that there is asignificant risk that we will have subsidiaries that are classified as PFICs.Medicare TaxCertain U.S. holders who are individuals, estates and trusts will be required to pay an additional 3.8% tax on some or all of their “net investmentincome,” which generally includes its dividend income and net gains from the disposition of the ADSs. U.S. holders should consult their own tax advisorsregarding the applicability of this additional tax on their particular situation. 92Table of ContentsInformation Reporting and Backup WithholdingInformation returns may be filed with the IRS in connection with distributions on the ADSs and the proceeds from the sale or other disposition ofthe ADSs unless a U.S. holder establishes that it is exempt from the information reporting rules. A U.S. holder may be subject to backup withholding on thesepayments if it fails to provide its tax identification number to the paying agent and comply with certain certification procedures. The amount of any backupwithholding from a payment to a U.S. holder will be allowed as a credit against its U.S. federal income tax liability and may entitle the U.S. holder to a refund,provided that the required information is timely furnished to the IRS.Tax Return Disclosure RequirementU.S. federal income tax law requires certain U.S. investors to disclose information relating to investments in securities of a non-U.S. issuer.Failure to comply with applicable disclosure requirements could result in the imposition of substantial penalties. U.S. holders should consult their own taxadvisors regarding any disclosure obligations.F. Dividends and Paying AgentsNot applicable.G. Statement by ExpertsNot applicable.H. Documents on DisplayWe previously filed with the SEC our registration statement on Form F-1 (Registration No. 333-194982), as amended, and our registrationstatement on Form F-3 (Registration No. 333-213649), including the prospectuses contained therein, to register our ordinary shares. We have also filed withthe SEC a related registration statement on F-6 (Registration No. 333-196734) to register the ADSs.We are subject to the periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Ourannual reports on Form 20-F are due within four months after each fiscal year end. We are not required to disclose certain other information that is requiredfrom U.S. domestic issuers. Also, as a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing of proxy statementsto shareholders and our directors, senior management and principal shareholders are exempt from the reporting and short-swing profit recovery provisionscontained in Section 16 of the Exchange Act.Our SEC filings, including the registration statement, are available to you on the SEC’s website at http://www.sec.gov.We have filed our amended and restated articles of association and all other deeds that are to be published in the annexes to the Belgian StateGazette with the clerk’s office of the Commercial Court of Leuven (Belgium), where they are available to the public. A copy of our amended and restatedarticles of association is also be publicly available as an exhibit to our registration statement on Form F-1 (registration No. 333-194982). In accordance withBelgian law, we must prepare audited annual statutory and consolidated financial statements. The audited annual statutory and consolidated financialstatements and the reports of our board and statutory auditor relating thereto are filed with the Belgian National Bank, where they are available to the public.I. Subsidiary InformationNot applicable. 93Table of ContentsITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe are exposed to market risk from fluctuations in interest rates and foreign currency exchange rates which may adversely affect our results ofoperations and financial condition. We seek to minimize these risks through regular operating and financing activities.Interest Rate RiskAlthough we mainly have loans outstanding with a fixed interest rate, some of the loans have been contracted with variable interest rates. Themost significant loans with variable interest rates have been secured by means of a variable to fixed interest rate swap. We therefore believe that we are notmaterially affected by changes in interest rates. For information with respect to the interest rate swaps, see Note 20 to our audited consolidated financialstatements.Foreign Exchange Rate RiskWe transact business globally and are subject to risks associated with fluctuating foreign exchange rates. The geographic areas outside of theEurozone to which we sell our products and services are generally not considered to be highly inflationary. In the years ended December 31, 2018, 2017 and2016, 30%, 31% and 32% of our revenue, respectively, were derived from sales in a currency different from the euro. Receivables denominated in a foreigncurrency are initially recorded at the exchange rate at the transaction date and subsequently re-measured in euro based on period-end exchange rates.Transaction gains and losses that arise from exchange rate fluctuations are charged to income. We primarily have exposure to the U.S. dollar, British poundand Japanese yen as foreign currency.During 2018, the impact of changes in foreign currency rates on the cash and term accounts held in U.S. dollars funded through the initial publicoffering proceeds was positive for an amount of €0.7 million. If the U.S. dollar (rate for €1) would have appreciated by 10%, the net result would have been€1.6 million higher, excluding the effect of the cash and term accounts held in U.S. dollars. If the U.S. dollar (rate for €1) would have depreciated by 10%, thenet result would have been €1.3 million lower, excluding the effect of the cash and term accounts held in U.S. dollars.To limit the exposure to foreign currency rate fluctuations on the British pound and Japanese yen, we have entered into currency rate swaps as of2017.Additionally, we are exposed to credit risk, liquidity risk and challenges related to capital management.Credit RiskCredit risk is the risk that third parties may not meet their contractual obligations resulting in a loss for us. We are exposed to credit risk from ouroperating activities and from our financing activities, which are mainly deposits with financial institutions. We limit this exposure by contracting with credit-worthy business partners or with financial institutions which meet high credit rating requirements. In addition, the portfolio of receivables is monitored on acontinuous basis.Customer credit risk is managed by each business unit subject to our established policy, procedures and controls relating to customer credit riskmanagement. An impairment analysis is performed at each reporting date using a provision matrix to measure ECLs. The provision rates are based on dayspast due for groupings of various customer segments with similar loss patterns (i.e., by legal entity). The calculation reflects the probability-weightedoutcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditionsand forecasts of future economic conditions. Generally, trade receivables are written-off if past due for more than one year and are not subject to enforcementactivity. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 11 to ourconsolidated financial statements. We do not hold collateral as security.We evaluate the concentration of risk with respect to trade receivables as low, as our customers are located in several jurisdictions and industriesand operate in largely independent markets.Liquidity RiskThe liquidity risk is that we may not have sufficient cash to meet our payment obligations. This risk is countered by day-by-day liquiditymanagement at the corporate level. We have historically entered into financing and lease agreements with financial institutions to finance significantprojects and certain working capital requirements. We still have undrawn lines of credit totaling €1.0 million at December 31, 2018 (2017: €4.5 million;2016: €3.1 million). These line of credit arrangements do not contain significant financial covenants.On September 29, 2017, KBC Bank and Materialise agreed on a credit facility, mainly related to the financing of the ACTech acquisition, inwhich debt covenants were determined based on the ratio of our total net financial debt over EBITDA.On December 20, 2017, EIB and Materialise entered into a finance contract to support our ongoing research and development programs forgrowth from 2017 to 2020. The contract provides a credit of up to €35.0 million drawable in two tranches. The first tranche could not exceed €25.0 millionand could be drawn during the first year of the contract. We drew €10.0 million of this first tranche in the course of 2018. The second tranche can be drawnduring the second year of the contract, subject to a specified debt ratio being met. The duration of the loan will be between six to eight years starting from thedisbursement of the respective tranches, and includes a two-year loan reimbursement grace period. Loans under the contract will be made at a fixed rate,based on the Euribor rate at the time of the borrowing, plus a variable margin. The margin is initially equal to 1.86% and varies in function of certainEBITDA levels and debt ratios. The contract contains customary security, covenants and undertakings. As of December 31, 2018, only €10.0 million of thefirst tranche was drawn in connection with this agreement. 94Table of ContentsCapital ManagementThe primary objective of our capital management strategy is to ensure we maintain healthy capital ratios to support our business and maximizeshareholder value. Capital is defined as our shareholders’ equity.We consistently review our capital structure and make adjustments in light of changing economic conditions. We made no changes to ourcapital management objectives, policies or processes during the years ended December 31, 2018, 2017 and 2016. 95Table of ContentsITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA. Debt SecuritiesNot applicable.B. Warrants and RightsNot applicable.C. Other SecuritiesNot applicable.D. American Depositary SharesBank of New York Mellon serves as the depositary for the ADSs. Each ADS represents one ordinary share (or a right to receive one ordinaryshare) deposited with the principal Amsterdam office of ING Securities Services, Inc., as custodian for the depositary. Each ADS also represents any othersecurities, cash or other property which may be held by the depositary. The depositary’s corporate trust office at which the ADSs are administered is located at240 Greenwich Street, New York, New York 10286. The Bank of New York Mellon’s principal executive office is located at 240 Greenwich Street, New York,New York 10286.A deposit agreement among us, the depositary and the ADS holders sets out the ADS holder rights as well as the rights and obligations of thedepositary. New York law governs the deposit agreement and the ADSs. A copy of the deposit agreement is incorporated by reference as an exhibit to thisannual report on Form 20-F.Pursuant to the terms of the deposit agreement, you, as an ADS holder, will be required to pay the following fees to the depositary: Persons depositing or withdrawing ordinary sharesor ADS holders must pay to the depositary: For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) Issuance of ADSs, including issuances resulting from a distribution ofordinary shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if thedeposit agreement terminates$0.05 (or less) per ADS Any cash distribution to youA fee equivalent to the fee that would be payable if securities distributed to youhad been ordinary shares and the shares had been deposited for issuance ofADSs Distribution of securities distributed to holders of deposited securitieswhich are distributed by the depositary to you$0.05 (or less) per ADS per calendar year Depositary servicesRegistration or transfer fees Transfer and registration of ordinary shares on our share register to or fromthe name of the depositary or its agent when you deposit or withdrawsharesExpenses of the depositary Cable, telex and facsimile transmissions (when expressly provided in thedeposit agreement) converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary or the custodian has topay on any ADS or ordinary shares underlying an ADS, such as share transfertaxes, stamp duty or withholding taxes As necessaryAny charges incurred by the depositary or its agents for servicing the depositedsecurities As necessaryThe depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for thepurpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees fromthe amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services bydeduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. Thedepositary may collect any of its fees by deduction from any cash distribution payable to ADS holders that are obligated to pay those fees. The depositarymay generally refuse to provide fee-based services until its fees for those services are paid. 96Table of ContentsFrom time to time, the depositary may make payments to us to reimburse or share revenue from the fees collected from ADS holders, or waive feesand expenses for services provided, generally relating to costs and expenses arising out of establishment and maintenance of the ADS program. In performingits duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates of the depositary and that may earnor share fees or commissions. 97Table of ContentsPART II ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone. 98Table of ContentsITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSMaterial Modifications to the Rights of Security HoldersNone.Use of ProceedsOur Registration Statement on Form F-1 (Registration No. 333-194982), relating to our underwritten initial public offering of ADSs, eachrepresenting one ordinary share with no nominal value per share, was declared effective by the SEC on June 24, 2014. On June 30, 2014, we consummatedour initial public offering and sold 8,000,000 ADSs at a public offering price of $12.00 per ADS for an aggregate offering price of $96.0 million. We receivednet proceeds from our initial public offering of approximately $88.3 million, after deducting the underwriting discount of approximately $6.7 million andoffering expenses of approximately $2.4 million, and reimbursement by the underwriters of certain offering expenses. On July 7, 2014, certain sellingshareholders that participated in our initial public offering sold 1,200,000 ADSs at a public offering price of $12.00 per ADS pursuant to the underwriters’exercise in full of their over-allotment option for an aggregate offering price of $14.4 million. We did not receive any of the proceeds from the sale of ADSsby the selling shareholders. Piper Jaffray & Co. and Credit Suisse Securities (USA) LLC acted as joint book-running managers for the offering.During the year ended December 31, 2018, the remaining net proceeds from our initial public offering were used and continue to be used as abuffer for our working capital, unfinanced capital expenditures, financing activities (including acquisitions, partnerships) and general corporate purposes. 99Table of ContentsITEM 15.CONTROLS AND PROCEDURESDisclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of ourdisclosure controls and procedures as of December 31, 2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e)under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by acompany in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified inthe SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’smanagement, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achievingtheir objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based onthis evaluation, management concluded as of December 31, 2018 that our disclosure controls and procedures were not effective at the reasonable assurancelevel due to a material weakness in our internal control over financial reporting, which is described below under “Management’s Annual Report on InternalControl Over Financial Reporting.”Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f)and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief ExecutiveOfficer and Chief Financial Officer and effected by our management and other personnel to provide reasonable assurance regarding the reliability of ourfinancial reporting and the preparation of our financial statements for external reporting purposes in accordance with IFRS. Internal control over financialreporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactionsand dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements inaccordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorizationof our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of our assets that could have a material effect on our financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatement. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with our policies and procedures may deteriorate.Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of ourinternal control over financial reporting as of December 31, 2018, based on the updated framework in the Internal Control—Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission in 2013. Management has concluded that our internal control over financialreporting was not effective as of December 31, 2018. Management believes substantial progress has been made in implementing an effective internal controlenvironment since December 31, 2017, as we have designed and are implementing an overall formalized framework, common policies, IT general controls,procedures and controls for financial reporting. Furthermore, we have many individual policies, procedures and controls already in place and appropriatefinancial systems have been, and are being, implemented to establish an effective internal control environment. Additional entity level monitoring controlsrelated to financial closing and reporting have been put in place during the year. Despite these efforts, there continues to be a material weakness identified byour management in our internal control over financial reporting because certain policies, procedures and controls, related to our internal control framework,are either being implemented or not operating effectively. As a result, adjustments to our consolidated financial statements were identified and made in thecourse of the audit.Notwithstanding the identified material weakness and management’s assessment that internal control over financial reporting was ineffective asof December 31, 2018, management believes that the audited consolidated financial statements contained in this Annual Report on Form 20-F fairly present,in all material respects, our financial condition, results of operations and cash flows for the fiscal years presented in conformity with IFRS.As an emerging growth company, we have taken, and are taking, actions to remediate the material weakness in our internal control over financialreporting. Key elements of the remediation effort made and being made, include, but are not limited to, the following initiatives: • Finalizing implementation of an overall, formalized framework and implement common policies, procedures and controls for financialconsolidation and reporting, including: implementing and testing user-access rights to our financial systems, implementing approval,review and reporting protocols, further enhancing our information systems and lines of communication, and implementing and testinginformation technology policies and procedures; and • Continuing to train all personnel involved with or having an impact on the financial reporting function, and build internal controlknowledge, including through hiring additional personnel and consultants who have experience in U.S. and international financialreporting. 100Table of ContentsOur objective to establish and maintain effective internal control over financial reporting and disclosure controls and procedures in accordancewith the Sarbanes-Oxley Act is our highest priority. The Sarbanes-Oxley Act-compliance plan is directed by our Chief Financial Officer, Director of InternalAudit, and Executive Chairman and is monitored by our executive management, including our Chief Executive Officer, and our board of directors. Adedicated project team, including internal professionals and external consultants, is further implementing the plan with involvement of all levels in ourorganization.We believe that the measures described above will assist in remediating the material weakness identified above and further strengthen ourinternal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine thatadditional measures are necessary to address any future control deficiencies.Attestation Report of the Independent Registered Public Accounting FirmThis annual report does not include an attestation report of our independent registered public accounting firm because the JOBS Act provides anexemption from such requirement as we qualify as an emerging growth company.Changes in Internal Control over Financial ReportingOther than as discussed above under “Management’s Annual Report on Internal Control Over Financial Reporting,” there were no changes in ourinternal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting. 101Table of ContentsITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that each of the members of our audit committee, Johan De Lille, Jürgen Ingels and Lieve Verplancke, is an“audit committee financial expert” as defined in Item 16A of Form 20-F under the Exchange Act and is independent under Rule 10A-3 under the ExchangeAct. 102Table of ContentsITEM 16B.CODE OF ETHICSWe have adopted a written code of conduct and ethics that outlines the principles of legal and ethical business conduct under which we dobusiness. The code of conduct and ethics applies to all of our directors, senior management, consultants and other employees, including our Chief ExecutiveOfficer and Chief Financial Officer. We have posted this code of conduct and ethics on our website at www.materialise.com. This website address is includedin this annual report as an inactive textual reference only, and the information and other content appearing on our website are not incorporated by referenceinto this annual report. We have not granted any waivers from any provision of our code of conduct and ethics since its adoption. 103Table of ContentsITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICESBDO Bedrijfsrevisoren CVBA was engaged as our independent registered public accounting firm in 2018 and 2017 in connection with our SECreporting obligations, as well as our statutory auditor for Belgian company and tax law purposes. The following table sets forth by category of service thetotal fees for services provided by BDO Bedrijfsrevisoren CVBA and BDO member firms to us during 2018 and 2017. For the year endedDecember 31 in 000€ 2018 2017 Audit Fees 1,121 543 Audit-Related Fees 17 61 Tax Fees 2 5 All Other Fees — — Total 1,140 609 Audit FeesAudit fees consist of the aggregate fees billed in connection with the audit of our annual consolidated and statutory financial statements andinternal controls, the issuance of comfort letters and interim reviews of our quarterly financial information.Audit-Related FeesAudit-related fees are fees for services that are traditionally performed by the independent accountants, including consultations concerningfinancial accounting and reporting, and employee benefit plan audits, and due diligence on mergers or acquisitions. The fees also include the attestation ofour cash position and certain financial ratios to the EIB.Tax FeesTax fees were paid to BDO Bedrijfsrevisoren CVBA or to BDO member firms. For the fiscal year ended December 31, 2018 these fees related tothe Materialise entity in Malaysia, and for the fiscal year ended December 31, 2017 these fees related to the Materialise entities in the United Kingdom andMalaysiaAll Other FeesNo other fees were paid to BDO Bedrijfsrevisoren CVBA or to BDO member firms for the fiscal years ended December 31, 2018 andDecember 31, 2017.Audit Committee Pre-Approval Policies and ProceduresThe pre-approval of the Audit Committee or member thereof, to whom pre-approval authority has been delegated, is required for the engagementof our independent auditors to render audit or non-audit services. Audit Committee pre-approval of audit and non-audit services will not be required if theengagement for the services is entered into pursuant to pre-approval policies and procedures established by our audit committee regarding our engagement ofthe independent auditors, provided the policies and procedures are detailed as to the particular service, our audit committee is informed of each serviceprovided and such policies and procedures do not include delegation of the Audit Committee’s responsibilities under the Exchange Act to our management.Audit Committee pre-approval of non-audit services (other than review and attest services) also will not be required if such services fall within availableexceptions established by the SEC.All audit fees, audit related fees and tax fees for the fiscal years ended December 31, 2018 and 2017 were pre-approved under the pre-approvalpolicies of the Audit Committee. 104Table of ContentsITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNone. 105Table of ContentsITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSNone. 106Table of ContentsITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNone. 107Table of ContentsITEM 16G.CORPORATE GOVERNANCEThe Listing Rules of the NASDAQ Stock Market include certain accommodations in the corporate governance requirements that allow foreignprivate issuers, such as us, to follow “home country” corporate governance practices in lieu of the otherwise applicable corporate governance standards of theNASDAQ Stock Market. The application of such exceptions requires that we disclose each noncompliance with the NASDAQ Stock Market Listing Rulesthat we do not follow and describe the Belgian corporate governance practices we do follow in lieu of the relevant NASDAQ Stock Market corporategovernance standard. We follow Belgian corporate governance practices in lieu of the corporate governance requirements of the NASDAQ Stock Market inrespect of the following: •Quorum at Shareholder Meetings. NASDAQ Stock Market Listing Rule 5620(c) requires that for any meeting of shareholders, the quorum must beno less than 33% or 1/3 of the outstanding ordinary shares. There is no quorum requirement under Belgian law for our shareholders’ meetings,except as provided for by law in relation to decisions regarding certain matters. •Independent Director Majority on Board/Meetings. NASDAQ Stock Market Listing Rules 5605(b)(1) and (2) require that a majority of the boardof directors must be comprised of independent directors and that independent directors must have regularly scheduled meetings at which onlyindependent directors are present. We are not required under Belgian law to have any independent directors on our board of directors. However, ourarticles of association provide that our board of directors must be comprised of at least seven and no more than 11 directors, of which at least threedirectors must be independent directors under Belgian law. We do not intend to require our independent directors to meet separately from the fullboard of directors on a regular basis or at all although the board of directors is supportive of its independent members voluntarily arranging to meetseparately from the other members of our board of directors. •Director Nominations/Remuneration and Nomination Committee Composition. NASDAQ Stock Market Listing Rule 5605(d)(2) requires thatcompensation of officers must be determined by, or recommended to, the board of directors for determination, either by a majority of theindependent directors, or a compensation committee comprised solely of independent directors. NASDAQ Stock Market Listing Rule 5605(e)requires that director nominees be selected, or recommended for selection, either by a majority of the independent directors or a nominationscommittee comprised solely of independent directors. Under Belgian law, we are not subject to any such requirements. In particular, we are notrequired by Belgian law to set up any compensation or nominations committees within our board of directors, and are therefore not subject to anyBelgian legal requirements as to the composition of such committees either. However, our articles of association provide that our board of directorsmay form committees from among its members. See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Board of DirectorsPractices.” Our board of directors has set up and appointed a Remuneration and Nomination Committee. Our Remuneration and NominationCommittee is currently comprised of three directors, one of whom is independent. In addition, as long as the Family Shareholders control, directly orindirectly, in the aggregate at least 20% of the voting rights attached to our ordinary shares, a majority of our directors must be appointed by ourshareholders from a list of candidates proposed by the Family Shareholders. •Shareholder Approval of Equity Compensation Plans. NASDAQ Stock Market Listing Rule 5635(c) requires shareholder approval prior to theissuance of securities in connection with equity-based compensation of officers, directors, employees or consultants. On December 18, 2015, ourboard of directors adopted a stock option plan, the 2015 Warrant Plan. Warrants under the 2015 Warrant Plan may be offered upon decision by ourboard of directors (or its proxy holder(s)) to employees, consultants and directors of our company and our subsidiaries. In lieu of the NASDAQ StockMarket Listing Rule 5635(c), we followed Belgian law regarding the issuance of shares or securities in connection with the remuneration of thedirectors and/or the employees of a Belgian company.Under Belgian company law, a Belgian company may issue shares or grant rights to acquire shares pursuant to a resolution of the generalmeeting of shareholders or, within certain limits, pursuant to a resolution of the board of directors if so authorized by the shareholders’ meeting (the so-calledauthorized capital). By resolution of our extraordinary shareholders’ meeting of April 23, 2014, which entered into force on June 30, 2014, our shareholdersauthorized our board of directors, for a period of five years from August 18, 2014, to increase our share capital, in one or more transactions (including throughthe issuance of warrants), up to a maximum amount of €2,714,634.83 (of which €2,710,008.33 remained available prior to the issuance of the warrants underthe 2015 Warrant Plan). On December 18, 2015, our board of directors decided, in connection with the adoption of the 2015 Warrant Plan, to increase theshare capital with a maximum amount of €80,738 (excluding any issue premium), subject to the exercise of the warrants issued under the 2015 Warrant Plan.Pursuant to Belgian company law and the authorization granted by the shareholders’ meeting of April 23, 2014, our board of directors is alsoauthorized to issue shares or grant rights to acquire shares in the framework of incentive plans, such as warrant plans or other plans, for the benefit of directors,consultants and members of personnel of our company and of our subsidiaries. As an exception to the foregoing, Belgian company law provides that warrantsthat are mainly reserved to one or more determined persons other than members of personnel cannot be issued by the board of directors under the authorizedcapital, but requires specific approval by the shareholders’ meeting. However, given that the warrants under the 2015 Warrant Plan will not be mainlyreserved to one or more determined persons other than members of personnel, these warrants do not fall within this exception and our board of directors wastherefore authorized to issue such warrants without seeking any additional shareholder approval.The 2015 Warrant Plan provides the terms and conditions governing the procedures for the granting of the warrants to employees, consultantsand directors of our Company and of our subsidiaries. These terms and conditions include, among others, the determination of the exercise price and thevesting period. The granting of the warrants, and the determination of the applicable terms and conditions, is entrusted to our board of directors or to one ormore proxy holders designated by our board of directors. 108Table of ContentsITEM 16H.MINE SAFETY DISCLOSURENot applicable. 109Table of ContentsPART III ITEM 17.FINANCIAL STATEMENTSNot applicable. 110Table of ContentsITEM 18.FINANCIAL STATEMENTSSee our consolidated financial statements beginning on page F-1 of this annual report. 111Table of ContentsITEM 19.EXHIBITS 1.1 Restated Articles of Association of Materialise NV (English translation) 2.1 Deposit Agreement, dated as of June 24, 2014, among Materialise NV and The Bank of New York Mellon (incorporated by reference to Exhibit4.1 to the Company’s Registration Statement on Form F-1 (File No. 333-194982)) 2.2 Form of American Depositary Receipt (included in Exhibit 2.1) Certain instruments relating to long-term debt as to which the total amount of securities authorized thereunder does not exceed 10% of the totalassets of Materialise NV and its subsidiaries on a consolidated basis have been omitted in accordance with Form 20-F. The Company herebyagrees to furnish a copy of any such instrument to the SEC upon request. 4.1 2013 Warrant Plan (English translation) (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form F-1 (No.333-194982)) 4.2 2014 Warrant Plan (English translation) (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form F-1 (No.333-194982)) 4.3 Form of Warrant Agreement under 2014 Warrant Plan (English translation) (incorporated by reference to Exhibit 4.6 to the Company’sRegistration Statement on Form S-8 (No. 333-197236)) 4.4 2015 Warrant Plan (English translation) (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 20-F for the yearended December 31, 2015) 4.5 Form of Warrant Agreement under 2015 Warrant Plan (English translation) (incorporated by reference to Exhibit 4.4 to the Company’sRegistration Statement on Form S-8 (File No. 333-212445)) 4.6 Registration Rights Agreement, dated September 15, 2016, among Materialise NV and the Holders party thereto (incorporated by reference toExhibit 4.8 to the Company’s Registration Statement on Form F-3 (No. 333-213649)) 4.7+ Share and Loan Purchase and Transfer Agreement, dated October 4, 2017, among Materialise GmbH, Materialise N.V. and the Sellers party thereto(incorporated by reference to Exhibit 4.9 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2017) 8.1 Subsidiaries of Materialise NV12.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of200213.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200223.1 Consent of BDO Bedrijfsrevisoren CVBA, independent registered public accounting firm 101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema101.CAL XBRL Taxonomy Extension Calculation Linkbase101.DEF XBRL Taxonomy Extension Definition Linkbase101.LAB XBRL Taxonomy Extension Label Linkbase101.PRE XBRL Taxonomy Extension Presentation Linkbase +The registrant has omitted portions of the referenced exhibit pursuant to a request for confidential treatment under Rule 24b-2 promulgated under theExchange Act. 112Table of ContentsSignaturesThe registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized theundersigned to sign this annual report on its behalf. MATERIALISE NVBy: /s/ Wilfried VancraenName: Wilfried VancraenTitle: Chief Executive OfficerDate: April 30, 2019 113Table of ContentsINDEX TO CONSOLIDATED FINANCIAL STATEMENTSConsolidated Financial Statements for the Years Ended December 31, 2018, 2017 and 2016 Report of Independent Registered Public Accounting Firm F-2 Consolidated income statements F-4 Consolidated statements of comprehensive income F-5 Consolidated statements of financial position F-6 Consolidated statements of changes in equity F-8 Consolidated cash flow statements F-9 Notes to the consolidated financial statements F-11 F-1Table of ContentsReport of Independent Registered Public Accounting FirmShareholders and Board of DirectorsMaterialise NVLeuven, BelgiumOpinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated statements of financial position of Materialise NV (the “Company”) and subsidiaries as of December 31,2018, 2017 and 2016, the related consolidated income statements, statements of comprehensive income, changes in equity, and cash flows for each of thethree years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2018,2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2018, in conformity withInternational Financial Reporting Standards as issued by the International Accounting Standards Boards.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required tohave, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain anunderstanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internalcontrol over financial reporting. Accordingly, we express no such opinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. F-2Table of Contents/s/ Veerle CatryBDO Bedrijfsrevisoren CVBARepresented by Veerle CatryWe have served as the Company’s auditor since 2014.Zaventem, BelgiumApril 29, 2019 F-3Table of ContentsConsolidated income statements For the year ended December 31, in 000€, except per share data Notes 2018 2017* 2016 Revenue 22.1 184,721 142,573 114,477 Cost of sales 22.2 (82,299) (62,952) (46,706) Gross profit 102,422 79,621 67,771 Research and development expenses 22.3 (22,416) (19,959) (17,682) Sales and marketing expenses 22.4 (46,303) (38,935) (36,153) General and administrative expenses 22.5 (32,310) (24,876) (20,041) Net other operating income 22.6 3,771 4,541 6,212 Operating profit 5,164 392 107 Financial expenses 22.8 (4,864) (4,728) (2,437) Financial income 22.9 3,627 3,210 2,039 Share in loss of joint venture 8 (475) (469) (1,018) Profit (loss) before taxes 3,452 (1,595) (1,309) Income taxes 22.10 (425) (522) (1,710) Net profit (loss) for the year 3,027 (2,117) (3,019) Net profit (loss) attributable to: The owners of the parent 3,027 (2,117) (3,019) Non-controlling interest — — — Earnings per share attributable to the owners of the parent Basic 23 0.06 (0.04) (0.06) Diluted 23 0.06 (0.04) (0.06) *The year 2017 has been restated to reflect certain reclassification adjustments and the final accounting of the ACTech business combination. See Note2 for more informationThe accompanying notes form an integral part of these consolidated financial statements. F-4Table of ContentsConsolidated statements of comprehensive income For the year ended December 31, in 000€ Notes 2018 2017* 2016 Net profit (loss) for the year 3,027 (2,117) (3,019) Other comprehensive loss Exchange differences on translation of foreign operations † (47) (691) (1,833) Other comprehensive loss, net of taxes (47) (691) (1,833) Total comprehensive income (loss) of the year, net of taxes 2,980 (2,808) (4,852) Total comprehensive income (loss) attributable to: The owners of the parent 2,980 (2,808) (4,852) Non-controlling interest — — — †May be reclassified subsequently to profit & loss*The year 2017 has been restated to reflect the final accounting of the ACTech business combination. See Note 2 for more information.The accompanying notes form an integral part of these consolidated financial statements. F-5Table of ContentsConsolidated statements of financial position As of December 31, in 000€ Notes 2018 2017* 2016 Assets Non-current assets Goodwill 5 17,491 17,552 8,860 Intangible assets 6 26,326 28,600 9,765 Property, plant & equipment 7 92,537 87,065 45,063 Investments in joint ventures 8 — 31 — Deferred tax assets 22.10 315 304 336 Other non-current assets 10 7,237 3,667 2,154 Total non-current assets 143,906 137,219 66,178 Current assets Inventories and contracts in progress 9 9,986 11,027 7,870 Trade receivables 11 36,891 35,582 27,479 Other current assets 10 6,936 7,675 4,481 Cash and cash equivalents 12 115,506 43,175 55,912 Total current assets 169,319 97,459 95,742 Total assets 313,225 234,678 161,920 *The year 2017 have been restated to reflect the final accounting of the ACTech business combination. See Note 2 for more information.The accompanying notes form an integral part of these consolidated financial statements. F-6Table of ContentsConsolidated statements of financial position As of December 31, in 000€ Notes 2018 2017 * 2016 Equity and liabilities Equity Share capital 13 3,050 2,729 2,729 Share premium 13 136,637 79,839 79,019 Consolidated reserves 13 (1,848) (3,711) (1,603) Other comprehensive loss (1,850) (1,803) (1,112) Equity attributable to the owners of the parent 135,989 77,054 79,033 Total equity 135,989 77,054 79,033 Non-current liabilities Loans & borrowings 15 92,440 81,788 28,267 Deferred tax liabilities 22.10 6,226 7,415 1,325 Deferred income 18 4,587 3,768 3,588 Other non-current liabilities 16 868 1,904 1,873 Total non-current liabilities 104,121 94,875 35,053 Current liabilities Loans & borrowings 15 13,598 12,769 5,539 Trade payables 18,667 15,670 13,400 Tax payables 17 2,313 2,023 926 Deferred income 18 23,195 18,791 17,822 Other current liabilities 19 15,342 13,496 10,147 Total current liabilities 73,115 62,749 47,834 Total equity and liabilities 313,225 234,678 161,920 *The year 2017 have been restated to reflect the final accounting of the ACTech business combination. See Note 2 for more information.The accompanying notes form an integral part of these consolidated financial statements. F-7Table of ContentsConsolidated statements of changes in equity Attributable to the owners of the parents in 000€ Notes Sharecapital Sharepremium Consolidatedreserves Othercompre-hensiveloss Total Non-controllinginterest Totalequity At January 1, 2018 2,729 79,839 (3,711) (1,803) 77,054 — 77,054 IFRS 15—impact on opening reserves** 2 — — (1,173) — (1,173) — (1,173) Adjusted equity At January 1, 2018 2,729 79,839 (4,884) (1,803) 75,881 — 75,881 Net profit for the year — — 3,027 — 3,027 — 3,027 Other comprehensive loss — — — (47) (47) — (47) Total comprehensive income (loss) — — 3,027 (47) 2,980 — 2,980 Capital increase in cash 13 312 59,575 — — 59,887 — 59,887 Capital increase through exercise of warrants 13 9 593 — — 602 — 602 Costs from capital increase 13 — (4,003) — — (4,003) — (4,003) Equity-settled share-based payment expense 14 — 633 9 — 642 — 642 At December 31, 2018 3,050 136,637 (1,848) (1,850) 135,989 — 135,989 **The Group has initially applied IFRS 15 using the cumulative effect method. Under this method, the comparative information is not restated. See Note2 for more information. Attributable to the owners of the parents in 000€ Notes Sharecapital Sharepremium Consolidatedreserves Othercompre-hensiveloss Total Non-controllinginterest Totalequity At January 1, 2017 2,729 79,019 (1,603) (1,112) 79,033 — 79,033 Net loss for the year* — — (2,117) — (2,117) — (2,117) Other comprehensive loss — — — (691) (691) — (691) Total comprehensive loss* — — (2,117) (691) (2,808) — (2,808) Equity-settled share-based payment expense 14 — 820 9 — 829 — 829 At December 31, 2017* 2,729 79,839 (3,711) (1,803) 77,054 — 77,054 *The year 2017 has been restated to reflect the final accounting of the ACTech business combination. See Note 2 for more information. Attributable to the owners of the parents in 000€ Notes Sharecapital Sharepremium Consolidatedreserves Othercompre-hensiveincome(loss) Total Non-controllinginterest Totalequity At January 1, 2016 2,729 78,098 1,407 721 82,955 — 82,955 Net loss for the year — — (3,019) — (3,019) — (3,019) Other comprehensive loss — — — (1,833) (1,833) — (1,833) Total comprehensive loss — — (3,019) (1,833) (4,852) — (4,852) Equity-settled share-based payment expense 14 — 921 9 — 930 — 930 At December 31, 2016 2,729 79,019 (1,603) (1,112) 79,033 — 79,033 The accompanying notes form an integral part of these consolidated financial statements. F-8Table of ContentsConsolidated cash flow statements For the year endedDecember 31, in 000€ Notes 2018 2017* 2016 Operating activities Net profit (loss) for the year 3,027 (2,117) (3,019) Non-cash and operational adjustments Depreciation of property, plant & equipment 7 12,223 8,754 6,420 Amortization of intangible assets 6 5,064 3,822 1,954 Share-based payment expense 14 1,075 1,033 977 Loss (gain) on disposal of property, plant & equipment 7 (83) 25 (149) Movement in provisions 5 61 18 Movement reserve for bad debt and slow moving inventory 11 1,293 502 77 Financial income 22.9 (581) (381) (172) Financial expense 22.8 2,172 1,597 983 Impact of foreign currencies (299) 302 (400) Share in loss of joint venture (equity method) 8 475 469 1,018 Income taxes and deferred taxes 22.10 425 522 1,712 Fair value adjustment contingent consideration 4 (192) — (455) Other 87 (22) (78) Working capital adjustment and income tax paid Increase in trade receivables and other receivables (3,156) (4,973) (6,465) Decrease (increase) in inventories and contracts in progress 812 (417) (2,482) Increase in trade payables and other payables 7,341 2,343 9,086 Income tax paid (1,368) (1,569) (530) Net cash flow from operating activities 28,320 9,951 8,495 *The year 2017 has been restated to reflect the final accounting of the ACTech business combination. See Note 2 for more information.The accompanying notes form an integral part of these consolidated financial statements. F-9Table of ContentsConsolidated cash flow statements For the year ended December 31, in 000€ Notes 2018 2017* 2016 Investing activities Purchase of property, plant & equipment 7 (18,270) (27,733) (12,237) Purchase of intangible assets 6 (1,836) (4,345) (2,342) Proceeds from the sale of property, plant, equipment and intangibles (net) 7 281 221 1,928 Acquisition of subsidiary (net of cash) 4 — (27,173) — Investments in joint-ventures 8 — (500) — Other equity investments in non-listed entities 10 (2,671) — — Interest received 363 281 11 Net cash flow used in investing activities (22,133) (59,249) (12,640) Financing activities Proceeds from loans & borrowings 15 32,554 54,319 14,669 Repayment of loans & borrowings 15 (18,820) (11,904) (2,796) Repayment of finance leases 15 (3,102) (2,947) (1,898) Capital increase in parent company 13 60,489 — — Direct attributable expense capital increase 13 (4,003) — — Interest paid (1,733) (955) (630) Other financial expense, net (150) (472) (79) Net cash flow from financing activities 65,235 38,041 9,266 Net increase/(decrease) of cash and cash equivalents 71,422 (11,257) 5,121 Cash and cash equivalents at beginning of the year 12 43,175 55,912 50,726 Exchange rate differences on cash and cash equivalents 908 (1,480) 65 Cash and cash equivalents at end of the year 12 115,506 43,175 55,912 *The year 2017 has been restated to reflect the final accounting of the ACTech business combination. See Note 2 for more information.The accompanying notes form an integral part of these consolidated financial statements. F-10Table of ContentsNotes to the consolidated financial statements1 Corporate informationMaterialise NV is a limited liability company with its registered office at Technologielaan 15, 3001 Leuven, Belgium. The consolidated financial statementscomprise Materialise NV (the “Company” or “Parent”) and its subsidiaries (collectively, the “Group”). See Note 28 for a list of subsidiaries of the Company.The Group is a leading provider of additive manufacturing (AM) software and of sophisticated 3D printing services. The products and services of the Groupare organized in the three segments: Materialise Medical, Materialise Software and Materialise Manufacturing. The Group sells its products in Europe, theAmericas, Africa and Asia-Pacific.The consolidated financial statements of the Group for the year ended December 31, 2018 were approved and authorized for issue on April 29, 2019 inaccordance with a resolution of the Parent’s Board of Directors. F-11Table of Contents2 Basis of preparationThe consolidated financial statements of the Group for the three years ended December 31, 2018, 2017 and 2016 were prepared in accordance with theInternational Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) (collectively “IFRS”) and withInternational Financial Reporting Standards (IFRS) as adopted by the European Union (“EU-IFRS”).These consolidated financial statements have been prepared on a historical cost basis, except for the assets and liabilities that have been acquired as part of abusiness combination which have been initially recognized at fair value and certain financial instruments which are measured at fair value.The consolidated financial statements are presented in thousands of euros (K€ or thousands of €) and all “currency” values are rounded to the nearestthousand (€000), except when otherwise indicated.The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Groupmanagement to exercise judgment in applying the Group’s accounting policies. The areas where significant judgment and estimates have been made inpreparing the financial statements and their effect are disclosed in Note 3.New standards, interpretations and amendments adopted by the GroupThe Group has adopted the following new and revised standards and interpretations issued by the IASB and IFRIC that are relevant to its operations andeffective for accounting periods beginning on January 1, 2018. • IFRS 9 Financial Instruments; • IFRS 15 Revenue from Contracts with CustomersSeveral other amendments and interpretations apply for the first time in 2018, but do not have an impact on the consolidated financial statements of theGroup. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.The application of the above relevant new standards and interpretations are explained below.IFRS 9 Financial instrumentsIn July 2014, the IASB issued the final version of IFRS 9 Financial Instruments, or IFRS 9, that replaces IAS 39 Financial Instruments: Recognition andMeasurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classificationand measurement, impairment and hedge accounting.We have adopted the new standard on the required effective date retrospectively, with an initial application date of January 1, 2018.(a) Classification and measurementThe Group did not have a significant impact on its consolidated income statement, consolidated statement of comprehensive income, consolidated statementof financial position or consolidated statement of changes in equity on applying the classification and measurement requirements of IFRS 9. It continues tomeasure at fair value all financial assets currently measured at fair value. The equity shares in non-listed companies are intended to be held for the foreseeablefuture and are designated at fair value through OCI.Current and non-current trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely paymentsof principal and interest. The Group continues to measure these at amortized cost under IFRS 9. Following the assessment of the contractual cash flowcharacteristics of its debt instruments, the Group concluded that the loans and trade receivables can be classified at amortized cost measurement under IFRS9.(b) ImpairmentIFRS 9 requires us to record expected credit losses on all of our debt securities, loans and trade receivables, either on a 12-month or lifetime basis. We haveapplied the simplified approach and record lifetime expected losses on all trade receivables. The lifetime expected losses are determined based on a provisionmatrix applied to each of the trade receivable aging buckets.We have applied the transition exception as foreseen in IFRS 9 whereby the application of IFRS 9 “impairment” does not need to be recorded retroactivelyfor all reporting periods presented as we cannot avoid the use of hindsight. The application of IFRS 9 resulted in an additional expense/provision of K€340in 2018 on our consolidated income statement, consolidated statement of comprehensive income, consolidated statement of financial position andconsolidated statement of changes in equity. The impact on the initial date of application was not material.We refer to Note 3 for the accounting policy on the financial assets and liabilities.(c) Hedge accountingThe Group does not apply hedge accounting for its derivatives. Derivatives are measured at fair value with changes through the consolidated incomestatement. F-12Table of ContentsIFRS 15 Revenue from Contracts with CustomersIFRS 15 Revenue from Contracts with Customers, or IFRS 15, was issued in May 2014 and establishes a five-step model to account for revenue arising fromcontracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled inexchange for transferring goods or services to a customer.The standard provides a single, principles based five-step model to be applied to all contracts with customers as follows: • Identify the contract(s) with a customer; • Identify the performance obligations in the contract; • Determine the transaction price; • Allocate the transaction price to the performance obligations in the contract; and • Recognize revenue when (or as) the entity satisfies a performance obligation.The new revenue standard has superseded all current revenue recognition requirements under IFRS. We have adopted the new standard on the requiredeffective date of January 1, 2018 and have applied the modified retrospective transition method to those contracts that were not completed at January 1,2018. When applying the modified retrospective transition method, the cumulative effect of initially applying IFRS 15 is recognized as an adjustment to theopening balance of our consolidated reserves in 2018.The effect of adopting IFRS 15 is as follows:OEM software license and distribution agreementsWe regularly enter into software license and distribution agreements that may include the right for a partner to embed the Materialise software in its ownproperty software or machine, that is marketed and sold to end-customers. Typically, those contracts provide a license to use and market the software, trainingand one year of maintenance and support service. Those performance obligations are “distinct”. Certain contracts may also include development services.Those development services are in general also “distinct” services except in case the customer cannot benefit from the license with readily availableresources without the development services and the development services significantly customize/modify the existing license. In that case, thosedevelopment services are combined with the license and recognized over the term of the license.Those agreements may also provide for step-based volume discounts when certain sales targets are achieved and discounts when certain developmentrevenue is achieved. Prior to adopting IFRS 15, volume discounts were recognized based on a reasonable estimate of the volume discounts to be paid anddeducted from revenue over the contract period (based on sales). Certain other discounts were immediately deducted in full from revenue when they areexpected to be met. Under IFRS 15, the transaction price will include an estimate of all the discounts payable under the contract period and will besubsequently allocated to the performance obligations. The impact on revenue was however not material as of January 1, 2018.Medical partner license, supply and distribution agreementsMedical partner license, supply and distribution agreements generally include a time-based license for online order management system and surgical guideplanning software, surgical guide development services and 3D printing, training, set-up and on boarding services and maintenance services. Theconsideration for the license is in general included within the price for a surgical guide (whether or not via an explicit royalty added to the price). Theaccounting prior to adoption of IFRS 15 is not significantly different than under IFRS 15, except for: • The license is in most cases not considered “distinct” and may be combined with the “surgical guide services and printing” as the license as suchmay not have a significant benefit for the partner without other readily available resources; • Certain agreements may include significant development services other than the standard set-up and on boarding services, which significantlymodify/customize the existing platform for the purpose of the partner and are not considered “distinct” and combined with the license; and • Allocation of the transaction price over the “distinct” performance obligations may result in higher or lower revenue allocated to a performanceobligation than the contractual pricing.The impact on January 1, 2018 of the above differences on revenue is K€323 additional deferred revenue.One contract with a non-cancellable contract period of 10 years had an up-front non-refundable fee for exclusivity for a total of €2.25 million. Prior toadopting IFRS 15, this fee has been fully recognized in previous years (from 2010 onwards). Under IFRS 15, this fee will be included in the transaction priceand allocated to the “distinct” performance obligations of the contract which are primarily software license, surgical guides services and printing,maintenance, and development services. The impact of this difference on January 1, 2018 is a higher deferred revenue of K€850 with a debit of theaccumulated deficit for the same amount. This deferred revenue will be recognized in revenue over the next three years. F-13Table of ContentsOther revenue streamsIFRS 15 is not expected to have significant impacts on our other revenue streams such as 3D print products and software license and related maintenance.ImpactBased on our above detailed assessment, the cumulative effect recognized in retained earnings as of January 1, 2018 is as follows (positive is a debit): in 000€ January 1, 2018 Software — Medical 1,173 Manufacturing — Total catch-up adjustment 1,173 The following table summarises the impact of adopting IFRS 15 on the Group’s consolidated statement of financial position as at December 31, 2018 and itsconsolidated income statement for the year then ended. There was no material impact on the Group’s statement of cash flows for the year ended December 31,2018, except on the impact of the deferred income on the line “net profit of the year” fully compensated by the impact on the line “Increase in trade payablesand other payables.” As of December 31, 2018 Consolidated statement of financial position in 000€ Asreported IFRS 15Catch-upadjustment IFRS 15Adjustmentsafter initialadoption Amountswithoutadoptionof IFRS15 Equity and liabilities Equity Share capital 3,050 — — 3,050 Share premium 136,637 — — 136,637 Consolidated reserves (1,848) 1,173 (410) (1,085) Other comprehensive loss (1,850) — — (1,850) Equity attributable to the owners of the parent 135,989 1,173 (410) 136,752 Total equity 135,989 1,173 (410) 136,752 Non-current liabilities Loans & borrowings 92,440 — — 92,440 Deferred tax liabilities 6,226 — — 6,226 Deferred income (contract liability) 4,587 (763) 410 4,234 Other non-current liabilities 868 — — 868 Total non-current liabilities 104,121 (763) 410 103,768 Current liabilities Loans & borrowings 13,598 — — 13,598 Trade payables 18,667 — — 18,667 Tax payables 2,313 — — 2,313 Deferred income (contract liability) 23,195 (410) — 22,785 Other current liabilities 15,342 — — 15,342 Total current liabilities 73,115 (410) — 72,705 Total equity and liabilities 313,225 — — 313,225 F-14Table of Contents For the year endedDecember, 31 2018 Consolidated income statement in 000€ Asreported Adjustments Amountswithoutadoptionof IFRS 15 Revenue 184,721 (410) 184,311 Cost of sales (82,299) — (82,299) Gross profit 102,422 (410) 102,012 Research and development expenses (22,416) — (22,416) Sales and marketing expenses (46,303) — (46,303) General and administrative expenses (32,310) — (32,310) Net other operating income 3,771 — 3,771 Operating profit 5,164 (410) 4,754 Financial expenses (4,864) — (4,864) Financial income 3,627 — 3,627 Share in loss of joint venture (475) — (475) Profit before taxes 3,452 (410) 3,042 Income taxes (425) — (425) Net profit for the year 3,027 (410) 2,617 Net profit attributable to: — The owners of the parent 3,027 (410) 2,617 Basic earnings per share 0.06 0.05 Diluted earnings per share 0.06 0.05 Restatements in the reporting year 2017The Group has restated the reporting year 2017 for the following impacts: • Our audited financial statements for the year ended December 31, 2017 appearing in our Annual Report on Form 20-F, as filed with the U.S.Securities and Exchange Commission on April 30, 2018 (the “FY 2017 Form 20-F”), included a provisional accounting for the ACTech businesscombination. The fair value analysis with respect to the assets and liabilities acquired was not yet finalized as of the reporting date.As of October 4, 2018, we completed the fair value analysis of the ACTech business combination, with corresponding adjustments to intangibleassets, goodwill, property, plant and equipment, inventories and contracts in progress, other current assets, investment grants and tax payables asif the accounting for the business combination had been completed at acquisition date. The impact has been accounted for as retrospectiveadjustments to our consolidated statement of financial position as of December 31, 2017 and our consolidated income statement for the yearended December 31, 2017. Furthermore it includes an adjustment to the inventory valuation at ACTech as at December 31, 2017, with a totalimpact on the consolidated reserves for the year amounted to K€(461).We refer to Note 4 for a detailed discussion of the ACTech business combination. • The Group has voluntarily changed the presentation of the amortization expense related to the intangible assets acquired from a businesscombination, except for the backlog, in the consolidated income statement. The related amortization expense is in 2018 presented in the line netother operating income in the consolidated income statement while previously this expense was included in the lines cost of sales, sales andmarketing expenses and general and administrative expenses. The intangible assets relate to acquired technology and acquired customerrelationships. Management has changed the presentation in order to better reflect the performance of the Group. F-15Table of ContentsThe impact of the restatements on the consolidated statement of financial position as of December 31, 2017 and the consolidated income statement for theyear ended December 31, 2017 is as follows: As of December 31, 2017 Restatement impact on statement of financial position in 000€ Aspreviouslyreported IFRS 3ACTECH As restated Assets Non-current assets Goodwill 18,447 (895) 17,552 Intangible assets 28,646 (46) 28,600 Property, plant & equipment 86,881 184 87,065 Investments in joint ventures 31 — 31 Deferred tax assets 304 — 304 Other non-current assets 3,667 — 3,667 Total non-current assets 137,976 (757) 137,219 Current assets Inventories and contracts in progress 11,594 (567) 11,027 Trade receivables 35,582 — 35,582 Other current assets 9,212 (1,537) 7,675 Cash and cash equivalents 43,175 — 43,175 Total current assets 99,563 (2,104) 97,459 Total assets 237,539 (2,861) 234,678 Equity and liabilities Equity Share capital 2,729 — 2,729 Share premium 79,839 — 79,839 Consolidated reserves (3,250) (461) (3,711) Other comprehensive loss (1,803) — (1,803) Equity attributable to the owners of the parent 77,515 (461) 77,054 Total equity 77,515 (461) 77,054 Non-current liabilities Loans & borrowings 81,788 — 81,788 Deferred tax liabilities 7,006 409 7,415 Deferred income 5,040 (1,272) 3,768 Other non-current liabilities 1,904 — 1,904 Total non-current liabilities 95,738 (863) 94,875 Current liabilities Loans & borrowings 12,769 — 12,769 Trade payables 15,670 — 15,670 Tax payables 3,560 (1,537) 2,023 Deferred income 18,791 — 18,791 Other current liabilities 13,496 — 13,496 Total current liabilities 64,286 (1,537) 62,749 Total equity and liabilities 237,539 (2,861) 234,678 F-16Table of Contents For the year ended December 31, 2017 Restatement impact on income statement in 000€ Aspreviouslyreported IFRS 3ACTECH Reclassification As restated Revenue 142,573 — — 142,573 Cost of sales (62,787) (447) 282 (62,952) Gross profit 79,786 (447) 282 79,621 Research and development expenses (19,959) — — (19,959) Sales and marketing expenses (39,109) — 174 (38,935) General and administrative expenses (25,484) — 608 (24,876) Net other operating income / (expenses) 5,631 (26) (1,064) 4,541 Operating profit (loss) 865 (473) — 392 Financial expenses (4,728) — — (4,728) Financial income 3,210 — — 3,210 Share in loss of joint venture (469) — — (469) Loss before taxes (1,122) (473) — (1,595) Income taxes (534) 12 — (522) Net loss for the year (1,656) (461) — (2,117) Net loss attributable to: The owners of the parent (1,656) (461) — (2,117) Non-controlling interest — — — — The consolidated income statement of the year ended December 31, 2016 has not been restated. The total impact on the net other operatingincome/(expenses) was immaterial for the year 2016 and therefore such amount has not been reclassified. A* mark has been added next to the year 2017 in tables in the notes when the year has been impacted by the restatement. F-17Table of Contents3 Summary of significant accounting policiesBasis for consolidationThe consolidated financial statements comprise the financial statements of the Group and its subsidiaries.Entities are fully consolidated from the date of acquisition, which is the date when the Group obtains control, and continue to be consolidated until the datewhen such control ceases. The financial statements of the entities are prepared for the same reporting period as the parent company, using consistentaccounting policies. All intra-Group balances, transactions, unrealized gains and losses resulting from intra-Group transactions and dividends are fullyeliminated.The Group attributes profit or loss and each component of other comprehensive income to the owners of the parent company and to the non-controllinginterest based on present ownership interests, even if the results in the non-controlling interest have a negative balance.A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over thesubsidiary, it will derecognize the assets (including goodwill) and liabilities of the subsidiary, any non-controlling interest and the other components ofequity related to the subsidiary. Any surplus or deficit arising from the loss of control is recognized in profit or loss. If the Group retains an interest in theprevious subsidiary, then such interest is measured at fair value at the date the control is lost.The proportion allocated to the parent and non-controlling interests in preparing the consolidated financial statements is determined based solely on presentownership interests.There are no significant changes to the consolidated scope occurred in 2018.Non-controlling interestsThe Group has the choice, on a transaction by transaction basis, to initially recognize any non-controlling interest in the acquiree which is a presentownership interest and entitles its holders to a proportionate share of the entity’s net assets in the event of liquidation at either acquisition date fair value or,at the present ownership instruments’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets. Other components ofnon-controlling interest such as outstanding share options are generally measured at fair value. The Group has not elected to take the option to use fair valuein acquisitions completed to date and currently does not have non-controlling interest resulting from business combinations.Foreign currency translationThe Group’s consolidated financial statements are presented in euros, which is also the parent company’s functional currency. For each entity, the Groupdetermines the functional currency, and items included in the financial statements of each entity are measured using the functional currency.Financial statements of foreign subsidiariesForeign subsidiaries use the local currencies of the country where they operate. The statement of financial position is translated into euro at the closing rateon the reporting date and their income statement is translated at the average exchange rate at each month-end. Differences resulting from the translation of thefinancial statements of said subsidiaries are recognized in other comprehensive income as “exchange differences on translation of foreign operations”. F-18Table of ContentsForeign currency transactionsTransactions denominated in foreign currencies are translated into euro at the exchange rate at the end of the previous month-end. Monetary items in thestatement of financial position are translated at the closing rate at each reporting date and the relevant translation adjustments are recognized in financial oroperating result depending on its nature.Business combinations and goodwillBusiness combinations are accounted for using the acquisition method at the acquisition date, which is the date at which the Group obtains control over theentity. The cost of an acquisition is measured as the amount of the consideration transferred to the seller, measured at the acquisition date fair value, and theamount of any non-controlling interest in the acquiree.The Group measures goodwill initially at cost at the acquisition date, being: • the fair value of the consideration transferred to the seller, plus • the amount of any non-controlling interest in the acquiree, plus • if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree re-measured at the acquisition date,less • the fair value of the net identifiable assets acquired and assumed liabilitiesGoodwill is recognized as an intangible asset with any impairment in carrying value being charged to the consolidated income statement. Where the fairvalue of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidatedincome statement on acquisition date.Acquisition costs incurred are expensed and included in general and administrative expenses.Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value ofthe contingent consideration, which is deemed to be an asset or liability, will be recognized either as a profit or loss or as a change to other comprehensiveincome. If the contingent consideration is classified as equity, it should not be re-measured until it is finally settled within equity.Acquisition of non-controlling interests are accounted for as an equity transaction.Investments in joint venturesThe Group carries investment in a joint venture (RS Print NV). The Group’s investments in its joint venture is accounted for using the equity method. Underthe equity method, the investment in the joint venture was initially recognized at cost. The carrying amount of the investment is adjusted to recognizechanges in the Group’s share of net assets of the joint venture since the acquisition date. Goodwill relating to the joint venture is included in the carryingamount of the investment and is not tested for impairment individually.The income statement reflects the Group’s share of the results of operations of the joint venture. Any change in other comprehensive income of the jointventure is presented as part of the Group’s other comprehensive income. In addition, when there has been a change recognized directly in the equity of thejoint venture, the Group recognizes its share of the change in the statement of changes in equity. Unrealized gains and losses resulting from transactionsbetween the Group and the joint venture are eliminated to the extent of the interest in the joint venture.After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in its joint venture. Ateach reporting date, the Group determines whether there is objective evidence that the investment in the joint venture is impaired. If there is such evidence,the Group calculates the amount of impairment as the difference between the recoverable amount of the Group’s interest in the joint venture (higher of valuein use and fair value less costs to sell), and then recognizes the loss as ‘Share of profit or loss of joint ventures’ in the income statement. F-19Table of ContentsProperty, plant & equipmentProperty, plant and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes borrowingcosts directly attributable to construction projects if the asset necessarily takes a substantial period of time to get ready for its intended use, it is probable thatthey will result in future economic benefits to the group and the cost can be measured reliably. When significant parts of property, plant and equipment arerequired to be replaced at intervals, the Group recognizes such parts as individual assets with specific useful lives and depreciates them accordingly.Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if therecognition criteria are satisfied. All other repair and maintenance costs are recognized in the income statement as incurred.Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows: •  Buildings: 20-30 years•  Furniture, Plant & Equipment: 5-30 years•  Property leased Assets: 15-30 years or lease term if shorter•  Leased machines: 5-10 years or lease term if shorterLand is not depreciated.A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end ofthe lease term, the asset is depreciated over the shorter of the estimated useful life of the asset or the lease term.An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefitsare expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceedsand the carrying amount of the asset) is included in the income statement when the asset is derecognized.The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year-end and adjusted prospectively, if appropriate.LeasesThe determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date, whether fulfilment ofthe arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitlyspecified in an arrangement.Finance leases which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at thecommencement of the lease at the fair value of the leased item or, if lower, at the present value of the minimum lease payments. Lease payments areapportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability.Finance charges are recognized as financial expenses in the consolidated income statement.Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an “operating lease”), the total rentals payable underthe lease are charged to the consolidated income statement on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognizedas a reduction of the rental expense over the lease term on a straight-line basis.Borrowing costsBorrowing costs directly attributable to the acquisition, construction or production of a qualified asset that necessarily takes a substantial period of time toprepare for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur.Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. F-20Table of ContentsResearch and developmentResearch and development includes the costs incurred by activities related to the development of software solutions (new products, updates andenhancements), guides and other products.Development activities involve the application of research findings or other knowledge to a plan or a design of new or substantially improved (software)products before the start of the commercial use.Development expenditures on an individual project are recognized as an intangible asset when the Group can demonstrate: • the technical feasibility of completing the intangible asset so that the asset will be available for use or sale; • its intention to complete and its ability to use or sell the asset; • how the asset will generate future economic benefits; • the availability of resources to complete the asset; and • the ability to measure reliably the expenditure during development.The Group has determined that the conditions for recognizing internally generated intangible assets from proprietary software, guide and other productdevelopment activities are not met until shortly before the products are available for sale, unless either (i) the Group has strong evidence that the abovecriteria are met and a detailed business plan is available showing the asset will on a reasonable basis generate future economic benefits or (ii) thedevelopment is done based upon specific request of the customer, it is highly likely that the Group will be able to market the product also to other partiesthan the customer, the development is subject to an agreement and the substance of the agreement is that the customer reimburses the Group for a significantportion, but not all, of the development expenses incurred. As such, development expenditures not satisfying the above criteria and expenditures on theresearch phase of internal projects are recognized in the consolidated income statement as incurred. Internally generated intangible assets from proprietarysoftware are amortized over their useful lives, starting from the moment they are ready for use/available for sale.Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulatedimpairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period ofexpected future benefit, which is determined on a project-by-project basis. Amortisation is recorded in cost of sales. During the period of development, theasset is tested for impairment annually.Intangible assets other than goodwill and capitalized development expendituresIntangible assets comprise acquired technology and customer portfolio, patents and licenses, goodwill and technology and customers acquired in connectionwith business combinations. Those intangible assets are measured on initial recognition at cost, except for the acquired technology and customers arisingfrom business combinations, which are measured initially at fair value. Following initial recognition, intangible assets other than goodwill are carried at costless any accumulated amortization and accumulated impairment losses, if any.The useful life of the intangible assets is as follows: •  Software: 3 years;•  Patents and licenses: 5 years;•  Acquired customers: 5-20 years;•  Technology: 6-10 years;•  Order Backlog: Period over which orders will be completed.The intangible assets with finite lives are amortized over their useful economic life and assessed for impairment whenever there is an indication that theintangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least atthe end of each reporting period. The amortization expense on intangible assets with finite lives is recognized in the consolidated income statement in theline “net other operating income”.Impairment of goodwill and other non-financial assets (excluding inventories and deferred tax assets)Impairment tests on goodwill and other intangible assets with indefinite useful economic lives or capitalized development expenses which are not amortizedyet, are undertaken annually at the financial year end. Other non-financial assets and goodwill are subject to impairment tests whenever events or changes incircumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higherof value in use and fair value less costs to sell), the asset is written down accordingly.Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest Group of assets to whichit belongs for which there are separately identifiable cash flows: its cash generating units (CGUs). Goodwill is allocated on initial recognition to each of theGroup’s CGUs that are expected to benefit from the synergies of the combination giving rise to the goodwill. F-21Table of ContentsThe Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs towhich the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-termgrowth rate is calculated and applied to future cash flows projected after the fifth year.Impairment charges are included in profit or loss, except, where applicable, to the extent they reverse gains previously recognized in other comprehensiveincome. An impairment loss recognized for goodwill is not reversed.Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operationdisposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in thiscircumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.Inventories and Contracts in progressInventories are valued at the lower of cost and net realizable value. Costs incurred in bringing each product to its present location and condition areaccounted for as follows: • Raw materials: purchase cost on a first in, first out basis; and • Finished goods and work in progress: cost of direct materials and labor and a proportion of manufacturing overheads based on the normaloperating capacity, but excluding borrowing costs.Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary tomake the sale.A write-off of inventories is estimated based on an ageing or rotation analysis.Work in progress relates to production of inventory for which a customer has not yet been secured, while contracts in progress are contract assets that relate toproduction for specific customers in performance of a signed contract. We refer also to the accounting policy on revenue recognition.Financial assetsFinancial assets are classified at initial recognition, and subsequently measured as at amortised cost, fair value through other comprehensive income (OCI),and fair value through profit or loss.The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s businessmodel for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has appliedthe practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit orloss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient aremeasured at the transaction price.For purposes of subsequent measurement, financial assets are classified in four categories: • Financial assets at amortised cost; • Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments); • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments);and • Financial assets at fair value through profit or loss.Financial assets measured at amortized costThis category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on theprincipal amount outstanding.Financial assets, trade and other receivables, cash and cash equivalents at amortised cost are subsequently measured using the effective interest (EIR) methodand are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)The Group currently does not have financial assets at fair value through OCI with recycling of cumulative gains and losses. F-22Table of ContentsFinancial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)The Group has irrevocably elected at initial recognition to classify the minority interest in the non-listed equity investment Essentium Inc, as disclosed inNote 10 and Note 20, as a financial asset designated at fair value through OCI as this measurement is most representative of the business model for this asset.Gain and losses on these financial assets are never recycled to profit and loss. Dividends are recognised as other operational income in the consolidatedincome statement when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of thefinancial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairmentassessment.Financial assets measured at fair value through profit or lossThe Group does not currently have financial assets classified as financial assets at fair value through profit or loss except for a call option on non-controllinginterests in RapidFit+ as disclosed in Note 13 and the derivatives, which are carried in the statement of financial position at fair value with changesrecognized in the income statement in the lines financial income/expense.DerecognitionA financial asset is derecognized when: • The rights to receive cash flows from the asset have expired, or • The Group has transferred its rights to receive cash flows from the assets.Impairment of financial assetsFurther disclosures relating to impairment of financial assets are also provided in Note 3 Significant accounting judgments, estimates and assumptions.The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss.For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. A loss allowance is recognized at each reporting datebased on lifetime ECLs. The Group established a provision matrix that is based on its historical loss experience, adjusted for forward-looking factors specificto the debtors and the economic environment.For all other receivables, ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows thatthe Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from thesale of collateral held or other credit enhancements that are integral to the contractual terms. ECLs are recognised in two stages. For credit exposures forwhich there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events thatare possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initialrecognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetimeECL).Financial liabilitiesAll financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transactioncosts.The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts and derivative financial instrumentsincluding written put options over non-controlling interests.Financial liabilities at amortized costThe trade and other payables, and loans and borrowings are classified as financial liabilities at amortized cost.Those financial liabilities are measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the income statementwhen the liabilities are derecognized as well as through the effective interest rate method amortization process.Financial liabilities at fair value through profit and lossThe derivative financial instruments are classified as financial liabilities at fair value through profit and loss except for the written put options onnon-controlling interests which is disclosed below.Written put options on non-controlling interestThe Group recognizes a financial liability for the written put options on non-controlling interest. The written put options have a variable redemption pricebased on a formula as specified in the contract (see Note 13). • The financial liability is initially recognized at fair value and the fair value is reclassified from non-controlling interest and, for any amounthigher than the non-controlling interest, from consolidated reserves. F-23Table of Contents • The fair value is determined as the present value of the redemption amount. • Any change in the fair value as a result of a change in the estimated redemption price is recognized directly in consolidated reserves. Anyunwinding effect of the present value of the redemption price is recognized directly in profit and loss (financial cost). • No share of profit is allocated to the non-controlling interest. • Upon exercise of the written put option, the carrying value will be offset with the cash payment received. When the written put option is notexercised, the carrying value of the financial liability is derecognized against non-controlling interest with the difference going to consolidatedreserves.Compound financial instrumentsThe Group has issued convertible debt which is accounted for as a compound financial instrument. For those instruments, the Group determines the carryingamount of the liability component by measuring the fair value of a similar liability (including any embedded non-equity derivative features) that does nothave an associated equity component. The carrying amount of the equity instrument is then determined by deducting the fair value of the financial liabilityfrom the fair value of the compound financial instrument as a whole.DerecognitionA financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.OffsettingFinancial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currentlyenforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilitiessimultaneously.Share capitalFinancial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financialasset. The Group’s ordinary shares are classified as equity instruments.ProvisionsProvisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resourcesembodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.Pensions benefitsThe Group has a defined contribution obligation where the Group pays contributions based on salaries to an insurance company, in accordance with the lawsand agreements in each country.The Belgian defined contribution pension plans are by law with variable minimum returns based on the Belgian government bonds, with a minimum of1.75% and a maximum of 3.75%, effective for contributions paid as from 2016. For contribution paid until 2015, the minimum guaranteed return is 3.25% onemployer contributions and 3.75% on employee contributions.These plans qualify as defined benefit plans. Contributions are recognized as expenses for the period in which employees perform the corresponding services.Outstanding payments at the end of the period are shown as other current liabilities.Those plans are accounted for as a defined benefit plan however are considered not material.Share based paymentsDirectors and employees (including senior executives) of the Group receive remuneration in the form of share-based payments, whereby employees renderservices as consideration for equity instruments (equity-settled transactions). The Group currently has only warrants and share-appreciation rights as share-based payments.Equity-settled transactionsEquity-settled share-based payments to employees and others providing similar services are measured, indirectly, at the fair value of the equity instrumentsgranted. The cost of equity-settled transactions is recognized, together with a corresponding increase in other capital reserves in equity, over the period inwhich the performance and/or service conditions are fulfilled. The cumulative expense recognized for equity-settled transactions at each reporting date untilthe vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that willultimately vest. The income statement expense or credit for a period represents the movement in cumulative expense recognized at the beginning and end ofthat period and is recognized as employee benefits expense. F-24Table of ContentsThe Group does currently only have equity-settled share-based payments that have service-based vesting conditions and no instruments with market vestingconditions.No expense is recognized for awards that do not ultimately vest.When the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the originalterms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based paymenttransaction, or is otherwise beneficial to the employee as measured at the date of modification.When an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognized for the award isrecognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met. However,if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards aretreated as if they were a modification of the original award, as described in the previous paragraph.Cash-settled transactionsThe Group has cash-settled share-based payment transaction for certain employees in certain countries due to legal requirements (in the form of share-appreciation rights). The cost of cash-settled transactions is measured initially at fair value at the grant date. This fair value is expensed over the period untilthe vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to, and including thesettlement date, with changes in fair value recognized in employee benefits expense.Revenue from contracts with customersThe Group’s revenue, which is presented net of sales taxes, is primarily generated by the sale of our software and 3D printed products and services. Softwarerevenue is comprised of perpetual and periodic licenses, maintenance revenue and software development service fees. Perpetual license holders may opt totake an annual maintenance contract, which leads to annual fees. Periodic licenses entitle the customer to maintenance, support and product updates withoutadditional charge. Revenue from prototypes and end products involving 3D printing technology is derived from our network of production centers and mayinclude support and services such as pre-production collaboration prior to the actual production.The Group sells its products and software through its direct sales force and through authorized distributors.Software license revenue, maintenance and/or software development service fees may be bundled in one arrangement, or may be sold separately.The Group recognizes revenue for goods including software based on the five-step model as a result of the application of IFRS 15 since January 1, 2018. 1.Identify the contract(s) with a customer; 2.Identify the performance obligations in the contract; 3.Determine the transaction price; 4.Allocate the transaction price to the performance obligations in the contract; and 5.Recognize revenue when (or as) the entity satisfies a performance obligation.The impact of the application of IFRS 15 is discussed in Note 2. Basis of preparation.Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects theconsideration to which the Group is expected to be entitled in exchange from those goods and services.If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange fortransferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that asignificant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration issubsequently resolved. Variable consideration is mainly related to quantities sold, volume (step-based) rebates and development time spend.Prototypes and end products involving 3D printing technologyThe Group recognizes revenue on the sale of goods to the customer or distributor at a point in time when control of the asset is transferred, generally uponshipment or delivery taking into account the shipment terms (usually Ex-works or FOB Time of Shipment Incoterms (International Commercial Terms)). F-25Table of ContentsPerpetual licensed softwareThe sale and/or license of software products is deemed to have occurred at a point in time, i.e. when a customer either has taken possession of or has theability to take immediate possession of the software and the software key.Perpetual software licenses can include one year maintenance and support services as a separate performance obligation. The Company sells thesemaintenance services also on a stand-alone basis and is therefore capable of determining their stand-alone selling price. On this basis, the amount of theembedded maintenance is separated from the fee for the perpetual license and is recognized ratably over the period to which they relate.Time-based licensed softwareThe time-based license agreements include the use of a software license for a fixed term and maintenance and support services during the same period. TheCompany does not sell time-based licenses without maintenance and support services and therefore revenues is satisfied over time for the entire arrangementsand is recognized ratably over the term.Maintenance and support servicesMaintenance and support services are satisfied over time and as such, the Group recognizes this revenue ratably on a straight-line basis over the term that themaintenance service is provided. In general, maintenance services are not automatically renewed.A maintenance and support contract may include a reinstatement for previous years when the customer did not have a maintenance and support contractpreviously. Revenue from reinstatements are recognized immediately when the maintenance and support services commence.Software development services (SDS)SDS include customized development of software components for customers. Revenue from SDS agreements when distinct from other performanceobligations is satisfied over time. Revenue is then recognized either on time and material basis or on the stage of completion of each service contract andwhen the stage of completion can be measured reliably.The Company determines the percentage-of-completion by comparing labor hours incurred to-date to the estimated total labor hours required to complete theproject. The Company considers labor hours to be the most reliable available measure of progress on these projects. Adjustments to the Company’s estimatesof the time to completion are made when facts resulting in a change become known. When the estimate indicates that a loss will be incurred, such loss isrecognized immediately.Contracts with multiple performance obligationsThe Group has entered into a number contracts with multiple performance obligations, such as when selling perpetual licenses that may include maintenanceand support (included in price of perpetual licenses) and time-based licenses (that include embedded maintenance and support, both of which may be soldwith software development services, training, and other product sales). In some cases, the Group delivers software development services bundled with the saleof the software.The Group evaluates whether each performance obligation is distinct from each other, i.e. the customer can benefit from the good or service on its own, orwith readily available resources. Certain development services significantly modify and/or enhance the software license and as such are not considereddistinct and combined with the software license.In those contracts, whether sold to end-customers or to collaboration partners, the Group uses either price list, historical pricing information or management’sbest estimate of selling prices (e.g. also using a cost-plus method) to determine the stand-alone selling price for each distinct performance obligation,including software and software-related services such as maintenance and support. In general, elements in such arrangements are also sold on a stand-alonebasis and stand-alone selling prices are readily available.Revenue is allocated to each distinct performance obligation (“PO”) based on the relative percentage of the stand-alone selling price for each PO compared tothe total of stand-alone selling prices for all PO over the total transaction price and is recognized when the revenue recognition criteria described above aremet.Contracts with collaboration partners in the medical segment also include multiple elements such as software, maintenance and support services, training,software development services, 3D printed products and royalties. Revenue from those contracts is determined and recognized consistent with other multipleelement arrangements.For certain contracts with collaboration partners, the Company also receives up-front fees, paid by customers for certain exclusivity rights granted only onpreviously acquired perpetual software licenses, which may be bundled with transfer of title, rights and ownership of certain software products andmaintenance and support services. In case the up-front fees do not relate to already delivered good or services, the Group include the up-front fees in the totaltransaction price which is then allocated to all the distinct performance obligations. Other contracts with collaboration partners include prepaid fees topurchase a maximum number of “Plan Only” cases during a 12-month period. In this case, the prepaid fees are recognized over the period of 12 months basedon the expected number of “Plan Only” cases that will be purchased. F-26Table of ContentsContract assetsA contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods orservices to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that isconditional. Contract assets are only contracts in progress that are disclosed with the line inventory and contracts in progress in the statement of financialposition. We refer to our accounting policies regarding Inventories and Contracts in ProgressContract liabilitiesA contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of considerationis due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognisedwhen the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under thecontract. Contract liabilities are presented as deferred income in the statement of financial position.Contract costsThe Group does not have significant costs to obtain contracts and those costs are expensed as incurred.The Group may have costs incurred in fulfilling contracts that are accounted for as intangible assets. When those costs are not in scope of another standards,these costs are accounted for under contracts in progress (see contract assets). For certain contracts, the Group may have significant software developmentexpenses that are not considered a “distinct performance obligation” which are accounted for as an intangible assets. The Group evaluates whether thosecosts meet the recognition criteria for an intangible assets and when criteria are not met, expenses those costs as incurred.Government grantsGovernment grants are recognized when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. Whenthe grant relates to development costs or another expense, it is recognized as income over the grant period necessary to match the income on a systematicbasis to the costs that it is intended to compensate. When the grant relates to the construction of buildings, it is recognized as income over the depreciationperiod of the related building.Such grants have been received from the federal and regional governments and from the European Union in the forms of grants linked to certain of itsresearch and development programs, reduced payroll taxes and the financing of the construction of an office building in Leuven (Belgium) and in Freiberg(Germany).Where retention of a government grant related to assets or to income, is dependent on the Company satisfying certain criteria, it is initially recognized asdeferred income. When the criteria for retention have been satisfied, the deferred income balance is released to other operating income in the consolidatedincome statement on a systematic basis over the periods in which the entity recognizes as expenses the related costs for which the grants are intended tocompensate.Any government grants recognized as income do not have any unfulfilled conditions or other contingencies attached to them, as otherwise we would not berecognizing income for such.Other financial income and expensesOther financial income and expenses include mainly foreign currency gains or losses on financial transactions and bank related expenses.TaxesCurrent income taxIncome tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The taxrates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date.Current income tax relating to items that are recognized directly in equity is recognized in equity and not in the income statement. Management periodicallyevaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishesprovisions where appropriate.Deferred taxDeferred tax is calculated using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes. F-27Table of ContentsDeferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductibletemporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized.The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxableprofit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date andare recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, basedon tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilitiesand the deferred taxes relate to the same taxable entity and the same taxation authority.Sales taxRevenue, expenses and assets are recognized net of the amount of VAT, except: • Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax isrecognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • Receivables and payables that are stated with the amount of sales tax included.The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financialposition.New and revised standards not yet adoptedThe standards and interpretations that are issued, but not yet effective, up to the closing date of the Group’s financial statements are disclosed below.Of those standards that are not yet effective, IFRS 16 Leases is expected to have a material impact on the Group’s financial statements in the period of initialapplication.IFRS 16, LeasesThe Group is required to adopt IFRS 16 Leases from January 1, 2019. The Group has assessed the estimated impact that initial application of IFRS 16 willhave on its consolidated financial statements, as described below. The actual impacts of adopting the standard on January 1, 2019 may change because: • The Group has not finalised the testing and assessment of controls over its new IT systems; and • The new accounting policies are subject to change until the Group presents its first financial statements that include the date of initialapplication.IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use theunderlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases oflow-value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases.IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 OperatingLeases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.The Group will, where it acts as a lessee, recognise new assets and liabilities for its operating leases of buildings, vehicles and machinery & equipment. Thenature of expenses related to those leases will now change because the Group will recognise a depreciation charge for right-of-use assets and interest expenseon lease liabilities.Previously, the Group recognised operating lease expense on a straight-line basis over the term of the lease, and recognised assets and liabilities only to theextent that there was a timing difference between actual lease payments and the expense recognised.No significant impact on income statement is expected for the Group’s finance leases.Based on the information currently available, the Group estimates that it will recognise additional lease liabilities of K€4,998 as at January 1, 2019 andestimated annual depreciation expense of K€2,483.The Group plans to apply IFRS 16 initially on January 1, 2019, using the modified retrospective approach with the Right-of-Use asset equal to the leaseliability. Therefore, there will be no restatement of comparative information. F-28Table of ContentsThe Group plans to apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply IFRS 16 to all contractsentered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.The other standards, interpretations and amendments issued by the IASB and relevant for the Group, but not yet effective are not expected to have a materialimpact on the Group’s future consolidated financial statements: • IFRIC 23 Uncertainty over Tax Treatments; • IFRS 17 Insurance Contracts; • Amendments to IFRS 9: Prepayment Features with Negative Compensation; • Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture; • Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures; • Amendments to IAS 19: Plan Amendment, Curtailment or Settlement; • Annual Improvements to IFRS Standards 2015–2017 Cycle – various standards (IFRS 3 Business Combinations; IFRS 11 Joint Arrangements;IAS 12 Income Taxes; IAS 23 Borrowing Costs); and • Amendments to References to Conceptual Framework in IFRS Standards;Significant accounting judgments, estimates and assumptionsThe preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reportedamounts of revenue, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result inoutcomes that require a material adjustment to the carrying amount of assets or liabilities for future periods.On an ongoing basis, the Group evaluates its estimates, assumptions and judgments, including those related to revenue recognition, development expenses,share-based payment transactions, income taxes, impairment of goodwill, intangible assets and property, plant & equipment and business combinations.The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstancesand assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Suchchanges are reflected in the assumptions when they occur.Revenue recognitionOur revenue recognition policies require management to make significant estimates. Management analyzes various factors, including a review of specifictransactions, historical experience, creditworthiness of customers and current market and economic conditions. Changes in judgments based upon thesefactors could impact the timing and amount of revenue and cost recognized and thus affects our results of operations and financial condition. The significantestimates and judgments relate to: • The assessment whether a performance obligation is distinct in a bundled sales transactions; • Estimates of the variable considerations and the assessment of the revenue constraint limitation; • Estimates of the stand-alone selling prices for each distinct performance obligation; and • The stage of completion of our customized development of software components for customers when revenue is satisfied over time.The Group is making significant judgments when performing the assessment of whether a performance obligation is distinct from the other performanceobligations in a contract, i.e. whether the good or service has a benefit for the customer in its own or together with readily available resource and/or whetherthe good or service is highly interrelated or a significant input with another good or service delivered, or whether it significantly modifies or customizesanother good or service. The relevant judgments include the following: • Whether the software license is distinct from the 3D printed guides – in most cases with contracts with collabroration partners in the MaterialiseMedical segment, the software licenses is combined with the manufacturing of the 3D printed guides as the software license has no benefit for thecustomer without the manufacturing services. Note that the Group is implementing a new feature “Plan Only” which where the collaborationpartners could benefit from the software license in its own. • Whether the development services are distinct from other performance obligations – in most cases, those performance obligations are distincthowever for one contract with a collaboration partner in the Materialise Medical segment, the software license is combined with the license andthe 3D printed guides as one “distinct” performance obligationFor the stand-alone selling prices, the Group is using prices from price list or historical prices for similar transactions. However, in certain cases, suchinformation is not immediately available and in such cases, the Group estimates the stand-alone selling price by using a cost-plus or another estimate. Inaddition, for certain performance obligations such as development services, stand-alone selling prices also require an estimate of the time to complete thedevelopment. F-29Table of ContentsCertain contracts include estimates of variable considerations within the transaction price and assessing the revenue constraint, such as: • Quantities/volume sold for fixed prices in relation to, but not limited to, manufacturing of 3D printed products, software licenses sold,maintenance renewals; • Contractual prices may be different based on volume purchased during a certain period; • FTE spend for development or other services billed on a time and material basis; and • Volume rebates.The method applied to estimate the variable consideration is dependent on the number of possible scenarios and the probability of each scenario. In casethere are many possible scenarios with a wide range of probabilities (each less than 50%), the Group will use the expected value method while the most likelymethod is used when there is a scenario with a higher probability (more than 50%).Variable consideration is not constrained when based on historical experience and/or high reliable business forecast and/or the timeframe of the estimates, theGroup determines that there is a high probability that this will not result in a future revenue reversal.We determine the stage of completion for development contracts satisfied over time by comparing labor hours incurred to-date to the estimated total laborhours required to complete the project. We consider labor hours to be the most reliable, available measure of progress on these projects. Adjustments toestimates to complete are made in the periods in which facts resulting in a change become known. When the estimate indicates that a loss will be incurred,such loss is recorded in the period identified. Significant judgments and estimates are involved in determining the percent complete of each contract.Different assumptions could yield materially different results.Development expensesUnder IAS 38, internally generated intangible assets from the development phase are recognized if certain conditions are met. These conditions include thetechnical feasibility, intention to complete, the ability to use or sell the asset under development, and the demonstration of how the asset will generateprobable future economic benefits. The cost of a recognized internally generated intangible asset comprises all directly attributable cost necessary to makethe asset capable of being used as intended by management. In contrast, all expenditures arising from the research phase are expensed as incurred.Determining whether internally generated intangible assets from development are to be recognized as intangible assets requires significant judgment,particularly in determining whether the activities are considered research activities or development activities, whether the product enhancement issubstantial, whether the completion of the asset is technical feasible considering a company-specific approach, the probability of future economic benefitsfrom the sale or use including an assessment whether FDA approval will be obtained.The Group has determined that the conditions for recognizing internally generated intangible assets from proprietary software, guide and other productdevelopment activities are not met until shortly before the products are available for sale, unless either (i) the Group has strong evidence that the abovecriteria are met and a detailed business plan is available showing the asset will on a reasonable basis generate future economic benefits or (ii) thedevelopment is done based upon specific request of the customer, the Group has the intention to market the product also to other parties than the customer,the development is subject to an agreement and the substance of the agreement is that the customer reimburses the Group for a significant portion of thedevelopment expenses incurred. As such, development expenditures not satisfying the above criteria and expenditures on the research phase of internalprojects are recognized in the consolidated income statement as incurred. This assessment is monitored by the Group on a regular basis.We have determined that the criteria for internally generated intangible assets were met for two projects in 2018: (1) the software development of a newplanner for hospitals within a certain medical field and (2) the process to obtain FDA and E.U. approval for a 3D printed product within the MaterialiseMedical segment. For the latter, we determined that there is a low risk that FDA approval will not be obtained although clinical trials have to be started andcommercialization is not expected before 2022. This assessment was made by management based on several factors including the developed product itself,the exclusive patent rights obtained on the developed product, the successful application of the product on a number of patients as part of the emergencyexception use obtained from the FDA and the continued discussions to speed up the trial duration and commercialization. The product is also expected toreceive E.U. approval for commercialization by the end of 2020. The total amount capitalized is K€158 and K€524 as per December 31, 2018.Share-based payment transactionsThe Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which theyare granted and measured the cost of cash-settled transactions by reference to the fair value of the equity instrument at the date of reporting. The Group hasapplied the Black-Scholes valuation model to estimate fair value. Using this model requires management to make assumptions with regards to volatility andexpected life of the equity instruments. The assumptions used for estimating fair value for share-based payment transactions are disclosed in Note 14 and areestimated as follows: • Volatility is estimated based on the average annualized volatility of the Group; F-30Table of Contents • Estimated life of the warrant is estimated to be until the first exercise period which is typically the month after their vesting; • Fair value of the shares is determined based on the share price of the Group on Nasdaq at the date of issuance. For the grants prior to the initialpublic offering, the fair value of the shares was estimated based on a discounted cash flow model with 3-year cash flow projections and a multipleof EBITDA determined based on a number quoted peers in the 3D printing industry; and • The dividend return is estimated by reference to the historical dividend payment of the Group. Currently, this is estimated to be zero as nodividends have been paid since inception.Income taxesDeferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can beutilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timingand the level of future taxable profits together with future tax planning strategies.As at December 31, 2018, the Group had K€25,285 (2017: K€11,948; 2016: K€9,451) of tax losses carry forward and other tax credits such as investment taxcredits and notional interest deduction, of which K€15,592 related to Materialise NV (2017: K€4,581; 2016: K€1,570). These losses relate to the parent andsubsidiaries that have a history of losses, in countries where these losses do not expire, except for the notional interest deduction of K€0 in 2018 (2017:K€315; 2016: K€315) and may not be used to offset taxable income elsewhere in the Group.With respect to the unused tax losses of Materialise NV, no deferred tax assets have been recognized in 2018, 2017 and 2016, given that in view of theBelgian Patent Income Deduction and Innovation Income Deduction there is an uncertainty to which extent these tax losses will be used in future years. Asfrom July 1, 2016, the new Innovation Income Deduction replaces the former Patent Income Deduction. Under the grandfathering rule the Patent IncomeDeduction system can still be applied until June 30, 2021. The Belgian Patent Income Deduction allows companies to deduct 80% of the qualifying grosspatent income from the taxable basis. Under the Innovation Income Deduction system, companies can deduct up to 85% of their net innovation income fromthe taxable basis. Based on its analysis in 2018 the Company has assessed that no deferred tax asset should be accounted for with respect to its unused taxlosses in Belgium.With respect to the unused tax losses of the other entities, no deferred tax assets have been recognized in 2018 (2017: K€0; 2016: K€109). The Group has notrecognized deferred tax assets on unused tax losses totalling K€11,906 in 2018 (2017: K€7,904; 2016: K€8,877) given that it is not probable that sufficientpositive taxable base will be available in the foreseeable future against which these tax losses can be utilized.If the Group was able to recognize all unrecognized deferred tax assets, net profit would have increased by K€3,531 in 2018 during which K€11,906 of taxlosses were utilized. Further details on taxes are disclosed in Note 22.10.Impairment of goodwill, intangible assets and property, plant & equipmentThe Group has goodwill for a total amount of K€17,491 as at December 31, 2018 (2017: K€17,552; 2016: K€8,860) which has been subject to an impairmenttest. The goodwill is tested for impairment based on a discounted cash flow model with cash flows for the next five years derived from the budget and aresidual value considering a perpetual growth rate. The value in use is sensitive to the discount rate used for the DCF model as well as the expected futurecash-inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the value in use for the different CGUs are disclosedand further explained in Note 5.The Group capitalized development expenses for a total amount of K€682 as at December 31, 2018 which are not in the condition as intended bymanagement and as such not amortized. Those development expenses have been subject to an impairment test based on a discounted cash flow model withcash flows derived from the latest business plan. The value in use is sensitive to the discount rate used for the DCF model as well as the expectedcommercialization date for the products and the expected future cash inflows after commercialization. We refer to the section on development expensesabove for further explanations.When events or changes in circumstances indicate that the carrying amount of the intangible assets and property, plant and equipment may not berecoverable, we estimate the value in use for the individual assets, or when not possible, at the level of CGUs to which the individual assets belong. Noimpairment charges have been recorded during 2018 (2017: K€0; 2016: K€0).Business combinationsWe determine and allocate the purchase price of an acquired business to the assets acquired and liabilities assumed as of the business combination date.Business combinations are discussed further in Note 4. The purchase price allocation process requires us to use significant estimates and assumptions,including • estimated fair value of the acquired intangible assets; • estimated fair value of property, plant and equipment; and • estimated fair value of the contingent consideration.The contingent consideration as included in the financial statements is recorded at fair value at the date of acquisition and is reviewed on a regular basis. Thefair value of the contingent consideration is based on risk-adjusted future cash flows of different scenarios discounted using appropriate interest rates. Thestructure of the possible scenarios and the probability assigned to each one of them is reassessed by management at every reporting period and requiresjudgement from management about the outcome and probability of the different scenarios as well as the evolution of the variables. F-31Table of ContentsWhile we are using our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilitiesassumed at the date of acquisition, our estimates and assumptions are inherently uncertain and subject to refinement. Examples of critical estimates invaluing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to: • future expected cash flows from customer contracts and relationships, software license sales and maintenance agreements; • the fair value of the plant and equipment • the fair value of the deferred revenue; and • discount rates.Provision for expected credit losses of trade receivables and contract assetsThe Group uses a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due for groupings ofvarious customer segments that have similar loss patterns (i.e., by legal entity).The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit lossexperience with forward-looking information. For instance, if forecast economic conditions (i.e., gross domestic product) are expected to deteriorate over thenext year which can lead to an increased number of defaults, the historical default rates are adjusted. At every reporting date, the historical observed defaultrates are updated and changes in the forward-looking estimates are analyzed.The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount ofECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical credit loss experience and forecast of economicconditions may also not be representative of customer’s actual default in the future. The information about the ECLs on the Group’s trade receivables andcontract assets is disclosed in Note 25.4 Business CombinationsAcquisitions in 2018The Group has not completed any Business Combinations during the year 2018.Acquisitions in 2017ACTechThe Group has signed a share and purchase agreement on October 4, 2017 to acquire all of the shares and voting interest of ACTech Holding Gmbh, an entityincorporated in Germany, and its subsidiaries ACTech Gmbh and ACTech North America Inc. (together referred to as “ACTech Group”) for a total purchaseconsideration in cash of K€28,907 (net of indemnification asset).The German-based ACTech Group is specialist in producing limited runs of highly complex cast metal parts in a short timeframe. ACTech Group will be partof the Manufacturing segment. F-32Table of ContentsThe fair value of the identifiable assets and liabilities at the date of acquisition were: in 000€ Carryingvalue atacquisitiondate Fair valueadjustments Fair valueat acquisitiondate Assets Technology — 515 515 Customer relations — 17,092 17,092 Other intangible assets 6,330 (5,345) 985 Property, plant & equipment 19,986 243 20,229 Deferred tax assets 503 (415) 88 Other non-current financial assets 56 — 56 Inventory 2,356 433 2,789 Trade receivables 5,176 — 5,176 Cash & cash equivalents 2,244 — 2,244 Other assets 542 — 542 Total Assets 37,193 12,523 49,716 Liabilities Deferred tax liabilities (47) (5,977) (6,024) Deferred income (1,298) 1,298 — Loans & borrowings (11,308) — (11,308) Trade payables (777) — (777) Tax payables (3,664) 1,214 (2,450) Other liabilities (9,062) — (9,062) Total Liabilities (26,156) (3,465) (29,621) Total identified assets and liabilities 11,037 9,058 20,095 Goodwill 8,812 Acquisition price — — 28,907 The cash flow from the business combination is as follows: Cash & cash equivalents acquired (2,244)Acquisition price in cash including escrow 29,418Total cash flow 27,174The fair value of the identifiable assets and liabilities as included in our consolidated financial statements per December 31, 2017 were provisional as thefinal valuation had not been completed by the date these consolidated financial statements were approved for issue by the board of directors. As of October 4,2018, we have completed the fair value analysis of the ACTech business combination, which corresponding adjustments to the intangible assets, property,plant and equipment, inventories and contracts in progress, other current assets, investment grants and tax payables. The fair value of the identified assets andliabilities were K€2,432 higher than the provisional value at date of acquisition, with a corresponding reduction in goodwill. We refer to Note 2 for thedetailed impact of the restatement resulting from the final accounting of the ACTech business combination.The accounting for the business combination resulted in fair values at date of acquisition of K€17,092 for customer relationships, K€515 for patentedtechnology, K€826 for order backlog, and K€511 for tax contingencies subject to an indemnification asset. The fair value of the receivables is K€5,176which equals the gross contractual amounts receivable. Fair value analysis with respect to property, plant and equipment led to a fair value of K€20,229. Afair value adjustment was identified of K€433 for the inventory. The deferred tax liabilities comprise the tax effect of the fair value adjustments for the abovedescribed items.The purchase price paid at the acquisition date amounted to K€29,418. The share and purchase agreement foresees that the Sellers will indemnify the Groupfor certain tax payables and contingencies that may occur in the period between 2018 and 2021. An amount of K€3,788 has been paid in an escrow accountwhich can be applied against the indemnification asset. The Group has estimated that the fair value of the indemnification asset is K€511 which has beenapplied against the acquisition price. The indemnification asset will be paid out of the escrow account when the related tax payables and contingencies arepaid.There are no contingent considerations payable.The goodwill recognized is primarily attributable to the trained and knowledgable workforce and to the expected synergies that will be realized at level ofsoftware platforms, manufacturing and existing customer base. The goodwill is not deductible for income tax purposes.The total acquisition-related costs recognized as an expense in the general & administration costs are K€609. F-33Table of ContentsThe contribution of the acquired business to the revenue and net profit of the Group for the year ended December 31, 2017 were, respectively, K€9,965 andK€275. The pro forma revenue and the pro forma net profit of the acquired business would have been K€37,096 and K€2,060, respectively, if the businesswould have been acquired on January 1, 2017.Acquisitions in 2016The Group has not completed any Business Combinations during the year 2016.Changes in the measurement of the contingent consideration for previous acquisitionsCenatThe Group signed a sale and purchase agreement on March 10, 2015 to acquire all of the shares and voting interests of Cenat BVBA for a consideration incash of K€1,547 and a contingent consideration related to certain targets set over the coming years between K€0 and K€2,250. The fair value of thiscontingent consideration was estimated at time of final accounting (December 31, 2015) at K€1,310.Based on the historical results and the forecasted financial information for the period 2018 to 2019 the Group has re-estimated the fair value of the contingentconsideration at December 31, 2016 to K€905, and maintained this estimate per December 31, 2017.In the course of 2018 a payment of K€263 was made to the former shareholders. And on December 24, 2018 an agreement was signed determining that theonly remaining and final consideration to be paid amounts to K€450, payable by the Group to the former shareholders in the course of early 2019. As atDecember 31, 2018 a payable of K€450 has been recorded under the other current liabilities (we refer to Note 19). The impact of the remeasurement has beenrecorded in the line “net other operating income” in the consolidated income statement. This final consideration was paid on January 21, 2019. F-34Table of Contents5 GoodwillThe goodwill has been allocated to the cash generating units (“CGU”) as follows: As of December 31, in 000€ 2018 2017* 2016 CGU: MAT NV SAM BE 3,241 3,241 3,241 CGU: e-Prototypy 794 818 775 CGU: ACTech 8,812 8,812 — CGU: OrthoView 4,467 4,504 4,667 CGU: MAT NV Manufacturing (Metal) 177 177 177 Total 17,491 17,552 8,860 The changes in the carrying value of the goodwill can be presented as follows for the years 2018, 2017 and 2016: in 000€ Gross Impairment Total At January 1, 2016 9,768 (104) 9,664 Currency translation (804) — (804) At December 31, 2016 8,964 (104) 8,860 Additions 8,812 — 8,812 Currency translation (120) — (120) At December 31, 2017 17,656 (104) 17,552 Currency translation (61) — (61) At December 31, 2018 17,595 (104) 17,491 The goodwill of Orthoview (UK) and of e-Prototypy (PL) include respectively K€(37) and K€(24) impact of currency translation in 2018.The Group has performed an impairment test based on a discounted cash flow model with cash flows for the next five years derived from the budget and aresidual value considering a perpetual growth rate. The MAT NV SAM BE and Cenat are included in the reportable segment “Materialise Software”. TheCGU ACTech, e-Prototypy (PL) and MAT NV Manufacturing (Metal) are included in the reportable segment “Materialise Manufacturing”. The CGUOrthoview (UK) is included in the reportable segment “Materialise Medical”.CGU: MAT NV SAM (BE)The goodwill allocated to the CGU MAT NV SAM (BE) relates to the goodwill from the acquisition of CENAT in 2015 and the goodwill related to theacquisition of Marcam in 2011 (DE-3D Printing Software).The impairment test is based on the projected discounted cash flows resulting from the CGU MAT NV SAM BE, considering a period of five years. The mainassumptions for goodwill impairment testing include a pre-tax discount rate (based on WACC) of 12.82% and a perpetual growth rate of 1.71%. Otherassumptions include the year-on-year growth rate of the revenue, gross margin and the operating costs which has been determined by management based onpast experience. It was concluded that the value in use is higher than the carrying value of the cash generating unit of K€36,700. There are no reasonablechanges in assumptions that would reduce the value in use below its carrying value of the cash generating unit.CGU e-PrototypyThe goodwill relates to the acquisition of the Polish entity e-Prototypy. The impairment test on the CGU e-Prototypy is based on the projected discountedcash flows considering a period of five years. The main assumptions include a pre-tax discount rate (based on WACC) of 12.47% and a perpetual growth rateof 5.00%. Other assumptions include the year-on-year growth rate of the revenue, gross margin and the operating costs which has been determined bymanagement based on past experience and continued investments in capex in new 3D printing equipment. It was concluded that the value in use issignificantly higher than the carrying value of the cash generating unit of K€3,870. Based on the sensitivity analysis where discount rate would increase with1%, the value in use would still be significantly higher than the carrying value of the cash generating units. Based on the sensitivity analysis that the five-year projections would be 10% lower or a perpetual growth rate which is 2% lower, the value in use would still be significantly higher than the carrying valueof the cash generating units. F-35Table of ContentsCGU OrthoviewThe goodwill relates to the acquisition of Orthoview. The impairment test on the CGU Orthoview is based on the projected discounted cash flows consideringa period of 5 years .The main assumptions include a pre-tax discount rate (based on WACC) of 13.27% and a perpetual growth rate of 2.00%. Otherassumptions include the year-on-year growth rate of the revenue, gross margin and the operating costs which have been determined by management based onpast experience. It was concluded that the value in use is higher than the carrying value of the cash generating unit of €9.70 million. Based on the sensitivityanalysis where discount rate would increase with 1%, the value in use would still be higher than the carrying value of the cash generating unit. A reasonablechange in the perpetual growth by 2% or overall 10% lower five-year projections still result in a value in use that is higher than the carrying value of the cashgenerating unit.The Orthoview business is being integrated further in the existing software business within our Materialise Medical segment. Synergies that are expectedfrom joined product lines are not taken into account in the current impairment review as management believes that Orthoview can still be considered aseparate cash generating unit in 2018.CGU ACTECHThe impairment test on the CGU ACTech is based on the projected discounted cash flows, considering a period of 5 years. The main assumptions include apre-tax discount rate (based on WACC) of 13.95% and a perpetual growth rate of 1.57%. Other assumptions include the year-on-year growth rate of therevenue, gross margin and the operating costs which have been determined by management based on past experience. It was concluded that the value in useis higher than the carrying value of the cash generating unit of €26.7 million. Based on the sensitivity analysis where discount rate would increase with 1% orother reasonable changes in the 5-year projected cash flows (such as lower EBITDA) and perpetual growth rate, the value in use would be higher than thecarrying value of the cash generating unit. F-36Table of Contents6 Intangible assetsThe changes in the carrying value of the intangible assets can be presented as follows for the years 2018, 2017 and 2016: in 000€ Patents andlicenses Software Acquiredcustomers,technologyandbacklogs Developedtechnologyandsoftwareunderconstruction Total Acquisition value At January 1, 2016 3,202 1,779 8,525 — 13,506 Additions 606 1,736 — — 2,342 Acquisition of a subsidiary — — — — — Disposals (18) (212) — — (230) Transfer between accounts — 490 — — 490 Currency translation (2) (26) (923) — (951) Other — 2 (6) — (4) At December 31, 2016 3,788 3,769 7,596 — 15,153 Additions 749 3,718 — — 4,467 Acquisition of a subsidiary* 115 242 18,433 — 18,790 Disposals (159) (143) — — (302) Transfer between accounts — (98) — — (98) Currency translation — (5) (183) — (188) Other 4 155 (251) — (92) At December 31, 2017* 4,497 7,638 25,595 — 37,730 Additions 554 807 32 951 2,344 Acquisition of a subsidiary — — — — — Disposals (759) (221) — — (980) Transfer between accounts 2 — — 364 366 Currency translation — — (48) — (48) Other — 17 — — 17 At December 31, 2018 4,294 8,241 25,579 1,315 39,429 F-37Table of Contentsin 000€ Patents andlicenses Software Acquiredcustomers,technologyandbacklogs Developedtechnologyandsoftwareunderconstruction Total Amortization At January 1, 2016 (1,471) (958) (1,420) — (3,849) Depreciation charge for the year (576) (559) (819) — (1,954) Disposals 3 239 — — 242 Transfer between accounts — — — — — Currency translation 2 26 144 — 172 Other — 1 — — 1 At December 31, 2016 (2,042) (1,251) (2,095) — (5,388) Depreciation charge for the year* (609) (1,634) (1,579) — (3,822) Disposals 2 77 — — 79 Transfer between accounts — 98 — — 98 Currency translation — 4 45 — 49 Other (117) (279) 250 — (146) At December 31, 2017* (2,766) (2,985) (3,379) — (9,130) Depreciation charge for the year (749) (2,310) (2,005) — (5,064) Disposals 854 206 — — 1,060 Transfer between accounts — — — — — Currency translation — 1 22 — 23 Other — 8 — — 8 At December 31, 2018 (2,661) (5,080) (5,362) — (13,103) Net carrying value At December, 31 2018 1,633 3,161 20,217 1,315 26,326 At December, 31 2017* 1,731 4,653 22,216 — 28,600 At December 31, 2016 1,746 2,518 5,501 — 9,765 At January, 1 2016 1,731 821 7,105 — 9,657 Patent and licenses include only the direct attributable external costs incurred in registering the patent and obtaining the license. Software relates topurchased software for internal use only except for software development on certain application interfaces that were almost fully funded by a third party.Apart from the developed technology and software under construction that was capitalized per end of 2018 for the amount of K€1,315, no other softwaredevelopment was capitalized in 2018 (2017: K€86, 2016: K€39). The remaining amortization period is 1.5 years for the main software purchases and 8.1years for the main patents and licenses.The ‘Acquired customers and technology’ have been recognized as part of the acquisition of ACTech, E-Prototypy, OrthoView, and Cenat (see Note 4). AtDecember 31, 2018, the remaining amortization period for the acquired customers is 18.75 years for ACTech, 5.75 years for OrthoView, fully amortized forE-Prototypy and 6.25 years for Cenat (2017: 6.75 years for OrthoView, 1.00 years for E-Prototypy and 7.25 years for Cenat). At December 31, 2018, theremaining amortization period for the acquired technology of ACTech, Orthoview and Cenat are 5.75 years, 1.75 years and 6.25 years, respectively.The developed technology and software relate to two projects that meet the criteria for recognition as internally developed intangible asset (see also Note 2:significant accounting judgments, estimates and assumptions). Those assets are still being constructed and consequently are not amortized. The Group hasperformed an impairment analysis on those assets which resulted in no impairment. The key assumptions used are: • Discount rate of 10%; • Periods of cash flows: 6 • No perpetuityThe total amortization charge for 2018 is K€5,064 (2017*: K€3,822; 2016: K€1,954). As from 2017 the amortization of intangible assets from businesscombinations is mainly included in the line net operating income of the consolidated income statement. We refer to Note 2 for additional information. F-38Table of Contents7 Property, plant & equipmentThe changes in the carrying value of the property, plant & equipment can be presented as follows for the year 2018 and 2017: in 000€ Land andbuildings Plant andequipment Leasedassets Construction inprogress Total Acquisition value At January 1, 2017 19,797 40,199 11,241 4,652 75,889 Additions 377 10,560 2,246 17,334 30,517 Acquired from business combinations* 9,362 10,318 136 414 20,230 Disposals (31) (1,046) (39) 218 (898) Transfers 11,527 7,439 (425) (18,914) (373) Currency Translation (185) (118) 5 88 (210) Other (663) (235) 1,139 (38) 203 At December 31, 2017* 40,184 67,117 14,303 3,754 125,358 Additions 3,079 9,476 792 5,210 18,557 Acquired from business combinations — — — — — Disposals (99) (1,882) (17) (387) (2,385) Transfers 2,728 2,953 (732) (5,547) (598) Currency Translation (119) (25) (19) (26) (189) Other 4 (82) — (2) (80) At December 31, 2018 45,777 77,557 14,327 3,002 140,663 Depreciation At January 1, 2017 (5,093) (22,263) (3,470) — (30,826) Depreciation charge for the year* (831) (5,531) (2,327) — (8,689) Disposals 15 842 18 — 875 Transfers 521 (444) 296 — 373 Currency Translation 31 166 (1) — 196 Other 853 64 (1,139) — (222) At December 31, 2017* (4,504) (27,166) (6,623) — (38,293) Depreciation charge for the year (1,560) (8,010) (2,346) (307) (12,223) Disposals 26 2,102 6 — 2,134 Transfers (18) (253) 514 — 243 Currency Translation (15) (53) 8 — (60) Other — 73 — — 73 At December 31, 2018 (6,071) (33,307) (8,441) (307) (48,126) Net book value At December 31, 2018 39,706 44,250 5,886 2,695 92,537 At December 31, 2017* 35,680 39,951 7,680 3,754 87,065 At January 1, 2017 14,704 17,936 7,771 4,652 45,063 F-39Table of ContentsThe changes in the carrying value of the property, plant and equipment can be presented as follows for the year 2016: in 000€ Land andbuildings Plant andequipment Leasedassets Construction inprogress Total Acquisition value At January 1, 2016 19,719 33,408 8,933 2,114 64,174 Additions 8 4,916 2,483 7,899 15,306 Acquired from business combinations — — — — — Disposals (2) (2,266) (699) (6) (2,973) Transfers 3 4,180 540 (5,330) (607) Currency Translation 69 — (20) (25) 24 Other — (39) 4 — (35) At December 31, 2016 19,797 40,199 11,241 4,652 75,889 Depreciation At January 1, 2016 (4,369) (18,927) (2,478) — (25,774) Depreciation charge for the year (709) (4,048) (1,663) — (6,420) Disposals 2 541 669 — 1,212 Transfers — 117 — — 117 Currency Translation (17) 6 2 — (9) Other — 48 — — 48 At December 31, 2016 (5,093) (22,263) (3,470) — (30,826) Net book value At December 31, 2016 14,704 17,936 7,771 4,652 45,063 At January 1, 2016 15,350 14,481 6,455 2,114 38,400 The investments in property, plant & equipment in 2018 amounted to K€18,557 (2017: K€30,517;2016: K€15,306) and mainly related to new machines andinstallations in Belgium and Germany (K€10,747), land and buildings in Germany (K€2,491), IT equipment (K€1,781) and leased vehicles (K€792). Theinvestments in 2017 related to the building constructions in Leuven and Poland (K€12,762), the investment into new machines and installations (acquiredand leased – K€11,947) and the investment in motor vehicles (K€1,444). The investments in 2016 related to the acquisition of land in Leuven and Poland(K€6,098) and the investment into new machines and installations (acquired and leased – K€8,254) and the investment in computer equipment (K€890).The Group realized a net loss on disposal of property, plant and equipment of K€83 in 2018 (2017: a net loss of K€25; 2016: a net gain of K€(149)).No impairment of property, plant and equipment was recorded.Finance leasesThe carrying value of finance leases at December 31, 2018 was K€5,886 (2017: K€7,680; 2016: K€7,771). Finance leases are included in the column leasedassets and mainly relate to 3D printing machines with a carrying value of K€4,608 at December 31, 2018 (2017: K€6,613; 2016: K€7,771) and for whichdepreciation of K€1,745 was recorded in 2018 (2017: K€1,864; 2016: K€1,663). New finance leases in 2018 amount to K€792 of which K€792 relate toleased motor vehicles (2017:K€1,596; 2016:K€2,757).Assets under constructionBoth in 2018 and 2017, the assets under construction mainly relate to machinery and installations in Belgium, Poland and Germany. Per end of 2018 themain asset under construction related to installations for our medical segment for an amount of K€937, located in Belgium. In 2016 the assets underconstruction mainly included the building of the new production and office facility in Belgium and Poland (K€6,098) as well as the construction andupgrade of 3D printing machines, transferred to land & buildings and plant & equipment, respectively, in 2017.Borrowing costsIn 2018, no borrowing costs have been capitalized (2017: K€87; 2016: K€0). F-40Table of ContentsPledgesLand and buildings (including buildings under construction) with a carrying amount of K€27,319 (2017: K€28,526; 2016: K€12,594) are subject to pledgesto secure several of the Group’s bank loans. In addition, pledges have been given on current and other fixed assets with a total carrying amount of K€3,533(2017: K€13,340; 2016: K€0) (Note 24). F-41Table of Contents8 Investments in joint venturesThe Group has one investment in the joint venture RSPrint NV (Belgium).The summarized financial information of RSPrint NV can be presented as follows: in 000€ 2018 2017** 2016 (Share in the) joint venture’s statement of financial position Current assets 850 1,256 1,643 Non-current assets 114 212 186 Goodwill — — — Current liabilities (756) (692) (1,118) Non-current liabilities (1,096) (788) — Shareholders’ deficit (surplus) 888 12 (711) (Share in the) joint venture income and expenses (loss) Revenue 1,186 817 684 Profit (loss)² (876) (723) (1,208) ²there are no discontinued operations**restated based on 20F amendment filing June 2018Total current assets include cash and cash equivalents for a total amount of K€175 per December 31, 2018 (2017: K€128; 2016: K€86). Profit (loss) includetotal deprecations and amortization for a total amount of K€30 in 2018 (2017: K€50; 2016: K€34).The movement of the carrying value of the joint venture is as follows: in 000€ Carrying value as of January 1, 2016 1,018 Share in loss (1,018) Carrying value as of December 31, 2016 — Additional investment 500 Share in loss (469) Carrying value as of December 31, 2017 31 Additional investment — Transfer from receivables 444 Share in loss (475) Carrying value as of December 31, 2018 — 9 Inventories and contracts in progressInventories and contracts in progress include the following: As of December 31, in 000€ 2018 2017* 2016 Raw materials 5,616 4,970 4,297 Work in progress 2,151 3,377 1,538 Finished goods 1,390 1,414 880 Contracts in progress 829 1,266 1,155 Total inventories and contracts in progress 9,986 11,027 7,870 The amount of the inventory written-off as an expense is K€229 (2017: K€48; 2016: K€98). F-42Table of ContentsThe group has contracts in progress and advances from customers. The total costs incurred is K€547 and the profit recognized is K€282 as per December 31,2018. Advances were received for the amount of K€370 with respect to contracts in progress per end of 2018 (2017: K€0; 2016: K€0). There are no retentionsoutstanding.10 Other assetsOther non-current assetsOther non-current assets include the following: As of December 31, in 000€ 2018 2017 2016 Tax credits 3,006 2,446 1,766 Guarantees and deposits 405 362 342 Non-current receivable on joint venture 1,096 804 — Non-listed equity investments 2,701 — — Other 29 55 46 Total non-current assets 7,237 3,667 2,154 The non-current tax credits relate to tax credits that will be realized over more than one year.The non-listed equity investments mainly consist of the investment in equity shares of the non-listed company Essentium Inc. The Group holds anon-controlling interest of 5% in this company. This investment was irrevocably designated at fair value through OCI as the Group considers theseinvestments to be strategic in nature. We refer to Note 3 and Note 20.Other current assetsOther current assets include the following: As of December 31, in 000€ 2018 2017* 2016 Deferred charges 2,046 2,021 1,483 Tax credits 185 219 176 Accrued income 958 524 666 Other tax receivables 2,286 2,910 604 Other non-trade receivables 1,461 2,001 1,552 Total current assets 6,936 7,675 4,481 The other tax receivables include Value Added Tax (VAT) receivables. The non-trade receivables for the year ending December 31, 2018 include theindemnification asset for the amount of K€222 as referred to in Note 4. Business Combinations related to ACTech. Also please note that a receivable relatedto factoring was accounted for under the non-trade receivables in the year ending December 31, 2016 (K€541). In the year ending December 31, 2018 thisreceivable related to factoring has been recorded under the trade receivables for the amount of K€445 (2017: K€646). F-43Table of Contents11 Trade receivablesThe trade receivables include the following: As of December 31, in 000€ 2018 2017 2016 Trade receivables 38,764 36,572 27,990 Amortization receivables (1,873) (990) (511) Total 36,891 35,582 27,479 Trade receivables are non-interest bearing and are generally on payment terms of 30 to 90 days.As at December 31, 2018, trade receivables of an initial value of K€1,873 (2017: K€990; 2016: K€511) were impaired. Impairment is accounted for under theother operating expenses. See below for changes in the impairment of receivables. in 000€ At January 1, 2016 (505) Addition (266) Usage 190 Reversal 70 At December 31, 2016 (511) At January 1, 2017 (511) Addition (620) Usage 12 Reversal 129 At December 31, 2017 (990) At January 1, 2018 (990) Addition (1,284) Usage 182 Reversal 219 At December 31, 2018 (1,873) 12 Cash and cash equivalentsCash and cash equivalents include the following: As of December 31, in 000€ 2018 2017 2016 Cash at bank 105,846 33,611 45,645 Cash equivalents 9,660 9,564 10,267 Total 115,506 43,175 55,912 Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods between one day and threemonths, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.In connection with the exercise of warrants payments have been received in 2017 from employees for a total amount of K€209, not converted into sharesbefore year-end. In line with regulations the amount of K€209 was posted on a restricted bank account per December 31, 2017. There were no restrictions oncash at December 31, 2018 or 2016. F-44Table of Contents13 EquityShare capitalThe share capital of the parent company Materialise NV consists of 52,890,761 ordinary nominative shares at December 31, 2018 (2017: 47,325,438; 2016:47,325,438) with no nominal but par value of €0.058 in 2018 (2017: €0.058; 2016: €0.058) for a total amount of K€3,050 at December 31, 2018 (2017:K€2,729; 2016: K€2,729). in 000€, except share data Totalnumber offoundershares Totalnumber ofordinaryshares Total share-holders’capital Total share-premium Outstanding at January 1, 2016 — 47,325,438 2,729 78,098 Transfer share capital to share premium — — — — Capital increase in cash - public offering — — — — Expenses directly attributable to public offering — — — — Capital increase via exercise of warrants — — — — Equity settled share-based payments expense — — — 921 Outstanding on December 31, 2016 — 47,325,438 2,729 79,019 Outstanding at January 1, 2017 — 47,325,438 2,729 79,019 Transfer share capital to share premium — — — — Capital increase in cash - public offering — — — — Expenses directly attributable to public offering — — — — Capital increase via exercise of warrants — — — — Equity settled share-based payments expense — — — 820 Outstanding on December 1, 2017 — 47,325,438 2,729 79,839 Outstanding at January 1, 2018 — 47,325,438 2,729 79,839 Transfer share capital to share premium — — — — Capital increase in cash - public offering and private placement — 5,403,125 312 59,575 Expenses directly attributable to public offering — — — (4,003) Capital increase via exercise of warrants — 162,198 9 593 Equity settled share-based payments expense — — — 633 Outstanding on December 31, 2018 — 52,890,761 3,050 136,637 The shareholders’ capital increased by K€9 in 2018 as a result of the exercise of warrants outstanding and fully vested. The number of new shares issued was162,198 at an average price of €3.72 per share, including share premium. The shareholders’ capital further increased in 2018 by K€312 due to a capitalincrease in cash. The number of new shares issued was 5,403,125 at an average price of €11.08 per share, including share premium.Share premiumIn Belgium, the portion of the capital increase in excess of par value is typically allocated to share premium.The carrying value of the share premium is K€136,637 at December 31, 2018 (2017: K€79,839; 2016: K€79,019). The change in 2018 is the result of: • The capital increase in cash-public offering and private placement of K€59,575, compensated by the expenses directly attributable to the publicoffering of K€(4,003); • The capital increase via exercise of warrants of K€593; and • the share-based payment expense of K€633.The change in 2017 and 2016 is the result of the share-based payment expense of K€820 and K€921, respectively.ReservesThe nature and purpose of the reserves is as follows: As of December 31, in 000€ 2018 2017* 2016 Legal reserve 279 279 279 (Accumulated deficit) (2,127) (3,990) (1,882) Reserves (1,848) (3,711) (1,603) F-45Table of ContentsBased on the statutory result and after final result allocation approved by the annual shareholders meeting the legal reserve is increased by reserving 5% ofthe yearly statutory profit until the legal reserve reaches at least 10% of the shareholders’ capital. The legal reserve cannot be distributed to the shareholders.The Group did not pay any dividend during 2018, 2017 and 2016.Non-controlling interestThe non-controlling interest is zero per end of 2018, 2017 and 2016. No non-controlling interest is recognized for the 17% held by a third party in RapidFit+as the amount was reclassified to a financial liability.RapidFit+The Group has purchased a call option and written a put-option on the non-controlling interest in Rapidfit+. The call option is accounted for in accordancewith IFRS 9 and has an exercise price which is calculated according to a specified contractual formula based on the following parameters: invested capital,multiple of EBITDA minus net financial debt. Based on our analysis the call option remains out of the money and as such the fair value is estimated at zero atDecember 31, 2018. The call option is exercisable between 2015 and 2019.The written put option has been recognized as a financial liability and measured at the fair value of the redemption amount and amounts to K€845 atDecember 31, 2018 (2017: K€788; 2016 K€735). The undiscounted estimated redemption amount totals K€875 at December 31, 2018 (2017: K€875; 2016:K€875). The redemption price has an exercise price according to a specified contractual formula based on the following parameters: invested capital,multiple of EBITDA minus net financial debt. The initial recognition resulted in a reclassification of K€264 from non-controlling interest and K€64 fromconsolidated reserves. The parameter “invested capital” of the contractual formula has been adjusted in December 2014 to reflect the impact of the capitalincrease and the exercise period has been extended with one year. As a result, the estimated redemption amount of the written put option has increased byK€273 which has been recorded in diminution of the consolidated reserves. The written put option is exercisable between 2017 and 2021 and it ismanagement’s estimate that the put option will be exercised within 12 months. As such, the written put option is presented as an other current liability.In addition, RapidFit+ has issued 0 dilution warrants to the non-controlling interest which are exercisable upon occurrence of certain specified events. Thefair value of the dilution warrants is zero per end of 2018 (2017: zero; 2016: zero). F-46Table of Contents14 Share-based payment plansShare-based payment plans of the parentThe changes of the year for the warrant plans are as follows: 2018 2017 2016 Outstanding at January 1* 1,458,360 1,681,000 1,401,852 Granted 2,000 — 350,000 Forfeited / Cancelled (69,104) (119,784) (70,852) Exercised (73,207) (102,856) — Outstanding at December 31* 1,318,049 1,458,360 1,681,000 Exercisable at December 31 252,793 — — *The Group’s share-based payment plans are all equity-settled except for the IPO warrants that have been granted to certain employees in certaincountries due to legal requirements which are cash-settled. The outstanding amount includes number of stock appreciation rights (“SARs”) issuedunder cash-settled share-based payment plans.The number of outstanding warrants has been adjusted to reflect the 1-to-4 stock split decided in June 2014. The 2013 warrant plan gives a right to fourshares for each warrant, whereas under all other warrant plans one warrant gives a right to one share. For presentation purposes the tables reflect the number ofshares the warrants give right to across all plans.In the course of October and November 2017 payments were done by employees in connection with the exercise of 25,714 warrants, representing 102,856shares (2013 warrant plan), for which the notary deed was only passed after year-end 2017. Therefore, the payments had been kept on a restricted bankaccount of the Company as at December 31, 2017. The notary deed required for the capital increase in connection with this exercise was passed before thenotary in the course of March 2018. In addition, capital increases were passed before the notary in the course of December 2018 in connection with theexercises of warrants related to the 2013 warrant plan (second phase; 4,775 warrants representing 19,100 shares) and the IPO warrant plan (40,242 warrantsrepresenting 40,242 shares).Equity-settled share-based payment plansThe Group has several plans in place (2013 warrant plan, IPO warrant plan and 2015 warrant plan) which have similar terms except for the exercise price,except for the 2015 warrant plan.2013 warrant planEach warrant gives the right to the holder to four ordinary shares of the parent Company. The warrants have a contractual term of ten years and vest for 25%in the fourth year; 25% in the fifth year; 25% in the sixth year; and 25% in the seventh year. Warrants are exercisable as from the month after they havevested and in the subsequent exercise periods. There are no cash settlement alternatives and the Group does not have a practice of cash settlement for thesewarrants. The warrants have a contractual term of ten years.Under the 2013 warrant plan 301,096 warrants were effectively granted in October 2013 and 166,800 warrants were granted to certain employees and tocertain members of our board of directors and senior management on November 28, 2013 with an exercise price ranging from €7.86 to €8.54.The status of the 2013 warrant plan at December 31 is as follows: 2018 2017 2016 Outstanding at January 1 320,640 435,096 439,896 Granted — — — Forfeited / Cancelled (1,500) (11,600) (4,800) Exercised (19,100) (102,856) — Outstanding at December 31 300,040 320,640 435,096 Exercisable at December 31 89,892 — — With respect to the warrants exercised, we refer to our comments above. Since the 2013 warrant plan prescribes that each warrant gives right to four shares andour table above presents the impact on the number of shares, the actual remaining number of warrants as per December 31, 2018 equals 75,010. F-47Table of ContentsIPO warrant planEach warrant gives the right to the holder to one ordinary share of the parent Company. The warrants have a contractual term of 10 years and vest for 25% inthe fourth year; 25% in the fifth year; 25% in the sixth year and 25% in the seventh year. Warrants are exercisable as from the month after they have vestedand in the subsequent exercise periods. There are no cash settlement alternatives and the Group does not have a practice of cash settlement for these warrants.The warrants have a contractual term of 10 years.The Group granted 979,898 warrants in July 2014 and 36,151 warrants in November 2014 in the context of the initial public offering to the employees of theGroup with an exercise price of €8.81 (“IPO warrant plan”). The Group granted an additional 18,180 warrants to employees in July 2015 under the IPOwarrant plan.The status of the IPO warrant plan at December 31 is as follows: 2018 2017 2016 Outstanding at January 1 671,503 727,599 772,859 Granted — — — Forfeited / Cancelled (42,209) (56,096) (45,260) Exercised (40,242) — — Outstanding at December 31 589,052 671,503 727,599 Exercisable at December 31 114,012 — — Warrant plan 2015The board of directors decided on December 18, 2015 on a new plan (“2015 warrant plan”) by which it can grant up to 1,400,000 warrants to employees.Each warrant gives the right to the holder to one ordinary share of the parent Company. The warrants vest for 10% on the second anniversary of the granting;20% on the third anniversary of the granting; 30% on the fourth anniversary of the granting; and 40% on the fifth anniversary of the granting, unlessotherwise decided by the board of directors or one or more of its representatives granted powers thereto. Warrants are exercisable only after they have vestedand only during a period of (i) four weeks following the publication of the results of the parent Company of the second and fourth quarter, or (ii) if noquarterly results are published, during the month March and the month September of every year. There are no cash settlement alternatives and the Group doesnot have a practice of cash settlement for these warrants. The warrants have a term of ten years.The Group granted 350,000 warrants in July 2016 to the employees of the Group with an exercise price of €6.45. The Group granted 2,000 warrants to anemployee in May 2018 with an exercise price of €10.08The status of the 2015 warrant plan at December 31 is as follows: 2018 2017 2016 Outstanding at January 1 329,000 350,000 — Granted 2,000 — 350,000 Forfeited / Cancelled (5,800) (21,000) — Exercised — — — Outstanding at December 31 325,200 329,000 350,000 Exercisable at December 31 32,700 — — Fair valueThe fair value of the warrants is estimated at the grant date using the Black-Scholes option pricing model, taking into account the terms and conditions uponwhich the warrants were granted.The following table provides the input to the Black-Scholes model for the 2013 warrant plan, IPO warrant plan and 2015 warrant plan: F-48Table of Contents 2015(Sept 16) 2015(Nov) IPO 2014(Nov) IPO 2014(June) 2013(Dec) * 2013(Oct) * Return dividend 0% 0% 0% 0% 0% 0% Expected volatility 47% 47% 50% 46% 50% 53% Risk-free interest rate 0.24% 1.17% 1.12% 1.70% 2.56% 2.43% Expected life 4.30 5.50 5.50 5.50 5.50 5.50 Exercise price (in €) 6.45 8.81 8.81 8.81 8.54 7.86 Stock price (in €) 6.42 8.08 8.67 8.81 18.09 18.09 Fair value SAR (in €) 2.41 3.30 3.94 3.83 12.23 12.77 (*)Exercise price, stock price and fair value are not adjusted for the 1 to 4 stock-split completed in June 2014.The above input for the Black-Scholes model have been determined based on the following: • The dividend return is estimated by reference to the historical dividend payment of the Group. Currently, this is estimated to be zero as nodividend have been paid since inception; • Expected volatility is estimated based on the average annualized volatility of the volatility of the Group’s stock (until September 2016: of anumber of quoted peers in the 3D printing industry and the volatility of the Group’s stock); • Risk-free interest rate is based on the interest rate applicable for the 10Y Belgian government bond at the grant date; • Estimated life of the warrant is determined to be until the first exercise period which is typically the month after vesting; and • Fair value of the shares is determined based on the share price of the Group on Nasdaq at the date of valuation. For the grants prior to the initialpublic offering, the fair value of the shares was estimated based on a discounted cash flow model with 3-year cash flow projections and a multipleof EBITDA determined based on a number of quoted peers in the 3D printing industry.The expense arising from share-based payment transactions for the warrants plans mentioned above was K€640 in 2018 (2017: K€819; 2016: K€921).The weighted average remaining estimated life of the warrants outstanding as of December 31, 2018 is 5.95 years (2017: 6.92 years; 2016: 4.38 years). Theweighted average fair value for the warrants outstanding at the end of 2018 was €5.62 (2017: €5.60; 2016: €6.01). The weighted average exercise price forthe warrants outstanding at the end of 2018 was €7.99 (2017: €8.05; 2016: €8.06).Cash-settled share-based payment plansThe Group has issued 215,688 SARs in July 2014 towards certain employees in certain countries due to legal requirements with similar terms and conditionsas the IPO warrant plan except that the SAR will be settled in cash. The exercise price of the SAR is €8.81.The status of this plan is as follows: 2018 2017 2016 Outstanding at January 1 137,217 168,305 189,097 Granted — — — Forfeited / Cancelled (19,595) (31,088) (20,792) Exercised (13,865) — — Outstanding at December 31 103,757 137,217 168,305 Exercisable at December 31 16,189 — — The SAR plan grants the bearer the right to a cash payment equal to the difference between the exercise price and the stock price at the exercise date. Thisplan is considered a cash settled shared based payment and is as such recorded as liability (see Note 16).The SAR’s have a contractual term of ten years and vest for 25% in the fourth year; 25% in the fifth year; 25% in the sixth year and 25% in the seventh year.SAR’s are exercisable as from the month after they have vested and in the subsequent exercise periods.The fair value of the SAR is estimated at each reporting date using the Black-Scholes option pricing model, taking into account the terms and conditionsupon which the warrants were granted. F-49Table of ContentsThe following table lists the input used for the Black-Scholes model: 2018 2017 2016 Return dividend 0% 0% 0% Expected volatility 49% 49% 50% Risk-free interest rate 0.77% 0.73% 0.55% Expected life 1.25 2.25 3.25 Exercise price (in €) 8.81 8.81 8.81 Stock price (in €) 17.49 10.61 7.30 Fair value SAR (in €) 9.09 3.85 2.17 The expense arising from share-based payment transactions for the SAR’s plan was K€435 in 2018 (2017: K€204; 2016: K€46). The carrying value of theliability at December 31, 2018 amounts to K€786 (2017: K€351; 2016: K€147). The total intrinsic value of the liability for warrants currently exercisablewas K€0 at December 31, 2018, 2017 and 2016.Share-based payment plans of RapidFit+The subsidiary RapidFit+ has issued a warrant plan on August 23, 2013 where a maximum of 300 warrants can be offered to management with an exerciseprice of €553.92. In January 2014, a total of 199 warrants were granted and accepted.The changes for the year for the RapidFit+ warrant plan are as follows: 2018 2017 2016 Outstanding at January 1 199 199 199 Granted — — — Forfeited / Cancelled — — — Exercised — — — Outstanding at December 31 199 199 199 Exercisable at December 31 — — — The following table lists the input to the Black-Scholes model for the RapidFit+ warrant plan: 2014 Return dividend 0% Expected volatility 50% Risk-free interest rate 2.29% Expected life 5.5 Exercise price 553.9 Fair value option 262.7 The expense arising from share-based payment transactions for RapidFit+ warrant plan was K€7 in 2018 (2017: K€10; 2016: K€10). F-50Table of Contents15 Loans and borrowingsThe loans and borrowings include the following: As of December 31 in 000€ 2018 2017 2016 K€28,000 acquisition bank loan 24,576 27,513 — K€18,000 secured bank loans 17,739 17,575 6,404 K€10,000 EIB bank loan 10,000 — — K€12,300 bank loans ACTech 12,300 9,247 — K€8,750 other facility loans 4,299 4,982 5,411 Bank investment loans—top 20 outstanding 23,801 21,441 9,467 Bank investment loans—other 3,808 2,289 2,927 Financial lease agreements 6,809 9,164 7,395 Institutional loan 1,492 1,105 936 Convertible bonds 1,000 1,000 1,000 Related party loan 214 241 266 Total loans and borrowings 106,038 94,557 33,806 Current 13,598 12,769 5,539 Non-Current 92,440 81,788 28,267 K€28,000 Acquisition loan (balance K€24,576 per December 31, 2018)This bank loan has been concluded in October 2017 to finance the acquisition of ACTech. The loan includes a portion of K€18,000 reimbursable monthlyduring seven years, and a bullet portion of K€10,000, reimbursable at once in October 2024. The interest rate is fixed for the duration of the loan, andamounts to 1.1% on average for both portions. The bank loans are secured with a business pledge mandate, a share pledge on Materialise Germany GMBH,and debt covenants.K€18,000 secured bank loansThe K€18,000 loan has been concluded in 2016 in two agreements to finance the construction of new facilities in Leuven (Belgium) and in Poland, bothmaturing in 2032. The agreement for the Belgian facility financing amounts to K€12,000 (drawn per end 2018: K€11,739; per end 2017: K€11,575), andwith reimbursements only starting in December 2022. The agreement for the Polish facility financing amounts to K€6,000 (fully drawn per end of 2017), andwith reimbursements only starting in June 2019. The average interest rate of both agreements amounts to 1.2%. The bank loan is secured with a mortgagemandate on the Belgian facility buildings.K€10,000 EIB bank loanOn December 20, 2017 the Group entered into a finance contract with the European Investment Bank, or EIB, to finance future research and developmentprograms. As part of a first tranche, an amount of K€10,000 was drawn over the course of 2018. The agreement foresees a two-year loan reimbursement period.Loans under the contract are made at a fixed rate, based on the Euribor rate at the time of the borrowing, plus a variable margin. The margin is initially equalto 1.86% and varies in function of certain EBITDA levels and debt ratios. The contract contains customary security, covenants and undertakings.K€12,300 bank loansIn March 2018, three bank loans originating from the acquired ACTech Group were refinanced entirely for the amount of K€9,300, with adjusted maturity toMay 2025 and first reimbursements in August 2020. The interest rate has been fixed at approximately 1.6%, and pledges including a K€4,650 mortgage onACTech’s facilities and a guarantee of Materialise NV. In addition, a new investment credit of K€3,000 was obtained in June 2018, repayable as from January2019 and with a fixed interest rate of 1.5%.K€8,750 - Other facility loansThree facility loans were contracted in 2005, 2006 and 2012 for the construction of Leuven office and production facilities (K€2,000, K€300 and K€5,000,respectively) and another loan for the Czech Republic offices in 2008 (K€ 1,750). The balance of the four loans amounts to K€4,299 per December 31, 2018.All loans have a repayment schedule of 15 years and interest rates are fixed between 4.3% and 5.4% for the four loans. F-51Table of ContentsMiscellaneous investment loansThe 20 largest of these loans outstanding per December 31, 2018 amount to a balance of K€23,801. They have been agreed in 2017, 2016 and in the yearsbefore to finance various investments in machinery, printers, equipment, and software tools. The vast majority of the loans have a reimbursement period overseven years, and are at fixed interest rates with weighted average below 1%.Finance lease obligations with third partiesThe Group has several finance lease obligations mainly with financial institutions and related to the financing of buildings and various other items of plantand equipment such as 3D printers. Per December 31, 2018 the balance of these financial lease agreements amounts to K€6,809, and are mostly at fixedinterest rates with weighted average below 2%.K€2,000 institutional loanThis loan was contracted with a governmental institution in Germany to finance the production operations of Materialise Germany for a maximum amount ofK€2,000. The loan is repayable over a four year period, starting as of September 2017 with a fixed interest rate of 0.25% payable per quarter. PerDecember 31, 2018 K€1,942 has been drawn with an outstanding balance of K€1,492.K€1,000 convertible bond with related partyWe issued, on October 28, 2013, 1,000 convertible bonds with a related party for a total amount of K€1,000. The bonds have been fully subscribed by amember of our senior management.The conditions of the convertible bond can be summarized as follows: • Number of convertible bonds: 1,000 • Nominal value per bond: €1,000 • Contractual life: 7 years • Interest: 3.7% per year • Conversion period: from January 1, 2017 until maturity • Convertion price: €1.97 per shareThe maximum number of ordinary shares that can be issued upon conversion is 508,904.The Group has estimated the fair value of a similar liability however without any conversion option by reference to a number of quoted peers in Belgium. Thefair value was estimated at K€907. Upon initial recognition, an amount of K€93 was recognized in consolidated reserves reflecting the fair value of theconversion option.Finance lease obligations with related partiesIn October 2001, we entered into a finance lease agreement with Ailanthus NV to lease land and a portion of a new production building. The lease had a termof 15 years and included a purchase option for the land and the building. We determined that this lease was a finance lease because (i) the purchase option isassumed to be significantly lower than the fair value of the land and building and (ii) it was very likely at inception of the lease that we would exercise ourpurchase option. The amounts outstanding as of December 31, 2018 is K€0 (2017: K€0; 2016: K€74). The interest expense for the year 2018 is K€0 (2017:K€0; 2016: K€4). The term of the lease expired on September 20, 2016 and we exercised a purchase option in respect of the land and building. The notarydeed transferring the land and building was completed in the course of 2017.Related party loanAilanthus NV has granted us one other loan at fixed interest rate of 4.23% that matures in 2025. The purpose of the loan is to finance the purchase of abuilding in France. The amounts outstanding as of December 31, 2018 is K€214 (2017: K€241; 2016: K€266). The interest expense for the year endedDecember 31, 2018 is K€10 (2017: K€11; 2016: K€12). F-52Table of ContentsChanges of liabilities for financing activities:The following table presents the changes of the liabilities for financing activities: For the year ended December 31 in 000€ 2018 2017 2016 At January 1, 94,557 33,806 21,089 Proceeds from loans & borrowings 32,554 54,319 14,669 Repayment of loans & borrowings (18,820) (11,904) (2,796) New finance leases 792 2,906 2,483 Repayment of finance leases (3,102) (2,947) (1,898) Loans acquired from business combination — 18,205 — Net foreign exchange movements 57 172 259 At December 31, 106,038 94,557 33,806 F-53Table of Contents16Other non-current liabilitiesThe other non-current liabilities consist of the following: As of December 31, in 000€ 2018 2017 2016 Written-put option RapidFit+ — 788 735 Contingent consideration — 648 909 Provisions 82 109 69 Other 786 359 160 Total 868 1,904 1,873 We refer to Note 13 for a description of the written-put options RapidFit+.With respect to the contingent consideration, related to the CENAT acquisition, we refer to Note 4 on business combinations. At December 31, 2018 only aconsideration of K€450 remains, recorded under the other current liabilities (see Note 19). Per end of 2017 and 2016 the non-current part of the CENATcontingent consideration amounted to K€648 and K€909, respectively.The other items in the above table include a liability of K€786 per December 31, 2018 related to the cash settled shared based payment plan as referred to inNote 14 (2017: K€351; 2016: K€147).The impact of the accounting treatment of the Belgian contribution plans with a minimal guarantee is not material as only a limited number of people canbenefit. No provisions have been recognized as of December 31, 2018, 2017 and 2016. As such, no further disclosures have been provided. 17Tax payablesThe tax payables amount to K€2,313 as per December 31, 2018 (2017*: K€2,023; 2016: K€926) and is mainly related to the tax payables of the entitieslocated in Germany. F-54Table of Contents18Deferred incomeDeferred income consists of the following: As of December 31 in 000€ 2018 2017* 2016 Deferred maintenance & license 22,606 18,723 16,799 Deferred (project) fees 4,838 3,765 4,134 Deferred government grants 338 71 419 Other — — 58 Total 27,782 22,559 21,410 current 23,195 18,791 17,822 non-current 4,587 3,768 3,588 The deferred maintenance and license consist of maintenance fees paid up-front which are deferred and amortized over the maintenance period. The deferred(project) fees consist of one-time and advance payments received which are deferred in accordance with the revenue accounting policies. The deferredgovernment grants are recognized as income under “other operating income”.We refer to Note 22.1.2 for more detail on the contract liabilities. F-55Table of Contents19Other current liabilitiesOther current liabilities include the following: As of December 31 in 000€ 2018 2017 2016 Payroll-related liabilities 10,111 9,274 7,873 Non-income tax payables 2,175 2,063 694 Accrued charges 789 769 946 Advances received 713 870 581 Other current liabilities 1,554 520 53 Total 15,342 13,496 10,147 The other current liabilities as per December 31, 2018 include an amount of K€450 (2017: K€257; 2016: K€0) payable in connection with the CENATbusiness combination (see also Note 4 and Note 16), and a payable for the amount of K€845 (2017: K€0; 2016: K€0) in connection with the written-putoptions RapidFit+ (see also Note 13 and Note 16).The non-income tax payables mainly relate to VAT payables and payroll taxes. F-56Table of Contents20Fair valueFinancial assetsThe carrying value and fair value of the financial assets as of December 31, 2018, 2017 and 2016 can be presented as of: Carrying value Fair value in 000€ 2018 2017* 2016 2018 2017* 2016 Financial assets Debt instruments measured at amortized cost Trade receivables (current) 36,891 35,582 27,479 36,891 35,582 27,479 Other financial assets (non-current) 1,530 1,221 388 1,530 1,221 388 Other current non-trade receivables 1,461 2,001 1,552 1,461 2,001 1,552 Cash & cash equivalents 115,506 43,175 55,912 115,506 43,175 55,912 Total debt instruments 155,388 81,979 85,331 155,388 81,979 85,331 Financial assets at fair value through profit or loss Derivatives 117 218 — 117 218 — Total financial assets measured at fair value 117 218 — 117 218 — Equity instruments designated at fair value through OCI Non-listed equity investments 2,701 — — 2,701 — — Total Equity instruments designated at fair value through OCI 2,701 — — 2,701 — — The fair value of the financial assets has been determined on the basis of the following methods and assumptions: • The carrying value of the cash and cash equivalents and the current receivables approximate their fair value due to their short term character; • The fair value of the derivatives has been determined based on a mark-to-market analysis prepared by the bank based on observable marketinputs (level 2 inputs); • Other current non-trade receivables are being evaluated on the basis of their credit risk and interest rate. Their fair value is not different from theircarrying value on December 31, 2018, 2017 and 2016 • The non-listed equity investments, mainly representing the investment in Essentium Inc, are measured at fair value. As of December 31, 2018,management considers that currently the cost is an appropriate estimate of fair value (level 2 input) as long as there is no significant capitalincrease that would give a reliable indication of the fair value of the investment. This was because of the followings reasons: • Essentium Inc is a non-listed entity; • The Group only has an insignificant interest in Essentium Inc (5% of the shares); • The Group has no representatives in the Board of Directors of Essentium Inc; • Insufficient more recent information is available to measure fair value; and • The investment was completed close to year-end.Financial liabilities:The carrying value and fair value of the financial liabilities as of December 31, 2018, 2017 and 2016 can be presented as of: Carrying value Fair value in 000€ 2018 2017* 2016 2018 2017* 2016 Financial liabilities measured at amortized cost Loans & Borrowings 106,038 94,557 33,806 105,027 95,351 34,619 Trade payables 18,667 15,670 13,400 18,667 15,670 13,400 Other liabilities 778 1,133 647 778 1,133 647 Total financial liabilities measured at amortized cost 125,483 111,360 47,853 124,472 112,154 48,666 Financial liabilities measured at fair value Contingent consideration 450 905 909 450 905 909 Cash settled share based payments 786 351 147 786 351 147 Written put option on NCI 845 788 735 845 788 735 Derivatives 194 8 — 194 8 — Total financial liability measured at fair value 2,275 2,052 1,791 2,275 2,052 1,791 Total non-current 94,521 85,276 31,715 93,289 85,890 32,358 Total current 33,237 28,136 17,929 33,458 28,316 18,099 F-57Table of ContentsThe fair value of the financial liabilities has been determined on the basis of the following methods and assumptions: • The carrying value of current liabilities approximates their fair value due to the short term character of these instruments; • Loans and borrowings are evaluated based on their interest rates and maturity date. Most interest bearing debts have fixed interest rates and theirfair value is subject to changes in interest rates and individual creditworthiness. The interest-free loans have already been recognized initially atfair value based on a present value technique (level 2 inputs) and are subsequently measured at amortized cost. Their carrying valueapproximates their fair value; • The fair value of the derivatives has been determined based on a markt-to-market analysis prepared by the bank based on observatablemarketinputs (level 2 inputs); • The fair value of the written put option on non-controlling interest has been determined based on the present value of the redemption amount(level 3 inputs); and • The fair value of the (contingent) consideration has been determined based on the latest long-term business plans of the Cenat business (level 3inputs). Note that the consideration is no longer contingent as per end 2018.Fair value hierarchyThe Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: • Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities; • Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly orindirectly; and • Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.The Group has the following financial instruments carried at fair value in the statement of financial position on December 31, 2018, 2017 and 2016: thederivatives related to interest rate and foreign currency swaps as included in the above tables, a call option and written put option on non-controlling interest,the (contingent) consideration for the acquisition of Cenat and the non-listed equity investments. • The fair value of the written put option is determined based on the present value of the redemption amount and is considered level 3. Theredemption amount is a formula (see Note 13) and is estimated on historical financial figures. The impact on the income statement is K€57during 2018 (2017: K€53; 2016: K€50). • The fair value of the call option is estimated at zero as the call option is out of the money based on our analysis (see Note 13). • The fair value of the (contingent) consideration is based on the agreement that was signed with the former shareholders on December 24, 2018determining that the only remaining and final consideration to be paid amounts to K€450. The final consideration was paid on January 21, 2019.A fair value adjustment was recognized in 2018 for the amount of K€192, recorded under the other operating income (we also refer to Note 4). • The fair value of the non-listed equity investments is currently estimated as its cost because of the reasons explained above. F-58Table of Contents21Segment informationFor management purposes, the Group is organized into segments based on their products, services and industry and has the following three reportablesegments: • The Materialise Medical segment, which develops and delivers medical software solutions, medical devices and other related products andservices; • The Materialise Manufacturing segment, which delivers 3D printed products and related services; and • The Materialise Software segment, which develops and delivers additive manufacturing software solutions and related services.The measurement principles used by the Group in preparing this segment reporting are also the basis for segment performance assessment and are inconformity with IFRS. The Chief Executive Officer of the Group acts as the chief operating decision maker. As a performance indicator, the chief operatingdecision maker controls the performance by the Group’s revenue and EBITDA. EBITDA is defined by the Group as net profit plus finance expenses, lessfinancial income plus income taxes, plus depreciation, amortization and impairment.The following table summarizes the segment reporting for each of the reportable periods ending December 31. Corporate research and development,headquarters’ function, financing and income taxes are managed on a Group basis and are not allocated to operating segments. As management’s controllinginstrument is mainly revenue-based, the reporting information does not include assets and liabilities by segment and is as such not available per segment. in 000€ MaterialiseSoftware MaterialiseMedical MaterialiseManufacturing Totalsegments Unallocated Consolidated For the year ended December 31, 2018 Revenues 37,374 52,252 94,956 184,582 139 184,721 Segment EBITDA 11,536 10,252 10,785 32,573 (10,122) 22,451 Segment EBITDA % 30.9% 19.6% 11.4% 17.6% — 12.2% For the year ended December 31, 2017 Revenues 35,770 42,841 63,712 142,323 250 142,573 Segment EBITDA* 13,926 4,400 4,439 22,765 (9,797) 12,968 Segment EBITDA % 38.9% 10.3% 7.0% 16.0% — 9.1% For the year ended December 31, 2016 Revenues 30,122 37,910 46,406 114,438 39 114,477 Segment EBITDA 10,130 894 3,848 14,872 (6,391) 8,481 Segment EBITDA % 33.6% 2.4% 8.3% 13.0% — 7.4% The segment EBITDA is reconciled with the consolidated net profit (loss) for the year as follows: For the year ended December 31, in 000€ 2018 2017* 2016 Segment EBITDA 32,573 22,765 14,872 Depreciation, amortization and impairment (17,287) (12,576) (8,374) Corporate research and development (1,913) (2,017) (1,673) Corporate headquarter costs (10,358) (9,690) (8,646) Other operating income (expense) 2,149 1,910 3,928 Operating (loss) profit 5,164 392 107 Financial expenses (4,864) (4,728) (2,437) Financial income 3,627 3,210 2,039 Income taxes (425) (522) (1,710) Share in loss of joint venture (475) (469) (1,018) Net (loss) profit 3,027 (2,117) (3,019) The Group has no customers with individual sales larger than 10% of the total revenue in 2018 (2017: none; 2016: none).Entity-wide disclosuresWe refer to the Note 22.1 for the revenue by geographical area, based on location of the customer. The total revenue realized in the country of domicile(Belgium) in 2018 amounts to K€9,350 (2017: K€8,145; 2016: K€7,534). F-59Table of ContentsThe total non-current assets, other than financial instruments, deferred tax assets, by geographical area is as follows: As of December 31, in 000€ 2018 2017* 2016 United States of America (USA) 3,953 3,880 4,697 Americas other than USA 62 29 35 Europe (without Belgium) 82,427 81,988 23,984 Belgium 48,873 46,576 34,074 Asia-Pacific 1,039 744 898 Total 136,354 133,217 63,688 The totals of the above table includes goodwill, intangible assets and property, plant & equipment as disclosed in the consolidated statements of financialposition. F-60Table of Contents22Income and expenses22.1 RevenueThe effect of initially applying IFRS 15 on the Group’s revenue from contracts with customers is described in Note 2. Due to the transition method chosen inapplying IFRS 15, comparative information has not been restated to reflect the new requirements.22.1.1 Disaggregated revenue information in 000€ MaterialiseSoftware MaterialiseMedical MaterialiseManufacturing Totalsegments Unallocated Consolidated Geographical markets United States of America (USA) 8,804 23,940 9,439 42,183 34 42,217 Americas other than USA 193 1,404 101 1,698 2 1,700 Europe (without Belgium) & Africa 17,026 19,073 74,852 110,951 77 111,028 Belgium 155 1,824 7,364 9,343 7 9,350 Asia Pacific 11,196 6,011 3,200 20,407 19 20,426 Total revenue from contracts with customers 37,374 52,252 94,956 184,582 139 184,721 Type of goods or service Software revenue (non-medical) 37,374 — — 37,374 — 37,374 Software revenue (medical) — 17,045 — 17,045 — 17,045 Medical devices and services — 35,207 — 35,207 — 35,207 Prototyping — — 27,599 27,599 — 27,599 End parts production — — 23,919 23,919 — 23,919 Complex metal parts production (ACTech) — — 43,438 43,438 — 43,438 Other — — — — 139 139 Total revenue from contracts with customers 37,374 52,252 94,956 184,582 139 184,721 Timing of revenue recognition Goods/Services transferred at a point in time 20,326 39,682 90,614 150,622 139 150,761 Goods/Services transferred over time 17,048 12,570 4,342 33,960 — 33,960 Total revenue from contracts with customers 37,374 52,252 94,956 184,582 139 184,721 The revenue per type of good or service including the previous years is as follows: For the year ended December 31 in 000€ 2018 2017 2016 Software revenue (non-medical) 37,374 35,770 30,122 Software revenue (medical) 17,045 15,619 13,404 Medical devices and services 35,207 27,222 24,506 Prototyping 27,599 28,423 27,568 End parts production 23,919 25,324 18,838 Complex metal parts production (ACTech) 43,438 9,965 — Other 139 250 39 Total 184,721 142,573 114,477 22.1.2 Contract balancesThe following table provides information about receivables, contracts in progress (contract assets) and deferred income (contract liabilities) from contractswith customers. F-61Table of Contents As of December 31, in 000€ 2018 2017 Trade receivables, included in ‘trade and other receivables’ 38,764 36,572 Contract assets / contracts in progress 829 1,266 Contract liabilities / deferred income 27,444 23,661 Total 67,037 61,499 We refer to note 18 for a detail of the deferred income and Note 2 for a detail on the cumulative catch-up adjustment on initial application of IFRS 15.The Group has recognized K€19,201 revenue in 2018 for contract liabilities recognized at January 1, 2018 and reduced revenue for K€96 related toperformance obligations that were (partially) satisfied in prior years. Note 18 include split of the deferred income in current and non-current. Non-currentdeferred income, representing mainly maintenance contracts with terms more than one year and certain contracts with up-front fees which are allocated toperformance obligations that will be satisfied over more than one year, may be recognized as revenue between one to three years.The relation between the timing of satisfaction of the performance obligations and the timing of billing resulting in contract assets and liabilities is asfollows: • Maintenance services: maintenance services are typically billed at the beginning of the maintenance period resulting in deferred income that isrecognized on a straightline basis over the maintenance period. • Software licenses: certain software licenses may have been billed prior to the delivery of the software key resulting in a deferred income balance. • Certain agreements in the medical segment include up-front fees such as step-in fees or milestone payments which are billed at inception of thecontract but which are allocated to performance obligations which are satisfied at a later time in the contract term or which have not beenrecognized considering the revenue contraint (i.e. may have to be credited when customer achieves certain volume targets). In addition, certaincontracts include prepaid fees for volume “Plan Only” purchases for which the purchased services are only delivered during a one year period.Those fees result in deferred income which are recognized as revenue when services/products are delivered and revenue is not constrainted. • Certain development services are satisfied while the services can only billed at certain pre-defined points in time or when the services are fullysatisfied resulting in contracts in progress / contract assets.22.2 Cost of salesCost of sales include the following selected information: For the year ended December 31 in 000€ 2018 2017* 2016 Purchase of goods and services (39,114) (34,480) (25,374) Amortization and depreciation (9,910) (7,560) (5,007) Payroll expenses (33,036) (20,806) (16,161) Other expenses (239) (106) (164) Total (82,299) (62,952) (46,706) 22.3 Research and development expensesResearch and development expenses include the following selected information: For the year ended December 31 in 000€ 2018 2017 2016 Purchase of goods and services (3,590) (3,140) (3,177) Amortization and depreciation (830) (686) (478) Payroll expenses (17,935) (16,054) (13,985) Other (61) (79) (42) Total (22,416) (19,959) (17,682) F-62Table of Contents22.4 Sales and marketing expensesSales and marketing expenses include the following selected information: For the year ended December 31 in 000€ 2018 2017* 2016 Purchase of goods and services (9,775) (8,035) (7,450) Amortization and depreciation (725) (505) (563) Payroll expenses (35,585) (30,175) (27,828) Other (218) (220) (312) Total (46,303) (38,935) (36,153) 22.5 General and administrative expensesGeneral and administrative expenses include the following selected information: For the year ended December 31 in 000€ 2018 2017* 2016 Purchase of goods and services (9,892) (7,053) (5,488) Amortization and depreciation (3,828) (2,761) (2,326) Payroll expenses (18,442) (14,858) (11,895) Other (148) (204) (332) Total (32,310) (24,876) (20,041) 22.6 Net other operating incomeThe net other operating income can be detailed as follows: For the year ended December 31 in 000€ 2018 2017* 2016 Government grants 4,658 4,342 4,181 Amortization intangibles purchase price allocation (1,994) (1,064) — Allowance for doubtful debtors (1,065) (454) (77) Capitalized expenses (asset construction) 16 123 12 Net foreign currency exchange gains / (losses) 246 (235) 452 Tax Credits 706 899 741 Fair value adjustment Cenat liability 192 — — Personnel related income 168 — — Other 844 930 903 Total 3,771 4,541 6,212 The Company has received government grants from the Belgian federal and regional governments and from the European Community in the forms of grantslinked to certain of its research and development programs and reduced payroll taxes.Any government grants recognized as income do not have any unfulfilled conditions or other contingencies attached to them.The Group has changed its accounting policy with respect to the amortization expense related to the fair value adjustments of the intangible assets acquiredfrom a business combination. These expenses, except for expenses related to the backlog, are now presented under the net other operating result. We refer toNote 2 for more information. F-63Table of Contents22.7 Payroll expensesThe following table shows the breakdown of payroll expenses for 2018, 2017 and 2016: For the year ended December 31 in 000€ 2018 2017 2016 Short-term employee benefits (76,023) (60,195) (50,714) Social security expenses (14,139) (11,200) (10,136) Expenses defined contribution plans (936) (926) (388) Other employee expenses (13,900) (9,572) (8,631) Total (104,998) (81,893) (69,869) Total registered employees at the end of the period 2,009 1,862 1,432 22.8 Financial expensesFinancial expenses includes the following selected information: For the year ended December 31 in 000€ 2018 2017 2016 Interest expense (1,747) (1,026) (665) Foreign currency losses (2,748) (3,131) (1,453) Other financial expenses (369) (571) (319) Total (4,864) (4,728) (2,437) 22.9 Financial incomeFinancial income includes the following selected information: For the year ended December 31 in 000€ 2018 2017 2016 Foreign currency exchange gains 3,047 2,830 1,853 Amortization discount interest free loans — 6 14 Other finance income 580 374 172 Total 3,627 3,210 2,039 F-64Table of Contents22.10 Income taxes and deferred taxesCurrent income taxThe following table shows the breakdown of the tax expense for 2018, 2017 and 2016: As of December 31, in 000€ 2018 2017* 2016 Estimated tax liability for the year (1,216) (1,530) (1,698) Tax adjustments to the previous year — 412 — Deferred income taxes 791 596 (12) Total income taxes for the period (425) (522) (1,710) The current tax expense is equal to the amount of income tax owed to the tax authorities for the year, under the applicable tax laws and rates in effect in thevarious countries.Deferred taxDeferred tax is presented in the statement of financial position under non-current assets and non-current liabilities, as applicable. The following table showsthe breakdown of the deferred tax assets, deferred tax liability and the deferred tax expense for 2018, 2017 and 2016: Asset/(liability) Income/(expense) in 000€ 2018 2017* 2016 2018 2017* 2016 Tax losses, notional interest deduction and other tax benefits 26 — 109 — — — Amortization development assets and other intangible assets 224 304 227 — — — Depreciation property, plant & equipment 30 — — — — — Other items 35 — — — — — Total deferred tax assets 315 304 336 11 (32) (756) Property, plant & equipment (694) (698) (452) — — — Intangible assets (5,370) (6,656) (873) — — — Investment grants (312) — — — — — Inventory valuation 141 — — — — — Other items 9 (61) — — — — Total deferred tax liabilities (6,226) (7,415) (1,325) 780 628 744 Total deferred tax income (loss) — — — 791 596 (12) The Group has unused tax losses, tax credits and notional interest deduction available in an amount of K€25,285 for 2018 (2017: K€11,948; 2016: K€9,451)of which K€15,592 for 2018 (2017: K€4,581; 2016: K€1,570) relating to Materialise NV. As at December 31, 2018 no unused notional interest deductionremains (2017: K€315; 2016: K€315), the amount remaing from previous periods has expired. F-65Table of ContentsWith respect to the net operating losses of Materialise NV, no deferred tax assets have been recognized given that in view of the Belgian Patent IncomeDeduction and Innovation Income Deduction there is an uncertainty to which extent these tax losses will be used in future years. As from July 1, 2016, thenew Innovation Income Deduction replaces the former Patent Income Deduction. Under the grandfathering rule the Patent Income Deduction system can stillbe applied until June 30, 2021. The Belgian Patent Income Deduction allows companies to deduct 80% of the qualifying gross patent income from thetaxable basis. Under the Innovation Income Deduction system, companies can deduct up to 85% of their net innovation income from the taxable basis. Basedon its analysis, in 2018 the Company has assessed that no deferred tax asset should be accounted for with respect to its unused tax losses in Belgium.With respect to the net tax losses of the other entities in the Group, deferred taxes have been recognized in 2018 for the amount of K€26 (2017: K€0; 2016:K€109). The deferred tax liability of K€6,226 in the year ending December 31, 2018 mainly relates to the intangibles that have been recognized as part of thepurchase price allocation (ACTech).Relationship between Tax Expense and Accounting Profit For the year ended December 31 in 000€ 2018 2017* 2016 Profit (loss) before taxes 3,452 (1,595) (1,309) Income tax at statutory rate of 29.58% (2017, 2016: 33,99%) (1,021) 542 445 Effect of different local tax rate 166 433 663 Tax adjustments to the previous period 80 412 — Non-deductible expenses (1,141) (818) (453) Capitalized initial public offering transaction costs — — — Research and development tax credits & patent income deduction 337 44 3,664 Notional interest deduction Belgium — — 351 Non recognition of deferred tax asset (546) (1,505) (6,767) Recognition of deferred tax assets on previous years tax losses 653 — — Non-taxable income 606 556 729 Use of previous years tax losses and tax credits for which no deferred tax assets was recognized — 12 50 Taxes on other basis 280 (117) (342) Other 161 (81) (50) Income tax expense as reported in the consolidated income statement (425) (522) (1,710) F-66Table of Contents23Earnings per shareBasic earnings per share amounts are calculated by dividing the net profit (loss) for the year attributable to ordinary equity holders of the parent company bythe weighted average number of ordinary shares outstanding during the year.Diluted earnings per share amounts are calculated by dividing the net profit (loss) attributable to ordinary equity holder of the parent company by theweighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued onconversion of all warrants.The net profit (loss) for the year used for the basic and diluted earnings per share are reconciled as follows: For the year ended December 31 in 000€ 2018 2017* 2016 Net profit attributable to ordinary equity holders of the parent for basic earnings 3,027 (2,117) (3,019) Interest on convertible bonds 50 — — Net profit attributable to ordinary equity holders of the parent adjusted for the effect ofdilution 3,077 (2,117) (3,019) The convertible bond and the warrants are dilutive as per December 31, 2018 but are anti-dilutive as per December 31, 2017 and 2016. We refer to Notes 14and 15 for information on the number of instruments that could potentially be dilutive but which were not considered in the calculation above.The following reflects the share data used in the basic and diluted earnings per share computations: For the year ended December 31 in 000 2018 2017 2016 Weighted average number of ordinary shares for basic earnings per share 49,806 47,325 47,325 Effect of dilution: Share options 382 — — Convertible loan 421 — — Weighted average number of ordinary shares adjusted for effect of dilution 50,609 47,325 47,325 The earnings per share are as follows: For the year ended December 31 2018 2017* 2016 Earnings per share attributable to the owners of the parent Basic 0.06 (0.04) (0.06) Diluted 0.06 (0.04) (0.06) F-67Table of Contents24Commitments and contingent liabilitiesOperating lease commitmentsThe Group has operating lease commitments mainly related to buildings and cars as follows: As of December 31, in 000€ 2018 2017 2016 Within one year 2,053 1,721 2,012 Between one and three years 2,302 1,504 1,964 Between four and five years 785 406 561 More than five years 302 77 84 Total 5,442 3,708 4,621 The total lease payments recognized in the consolidated income statement are K€2,956 in 2018 (2017: K€2,909; 2016: K€2,451).Apart from one operating lease commitment for a 3D printer located in Germany for an amount of K€554, including the purchase option, and a total rentcommitment for our office in Malaysia for an amount of K€1,236, including the renewal option, the Group has no individually significant lease commitmentsper end of 2018.Finance lease commitmentsThe Group has finance leases for the building and various other items of plant and equipment. Future minimum lease payments under finance lease with thepresent value of the net minimum lease payments are as follows: December 31, 2018 December 31, 2017 December 31, 2016 in 000€ Minimumleasepayments Presentvalue ofpayments Minimumleasepayments Presentvalue ofpayments Minimumleasepayments Presentvalue ofpayments Within one year 2,876 2,829 3,179 3,034 2,400 2,287 Between two and three years 3,398 3,236 5,017 4,643 3,640 3,503 Between four and five years 655 604 1,361 1,269 1,206 1,057 More than five years 149 140 285 218 587 548 Total 7,078 6,809 9,842 9,164 7,833 7,395 Less finance charges (269) — (678) — (438) — Present value of minimum lease payments 6,809 6,809 9,164 9,164 7,395 7,395 Mortgages and pledgesThe Group has several loans secured by a mortgage on the building. The carrying value of related property, plant & equipment (including buildings underconstruction) is K€30,853 (2017: K€28,526; 2016: K€12,594). The total outstanding mortgages and pledges are K€124,428 in 2018 (2017: K€85,186; 2016:K€32,362).Included in the above, the Group also has pledges on the business goodwill (“fonds de commerce”) of the Company for a total amount of K€70,300 in 2018(2017: K€29,000; 2016: K€4,491) and pledges on current and other fixed assets for a total amount of K€21,142 (2017: K€9,131; 2016: zero).Other commitmentsThe Group has outstanding non-cancellable contracts with a future commitment of K€6,383 at December 31, 2018 (2017: K€7,638; 2016: K€1,290), mainlyrelated to purchase commitment for raw materials. For property, plant & equipment, we have no committed expenditures as per December 31, 2018 (2017:K€672; 2016: K€10,204). F-68Table of ContentsContingent liabilitiesThe Group is currently involved in a legal proceeding with Dentsply Implants NV regarding the alleged wrongful termination of a supply agreement betweenthe Company and Dentsply Implants NV entered into in 2010. The court of first instance ruled in favor of Dentsply Implants NV, that we have wrongfullyterminated the relationship. We have appealed this decision before the court has pronounced itself on the monetary damages. The amount of damages whichDentsply Implants NV is claiming is K€2,700. While we are confident that the first instance decision will be overruled, we believe that, in the event that thefirst instance decision would be confirmed, the amount of monetary damages that we would be exposed to will not have a material impact on our business,financial conditions or result of operations. We are currently not a party to, and we are not aware of any threat of, any other legal proceedings, which, in theopinion of our management, is likely to have or could reasonably possibly have a material adverse effect on our business, financial condition or results ofoperations. As a result management concluded that no provision is required. F-69Table of Contents25RisksThe Group is mainly exposed to liquidity risk, interest rate risk and credit risk.Foreign exchange riskThe Group has primarily exposure to the USD, GBP and JPY as foreign currency.During 2018 the impact of changes in foreign currency rates on the cash and term accounts held in USD funded through the initial public offering proceedswas positive for an amount of K€752.If the USD (rate for 1 EUR) would have appreciated by 10%, the net result would have been K€1,561 higher, excluding the effect of the cash and termaccounts held in USD. If the USD (rate for 1 EUR) would have depreciated by 10%, the net result would have been K€1,278 lower, excluding the effect of thecash and term accounts held in USD.To limit the exposure to foreign currency rate fluctuations on GBP and JPY, the Group has entered into currency rate swaps as of 2017. We refer to note 20.Liquidity riskThe liquidity risk is that the Group may not have sufficient cash to meet its payment obligations. This risk is countered by day-by-day liquidity managementat the corporate level. The Group has historically entered into financing and lease agreements with financial institutions to finance significant projects andcertain working capital requirements. At December 31, 2018 the Group still has undrawn lines of credit totaling K€26,040, including K€25,000 from theEuropean Investment Bank (EIB) as mentioned in the below paragraph (2017: K€4,473; 2016: K€4,355).On September 29, 2017 KBC Bank and Materialise agreed on a credit facility, mainly related to the financing of the ACTech acquisition, in which debtcovenants were determined based on the ratio of the Group’s total net financial debt over EBITDA.On December 20, 2017, the European Investment Bank (EIB) and Materialise entered into a finance contract to support Materialise’s ongoing research anddevelopment programs for growth from 2017 to 2020. The contract provides a credit of up to €35.0 million drawable in two tranches. The first tranche couldnot exceed €25.0 million and could be drawn during the first year of the contract. The Group actually has drawn €10.0 million of this first tranche in thecourse of 2018. The second tranche can be drawn during the second year of the contract, subject to a specified debt ratio being met. The duration of the loanwill be between six to eight years starting from the disbursement of the respective tranches, and includes a two-year loan reimbursement grace period. Loansunder the contract will be made at a fixed rate, based on the Euribor rate at the time of the borrowing, plus a variable margin. The margin is initially equal to1.86% and varies in function of certain EBITDA levels and debt ratios. The contract contains customary security, covenants and undertakings. F-70Table of ContentsThe range of contracted obligations are as follows: in 000€ Less than1 year 2 to 3 years 4-5 years More than5 years Total At December 31, 2018 Loan & borrowings 14,491 42,100 33,636 23,870 114,097 Trade payables 18,667 — — — 18,667 Other current liabilities 2,267 — — — 2,267 Total 35,425 42,100 33,636 23,870 135,031 Less than1 year 2 to 3 years 4-5 years More than5 years Total At December 31, 2017* Loan & borrowings 14,331 37,933 22,286 32,699 107,249 Trade payables 15,670 — — — 15,670 Other current liabilities 1,390 — — — 1,390 Total 31,391 37,933 22,286 32,699 124,309 Less than1 year 2 to 3 years 4-5 years More than5 years Total At December 31, 2016 Loan & borrowings 6,050 10,787 7,471 12,620 36,928 Trade payables 13,400 — — — 13,400 Other current liabilities 634 — — — 634 Total 20,084 10,787 7,471 12,620 50,962 F-71Table of ContentsInterest rate riskAlthough the Group mainly has loans outstanding with a fixed interest rate, some of the loans have been contracted with variable interest rates. The mostsignificant loans with variable interest rates have been secured by means of a variable to fixed interest rate swap. We therefore believe that the Group is notsubject to immediate changes in interest rates. With respect to the interest rate swaps, we refer to note 20.Credit riskCredit risk is the risk that third parties may not meet their contractual obligations resulting in a loss for the Group. The Group is exposed to credit risk from itsoperating activities (primarily trade receivables) and from its financing activities, which are mainly deposits with financial institutions. The Group limits thisexposure by contracting with credit-worthy business partners or with financial institutions which meet high credit rating requirements. In addition, theportfolio of receivables is monitored on a continuous basis.Trade receivables and contracts in progressCustomer credit risk is managed by each business unit subject to the Group’s established policy, procedures and controls relating to customer credit riskmanagement.An impairment analysis is performed at each reporting date per company and using a provision matrix per company to measure expected credit losses. Theprovision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e., by legal entity).The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at thereporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables are written-off if past due formore than one year and are not subject to enforcement activity. The maximum exposure to credit risk at the reporting date is the carrying value of each classof financial assets disclosed in Note 11. The Group does not hold collateral as security.The Group evaluates the concentration of risk with respect to trade receivables as low, as its customers are located in several jurisdictions and industries andoperate in largely independent markets.Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix: in 000€ Total Non-due Less than30 days 31-60 days 61-90 days 91-180days More than181 days December 31, 2018 36,891 26,208 5,395 1,479 931 1,512 1,366 December 31, 2017 35,582 21,630 6,920 1,765 1,526 1,614 2,127 December 31, 2016 27,479 15,590 6,434 1,885 490 2,008 1,072 Capital managementThe primary objective of the Group’s shareholders’ capital management strategy is to ensure it maintains healthy capital ratios to support its business andmaximize shareholder value. Capital is defined as the Group shareholder’s equity.The Group consistently reviews its capital structure and makes adjustments in light of changing economic conditions. The Group made no changes to itscapital management objectives, policies or processes during the years ended December 31, 2018, 2017 and 2016. F-72Table of Contents26Related party transactionsThe compensation of key management personnel of the Group is as follows: For the year ended December 31 in 000€ 2018 2017 2016 Short-term employee benefits 2,334 2,190 2,693 Post-employment benefits 80 80 116 Termination benefits — — — Total 2,414 2,270 2,809 Warrants granted — — 199,500 Warrants outstanding 557,935 573,980 790,752 The amounts disclosed in the table are the amounts recognized as an expense during the reporting period related to key management personnel (seniormanagement and executive committee members). In the year ending December 31, 2018 the compensation to key management by means of share basedpayments amounts to K€312.The following table provides the total amount of transactions that have been entered into with related parties for the relevant financial year: in 000€ Sale ofgoods to Purchasesfrom Interestexpense Receivables Liabilities Non-executive directors of the group 2018 — 123 51 — 1,038 2017 — 96 50 — 965 2016 — 72 50 — 972 Shareholders of the group 2018 — 123 10 — 261 2017 — 172 11 — 371 2016 — 117 16 — 378 Joint ventures 2018 1,156 241 — 1,281 22 2017 714 23 — 804 28 2016 527 — — 601 — Related party – Ailanthus NVAilanthus NV, shareholder and director of the Group, has provided several loans and financial leases to the Group for the purchase of machinery and a portionof the office and production buildings. We refer to Note 15 for details.The Group rent apartments on a regular basis from Ailanthus NV in order to host our employees from foreign subsidiaries who are visiting our headquarters inLeuven. The total amount paid to Ailanthus NV for rent in 2018 was K€123 (2017: K€172; 2016: K€141).Related party – Convertible debtThe Group has issued on October 28, 2013 1,000 convertible bonds for a total amount of K€1,000. The bonds have been fully subscribed by a member of oursenior management. We refer to Note 15 for more details. F-73Table of ContentsFounder sharesAt the inception of the Company, the other shareholders granted a total of 300,000 founder shares (“oprichtersaandelen”) to the founder and CEO of theGroup, Mr. Wilfried Vancraen, in his capacity as shareholder. In accordance with Belgian Company Law, these founder shares do not represent shareholders’capital but grant the holder voting and dividend rights. No other terms and conditions were attached to these founder shares and no dividends has been paidby the Group to the shareholders since inception.At the General Meeting of Shareholders held on November 28, 2013, 300,000 founder shares were converted to ordinary A shares. Converting the foundershares into ordinary A shares did not confer any substantial advantage to their holder but resulted in a dilution for the existing shareholders by 0% .Theseordinary A shares benefited from all rights attached to the ordinary shares.Joint venturesThe receivable for the amount of K€1,281 is accounted for under the other non-current assets and trade receivables and relates to the services and goodsdelivered to the joint venture RSPRINT. In the course of 2018 the Group also purchased a 3D printer from RSPRINT for the amount of K€200. F-74Table of Contents27Events subsequent to the statement of financial position dateOn January 10, 2019, Materialise NV granted a K€2,500 convertible loan to Fluidda NV (“Fluidda”). This investment is part of a general collaboration,bringing the possibilities of 3D printing to the pulmonology market, combining Fluidda’s Functional Respiratory Imaging methods with Materialise’sexpertise in medical engineering. Part of the funds will be used to expand the development of Functional Respiratory Imaging methods driven 3D printeddevices for personalized monitoring of airflow distribution in lung patients, using advanced machine learning and artificial intelligence.There are no other significant events subsequent to the statement of financial position date that would require adjustments or disclosures to the financialstatements. F-75Table of Contents28 Overview of consolidated entities Name Country ofincorporation % equityinterest 2018 2017 2016 Materialise NV Belgium 100% 100% 100% Materialise France SAS France 100% 100% 100% Materialise GmbH Germany 100% 100% 100% Materialise Japan K.K. Japan 100% 100% 100% Materialise Czech Republic SRO Czech Republic 100% 100% 100% Materialise USA, LLC United States 99% 99% 99% Materialise UK Limited United Kingdom 100% 100% 100% OBL SAS France 100% 100% 100% Materialise Austria GmbH Austria 100% 100% 100% Materialise Malaysia SDN. Bhd. Malaysia 100% 100% 100% Materialise Ukraine LLC Ukraine 100% 100% 100% RapidFit NV Belgium 83% 83% 83% RapidFit, LLC (liquidated) United States — — 83% Meridian Technique Limited United Kingdom 100% 100% 100% OrthoView, LLC (liquidated) United States — — 100% OrthoView Holdings Limited United Kingdom 100% 100% 100% Meridian (Corporate Trustee) Limited (liquidated) United Kingdom — 100% 100% OrthoView Limited (liquidated) United Kingdom — 100% 100% Materialise SA Poland 100% 100% 100% Materialise Colombia SAS Colombia 100% 100% 100% RSPRINT powered by Materialise NV (joint venture) Belgium 50% 50% 50% Materialise Shanghai Co. Ltd China 100% 100% 100% Materialise Australia PTY Ltd Australia 100% 100% 100% Materialise S.R.L. Italy 100% 100% 100% ACTech GmbH Germany 100% 100% — ACTech Holding GmbH Germany 100% 100% — ACTech, Inc United States 100% 100% — The entities Materialise GmbH, Gilching, Germany, ACTech Holding GmbH, Freiberg / Saxony, Germany and ACTech GmbH, Freiberg / Saxony, Germany,have taken advantage of the exemption regulations of § 264 (3) HGB (German Commercial Code) for the financial year ending December 31, 2018. F-76Exhibit 1.1RESTATED ARTICLES OF ASSOCIATIONon 08 April 20191. Name - duration - registered office - objectARTICLE 1: Name.The company has the legal form of a public limited company and is named “MATERIALISE”. It is a company which makes or has made a publicoffering.ARTICLE 2: Duration.The company is established for an indefinite period, starting on 28 June 1990. Except in the case of legal dissolution, the company may only bedissolved by the extraordinary general meeting, taking the requirements for amendments to the articles of association into account.ARTICLE 3: Registered office.The company’s registered office is established in 3001 Heverlee, Technologielaan 15.The registered office may be transferred within the Dutch language area or to the Brussels language area of Belgium without any amendment to thearticles of association, following a decision by the Board of Directors. Such decision shall be published.Furthermore, the Board of Directors shall be authorized to record the amendment to the Articles of Association resulting from the transfer of theregistered office by notarial deed.ARTICLE 4: Object.The company’s object is as follows: the research, development and commercialization of additive manufacturing and related technologies and allrelated service, engineering and holding activities. All these activities should be interpreted in the broadest sense.The company acts for its own account, on consignment, on commission, as an intermediary or as an agent.The company also has the following additional object: • the purchase, sale, exchange, construction, renovation, commercialization, furnishing, exploitation, letting, sub-letting, management, maintenance,parcelling, horizontal division and placement under compulsory co-ownership, leasing, prospection and promotion in any form of all immovableproperty or immovable property rights. • Investing in, subscribing to, taking over, placing, purchasing, selling and trading all securities issued by Belgian or foreign companies, whether or notin the form of commercial companies, administrative offices, institutions and associations, as well as managing these investments and participations; • providing advice, management and any other services to all affiliated companies or companies in which the company has a participating interest, in itscapacity as director, liquidator or otherwise, as well as running or exercising control over these companies.It may, either in cash or in kind, by means of a merger, subscription, participation, financial intervention or in any other way, acquire an interest in allexisting companies or companies to be incorporated, whether in Belgium or abroad, with an identical or similar object or an object related to its own, orwhich is likely to promote the realization of its object. 1In general, the company may perform all acts of a civil and commercial, movable, immovable, industrial nature which are directly or indirectly, whetherin whole or in part, related to its object.2. CapitalARTICLE 5: Capital and sharesThe registered capital amounts to three million fifty thousand one hundred and ninety-seven euros and eighty-three cents (3,050,197.83 EUR),represented by fifty-two million eight hundred ninety thousand seven hundred and sixty-one (52,890,761) shares, without designation of nominal value,each representing an equal share in the capital.The capital has been subscribed to and paid up in full and unconditionally.ARTICLE 6: Authorized capitala) By decision of the general meeting of shareholders of 23 April 2014, which will enter into force on the day of publication of the decision in the Annexes tothe Belgian Official Gazette, the Board of Directors was granted the authority to increase the share capital in one or more rounds up to a maximum totalamount equal to the amount of the share capital after the confirmation of the realization of the “First Capital Increase”, as referred to in the second decision ofthe general meeting of shareholders held on 23 April 2014 (the “First Capital Increase”).The Board of Directors may only exercise the powers granted to it for a period of five (5) years from the publication of this authorization in theAnnexes to the Belgian Official Gazette.This authorization may be renewed in accordance with the applicable legal conditions.On 5 March 2015, the Board of Directors of the company decided to increase the company’s registered capital within the framework of the authorizedcapital, by an amount of four thousand six hundred and twenty-six euros and fifty cents (4,626.50 EUR), thereby increasing the available amount of theauthorized capital to two million seven hundred and ten thousand eight euros and thirty-three cents (2,710,008.33 EUR).On 18 December 2015, the Board of Directors of the company also decided to increase the capital within the framework of the authorized capital, underthe suspensive condition of full or partial exercise of the previously issued one million four hundred thousand (1,400,000) “Warrants 2015”, and determinedthat the authorized capital may not be used for an amount of eighty thousand seven hundred and thirty-eight euros (80,738 EUR), i.e. the maximum amountof the aforementioned capital increase (excluding the issue premium) as long as the capital increase resulting from the exercise of the aforementionedwarrants has not been confirmed and/or the period within which they can be exercised has not expired. 2On 18 July 2018, the Board of Directors of the company decided to increase the company’s registered capital within the framework of the authorizedcapital, which on 26 July 2018 was fixed at an amount for the capital increase of one hundred and seventy-three thousand and nine euros and nineteen cents(173,009.19 EUR), which resulted in an increase in the available amount of the authorized capital to two million four hundred and fifty-six thousand twohundred and sixty-thirds euros and fourteen cents (2,456,261.14 EUR).On 19 July 2018, the Board of Directors of the company decided to increase the company’s registered capital within the framework of the authorizedcapital for an amount of one hundred and twelve thousand six hundred and thirty-six euros twenty cents (EUR 112,636.20), which resulted in an increase inthe available amount of the authorized capital to two million three hundred and forty-three thousand six hundred and twenty-four euros and ninety-four cents(2,343,624.94 EUR).On 18 July 2018, the Board of Directors of the company decided to increase the company’s registered capital within the framework of the authorizedcapital, which on 27 July 2018 was fixed at an amount for the capital increase of twenty-five thousand nine hundred and fifty-three euros and thirty-eightcents (25,951.38 EUR), which resulted in an increase in the available amount of the authorized capital to two million three hundred and seventy-seventhousand six hundred and seventy-three euros and fifty-six cents (2,317,673.56 EUR).b) The capital increases decided upon pursuant to this authorization may take place in accordance with the conditions to be determined by the Board ofDirectors, including: • by means of contributions in cash or in kind within the limits permitted by the Belgian Company Code, • through a conversion of reserves and share premiums, • with or without the issue of new securities, • through the issue of shares, with or without voting rights, • through the issue of convertible bonds, whether subordinated or not, • through the issue of warrants (free of charge or at a certain issue price), • through the issue of bonds to which warrants or other securities are attached, • through the issue of other securities, such as shares under a stock option plan.c) In accordance with article 606 of the Belgian Company Code, the Board of Directors is not allowed to use its authority for capital increases (i) by means ofcontributions in kind exclusively by a 10% shareholder, (ii) issuance below fractional value, (iii) issuance of warrants mainly intended for one or morespecific persons, other than employees. 3d) In the event of a public takeover bid for securities issued by the company, the Board of Directors shall also have a specific authorization to increase thecapital in any form whatsoever, including a capital increase in which the shareholders’ preferential subscription right is restricted or suspended, under theconditions provided for in article 607 of the Belgian Company Code.This authorization is granted for a period of three (3) years, starting from the extraordinary general meeting of shareholders held on 23 April 2014.This authorization may be renewed for the same period by a decision of the general meeting made in accordance with the rules set for the amendmentof the articles of association.The capital increases decided upon in the context of this authorization shall be imputed to the remaining part of the authorized capital as referred to inparagraph (a).e) Any issue premiums payable upon subscription to a capital increase within the framework of the authorized capital shall be credited by the Board ofDirectors to an unavailable “Issue premiums” account, which shall serve as a guarantee for third parties to the same extent as the authorized capital andwhich, except for the possibility to convert this reserve into capital, may only be disposed of by a decision of the general meeting of shareholdersdeliberating in accordance with the rules which apply for amendments to the articles of association.f) The Board of Directors shall also be authorized to restrict or cancel the preferential subscription right in the interest of the company. It may do this for thebenefit of one or more specific persons, even if they are not employees of the company or its subsidiaries, provided that, including upon the issue of warrants,compliance with the relevant legal provisions is ensured. It may also decide, as appropriate, to give priority to the existing shareholders during the allocationof new shares.g) The Board of Directors has the power, with the possibility of subrogation, to amend the articles of association of the company in order to align them withdecisions on capital increases within the framework of the authorized capital.ARTICLE 7: Capital increase - preferential subscription right.a) Subject to the possibility of a capital increase within the framework of authorized capital by decision of the Board of Directors, an increase in the sharecapital can only be decided upon by an extraordinary general meeting before a notary public, in accordance with the provisions of the Belgian CompanyCode.b) For each capital increase by means of a contribution in cash, the shareholders shall have a preferential subscription right in accordance with Article 592 etseq. of the Belgian Company Code and the new shares, convertible bonds and warrants shall first be offered to the shareholders in proportion to the part of thecapital represented by their shares.The period during which the preferential subscription right may be exercised shall be determined by the general meeting of shareholders or, asapplicable, by the Board of Directors, and may not be less than fifteen days from the date on which the subscription is opened. 4The Board of Directors may decide that the total or partial non-use by the shareholders of their preferential subscription rights shall increase theproportional share of the shareholders who have already exercised their preferential subscription rights; it shall also decide on the subscription procedure.The Board of Directors shall also have the right, upon such terms as it shall determine, to conclude all agreements to ensure the subscription to all or part ofthe shares to be issued.If a share is encumbered with a usufruct, the preferential subscription right shall belong to the usufructuary, unless otherwise agreed. The newlyacquired shares, convertible bonds and warrants shall be fully owned by him, subject to a possible fee paid to the bare owner for exercising the preferentialsubscription right.In the case of pledged shares, the preferential subscription right shall exclusively belong to the owner-pledger.In the interest of the company and with due observance of the relevant legal requirements, the general meeting of shareholders and, within theframework of the authorized capital, the Board of Directors, may restrict or cancel the preferential subscription right.c) The general meeting of shareholders, or the Board of Directors within the authorized capital, as appropriate, may decide to increase the capital in favour ofits employees, subject to the provisions of Article 609 of the Belgian Company Code.d) In the event that a capital increase includes any contribution in kind, an auditor or statutory auditor shall draw up a report in addition to a special report ofthe Board of Directors, and the provisions of Article 602 of the Belgian Company Code shall continue to apply. This contribution must be paid up in fullimmediately.e) A capital increase can also be realized through the conversion of reserves. The extraordinary general meeting may grant the Board of Directors the power toincrease the capital within the limits of the authorized capital through the conversion of reserves.f) If the new shares are issued with an issue premium, it must be paid up in full upon subscription of the shares.ARTICLE 8: Capital reductionA decision to reduce the capital can be made in accordance with the relevant legal provisions.3. Shares and other securitiesARTICLE 9: Nature of the securitiesThe shares and other securities of the company are and will always remain registered shares. They shall bear a serial number.A register is kept at the registered office of the company for each class of registered securities, either in original physical form or in electronic form inaccordance with the applicable legislation. The ownership of registered securities is determined by an entry in the register. If so requested, certificates of thesesubscriptions shall be issued to the holders of the securities.ARTICLE 10: Unpaid or partially paid shares—obligation to pay upThe obligation to pay up a share is unconditional and indivisible.If shares which have not been paid up in full are jointly owned by several persons, each one of them shall be liable for the payment of the entire amountof the duly called payments due. 5Additional contributions or full payment are requested by the Board of Directors at a time to be determined by the Board of Directors. The shareholdersare notified by a letter sent by registered post, which shall mention the bank account to which payment must be made by wire transfer or deposit, with theexclusion of all other methods of payment. The shareholder shall be deemed in default when the time limit specified in the notice has expired and interestshall be payable to the company at the statutory rate fixed at that time, plus two percentage points.As long as the called payments due for a share have not been made in accordance with this provision, the exercise of the rights related thereto shall besuspended.Early payments on shares may not be made without the prior consent of the Board of Directors.ARTICLE 11: Indivisibility of sharesThe securities are indivisible vis-à-vis the company.If a security belongs to several owners, or if several persons are entitled to a security, they may exercise the rights attached to such securities onlythrough a joint representative.The company may suspend the exercise of the rights attached to it until a single person has been appointed as the owner of the security vis-à-vis thecompany or as their joint representative.All convocation notices, notifications and other notices served by the company to the different persons entitled to a single security shall be validly andexclusively given, as the casemay be, either to the person designated as the owner vis-à-vis the company or to the designated joint representative.ARTICLE 12: SuccessorsThe rights and obligations shall remain attached to a security, regardless of its ownership.The heirs, creditors or other successors of the shareholder may not interfere with the management of the company, nor cause any seals to be affixed tothe goods and valuables of the company, nor claim the liquidation of the company and the distribution of its equity.They shall act in compliance with the company’s financial statements for exercising their rights and shall observe the decisions of the general meeting.ARTICLE 13: Bonds, warrants and other financial instruments granting rights to sharesThe company may issue mortgage or other bonds by decision of the Board of Directors, which will determine the terms of the issue.The issue of convertible bonds or bonds redeemable in shares, warrants or other financial instruments which will eventually entitle the holder to sharesmay be decided upon by the general meeting of shareholders or by the Board of Directors within the framework of the authorized capital.The holders of bonds or warrants have the right to attend the general meeting of shareholders, but only in an advisory capacity. 63. Acquisition and disposal of own securitiesARTICLE 14: Acquisition and disposal of own securitiesa) By decision of the general meeting of shareholders of 23 April 2014, the Board of Directors was authorized, in accordance with article 620 et seq. of theBelgian Company Code and within the limits specified in this article, to acquire its own shares at a price per share that may not be lower than 80%, and nothigher than 120% of the average closing prices of the American Depository Shares representing the shares of the company during a period of 30 calendardays prior to either the date of purchase or the date of announcement thereof.This authorization shall also apply to the acquisition of the company’s shares by one of its directly controlled subsidiaries, as referred to in and withinthe limits of article 627 of the Belgian Company Code.Any offer to acquire the company’s shares must be made to all shareholders under the same conditions, in accordance with Article 620, 1st paragraph,5th section of the Belgian Company Code.This authorization shall be valid for a period of five years from the date of the First Capital Increase.This authorization may be extended by a decision of the general meeting and in accordance with the provisions of the Belgian Company Code.b) By decision of the general meeting of shareholders of 23 April 2014, the Board of Directors was also authorized to dispose of the company’s own shares ata price determined by the Board of Directors.This authorization is not limited in time.This authorization also applies to the disposal of the company’s shares by one of its direct subsidiaries in accordance with Article 627 of the BelgianCompany Code.c) Lastly, by decision of the general meeting of shareholders of 23 April 2014, the Board of Directors was authorized, without further decision by the generalmeeting of shareholders and in accordance with the provisions of the Belgian Company Code, to acquire or dispose of the company’s shares, when suchacquisition or disposal is necessary to prevent serious imminent harm to the company.This authorization is granted for a period of three years, starting from the publication of this authorization in the Annexes to the Belgian OfficialGazette. This authorization may be extended for periods of three years by a decision of the general meeting and in accordance with the provisions of theBelgian Company Code.4. Management and representationARTICLE 15: Appointment—Dismissal—Vacancy—Publicationa) The Board of Directors of the company shall consist of at least seven (7) and no more than eleven (11) directors, and at least three (3) directors must beindependent directors (within the meaning of Article 526ter of the Belgian Company Code).b) As long as all the voting rights attached to the shares controlled by each of the Family Shareholders, whether directly or indirectly and jointly or otherwise,represent 20% or more of all voting rights attached to all outstanding shares of the company, a maximum of six (6) directors shall, upon the simple request ofa Family Shareholder, only be appointed on the nomination of a majority of all Family Shareholders who directly or indirectly control at least 3% of thevoting rights attached to the shares of the company on the date of the appointment. The number of candidates on the nomination list of the FamilyShareholders must be higher than the number of vacancies to be filled which are subject to the nomination right. If a director appointed on the nomination ofthe Family Shareholders resigns or is dismissed, his vacancy may only be filled by a candidate nominated by the majority of the other directors appointed onthe nomination of the Family Shareholders, if any. 7For the purposes of this Article, “Family Shareholders” shall include the following persons: Wilfried Vancraen, Hilde Ingelaere and their relatives inthe first degree in descending line.c) When a legal entity is appointed as a director, it must appoint a permanent representative among its shareholders, managers, directors, members of themanagement committee or employees, who will be charged with the execution of the assignment in the name of and on behalf of the legal entity-director.d) The directors are appointed by the general meeting of shareholders.In any case, the duration of their assignment may not exceed the maximum legal term of six (6) years.Their assignment shall end when the general meeting of shareholders or the meeting of the Board of Directors deciding on their replacement is closed.The directors can be dismissed by the general meeting of shareholders at all times.Retiring directors are eligible for reappointment.e) When a director’s office becomes vacant, the remaining directors have the right to fill the vacancy in a provisional manner, under the conditions providedfor by law and in compliance with the abovementioned nomination scheme. The subsequent general meeting of shareholders shall then decide on thedefinitive appointment. The newly appointed director shall complete the term of the person he replaces.f) The Chairman of the Board of Directors will be elected by the Board of Directors.g) The appointment of the members of the board and the termination of their office shall be published by submitting an extract from the decision at theRegistrar’s Office of the Commercial Court in the company file, and a copy thereof for publication in the Annexes to the Belgian Official Gazette. Thesedocuments shall in any event specify whether the persons representing the company each bind the company individually, jointly or as a body.ARTICLE 16: Convocation of the Board of Directorsa) the Board of Directors shall be convened by its chairman as often as required in the interest of the company, and shall meet within fourteen days followinga request to that effect from two directors or from the managing director.If the Chairman has not convened the Board of Directors within the abovementioned period of fourteen days following the request of the directors or ofthe managing director to convene the Board of Directors, the requesting directors or the requesting managing director may validly convene the Board ofDirectorsb) The convocation notices shall state the place, date, time and agenda of the meeting and shall be sent by letter, fax or other written, possibly electronic,means at least two (2) working days before the meeting.c) Each general meeting shall be held at the registered office of the company or in any other location in Belgium, as specified in the convocation notice.d) The regularity of the convocation cannot be disputed if all directors are present or validly represented. 8ARTICLE 17: Meeting of the Board of Directorsa) The Board is presided by the Chairman or, in his absence, by the Vice-Chairman (if one has been appointed) or by the oldest of the directors present at themeeting.b) The Board of Directors may only validly deliberate and decide if at least a majority of its members are present or represented at the meeting.c) Directors who are unable to be present in person at the meeting may participate in the deliberations and vote through telecommunication tools such astelephone or videoconference, on the condition that all participants in the meeting can communicate directly with all other participants. The persons whoparticipate in a meeting by such technical means shall be considered to be present in person at this meeting.d) Each director may grant a proxy to another director to represent him at a specific meeting. Such a proxy must be given in the form of a power of attorneybearing the signature of the director, which may be a digital signature as defined in article 1322, 2nd paragraph of the Belgian Civil Code, and which must benotified to the Board of Directors by simple letter, fax or any other means of written, possibly electronic, communication. A director may represent severalcolleagues of the Board of Directors.e) Decisions are made by a simple majority of the votes.f) Minutes are kept of the decisions made by the Board of Directors. They are signed by the Chairman and, in his absence, by the director chairing themeeting and at least a majority of the board members present at the meeting.Copies and extracts shall be signed by two directors or by one managing director.g) In exceptional cases, in the event of urgency that requires a decision in the interest of the company, decisions of the Board of Directors can be made byunanimous written consent of the directors. This is not possible for the adoption of the financial statements and the use of the authorized capital.ARTICLE 18: SalaryWithout prejudice to the reimbursement of their expenses, the directors may be granted a fixed remuneration, the amount of which shall be determinedeach year by the general meeting and shall be at the charge of the general budget of the company. In addition, the general meeting may grant them a profit-related directors’ fee from the available profit for the financial year.ARTICLE 19: Conflicts of interesta) If a director has a direct or indirect financial interest which conflicts with a decision or transaction within the authority of the Board of Directors, therequirements of Article 523 of the Belgian Company Code must be observed by the relevant director, as well as by the Board of Directors in its deliberationsand decision-making.b) If several directors have such an interest, and applicable law forbids them to participate in the deliberation or vote on the relevant topic, the remainingdirectors shall have the authority to make a valid decision, even if half of the directors are no longer present or represented in this circumstance. 9ARTICLE 20: Internal governance—Restrictions—Delegation of powersa) The Board of Directors is authorized to take any action which is required or useful to pursue the company’s object, with the exception of the activitiesassigned exclusively to the general meeting by law.b) Without prejudice to the obligations arising from collegial management, in particular with respect to consultation and supervision, the directors maydistribute the management tasks among themselves. Such division of tasks shall not be enforceable against third parties.c) The Board of Directors may establish a management committee, whose members may be chosen among the directors or otherwise.It shall define the powers of this committee, organize its operation and determine the remuneration of its members, which will be at the charge of thegeneral budget.d) The Board of Directors may establish one or more advisory committees under its responsibility. The Board of Directors shall define their composition,tasks and functioning. The members of such committees are appointed by the Board of Directors, which shall also determine the conditions of theirappointment, dismissal, remuneration and the duration of their mandate.d) The Board of Directors may delegate day-to-day administration of the company to: • the management committee, if one is established; • one or more members of the Board of Directors, who shall be referred to as the managing director(s)ARTICLE 21: External powers of representationa) The Board of Directors shall represent the company as a body in and out of court. It shall act through the majority of its members.Notwithstanding the general representation powers of the Board of Directors as a body, the company shall also be represented in and out of court by twodirectors acting jointly, of which at least one director is appointed from the list of candidates nominated by the Family Shareholders.b) With respect to the powers granted to the management committee, the company shall be validly represented in and out of court by two members of themanagement committee acting jointly.c) The company shall also be represented in day-to-day administration, both in and out of court: • either by one or more representatives entrusted with day-to-day administration, acting individually or jointly in accordance with the delegationdecision of the Board of Directors; • or in the manner determined by the Board of Directors, when the management committee has been entrusted with day-to-day administration.ARTICLE 22: Special powers of attorneyThe Board of Directors or the directors representing the company may appoint attorneys-in-fact of the company. Only special and limited powers ofattorney for a specific legal act or a series of specific legal acts shall be permitted. The proxy holders shall bind the company within the limits of the authoritygranted to them, without prejudice to the responsibility of the directors in the event of excess of power of attorney.ARTICLE 23: Responsibility of the directorsThe directors are not personally bound by the commitments of the company. The directors shall be responsible vis-à-vis the company and vis-à-visthird parties for any shortcomings in their management, in accordance with the applicable provisions of the Belgian Company Code. 105. SupervisionARTICLE 24: Appointment—authority and remuneration of the auditorIf necessary, one or more auditors shall be appointed to audit the company. They are appointed by the general meeting for a renewable term of threeyears. Under penalty of damages, they may only be dismissed for legal cause during their mandate by the general meeting.If there is no obligation for the company to appoint an auditor, each shareholder shall individually have the investigation and audit powers of anauditor.The remuneration of the auditor shall consist of a fixed amount, which is determined by the general meeting at the start of their mandate, withoutprejudice to Article 134 of the Belgian Company Code. It may be amended only by agreement of the Parties. Apart from this remuneration, the auditor maynot receive any benefit, in whatever form, from the company.6. General meetingARTICLE 25: Ordinary, special and extraordinary general meetingsa) The ordinary general meeting of shareholders, which is referred to as the annual meeting, shall be convened each year on the first Tuesday of the month ofJune at 10 am. If this day is a public holiday, the meeting will be held on the subsequent working day (excluding Saturdays) at the same time.b) A special general meeting may be convened at all times to deliberate and decide on any matter which is within its competence and which does not involveany amendment to the Articles of Association.c) An extraordinary general meeting may also be convened at all times to deliberate and decide on any amendment to the Articles of Association, in thepresence of a notary.d) The general meetings shall be held at the registered office of the company or in any other location, as specified in the convocation notice.ARTICLE 26: Convocationa) The Board of Directors and any possible auditor may convene both an ordinary general meeting (annual meeting) and a special or extraordinary generalmeeting. They must convene the annual meeting on the date determined by the articles of association. The Board of Directors and any auditor shall beobliged to convene a special or extraordinary meeting if one or more shareholders who individually or jointly represent one fifth of the share capital sorequest.Such a request must be sent by registered letter to the registered office of the company; it must state the agenda items on which the general meeting hasto deliberate and decide.The notice convening the general meeting to be held must be given within three weeks of the request.Other items may be added to the agenda items specified by the shareholders in the notice convening the meeting.b) The notices convening the general meetings shall state the agenda and shall be communicated at least fifteen (15) days in advance, to the holders of shares,bonds and warrants, the holders of registered certificates issued with the cooperation of the company, the directors and any auditor(s), in a letter sent byregistered post or by any other means of communication, on the condition, in the latter case, that the addressees have agreed individually, expressly and inwriting to receive the notice by an alternative means of communication. 11Convocation notices are deemed to be given as soon as they are sent.c) The agenda must contain the items to be discussed and the proposals for resolutions.d) Any person may waive this notice and shall in any case be considered as having been invited correctly if he attends the meeting or is represented there.ARTICLE 27: Admission to general meetings—representationa) The right to attend the general meetings and to exercise the voting right is determined by the registration of the ownership of the shares in the name of theshareholder on the third (3rd) business day prior to the date of the scheduled meeting by their registration in the company’s shareholders’ register.The board of directors may make participation in the general meetings dependent on a requirement of notification by the shareholder to the company,or to the person appointed for this purpose by the company, on a date to be determined by the board of directors before the date of the scheduled meeting,that he intends to attend the meeting, stating the number of shares the shareholder wishes to participate with, in which case this notification must be made asdefined in the convocation notice.b) Any shareholder who has voting rights may either attend the meeting in person or be represented by a proxy, who may or may not be a shareholder.The power of attorney must be given in writing in the manner specified in the convocation notice.The company has to receive the power of attorney no later than on the date determined by the Board of Directors as stated in the convocation notice.c) Before attending the meeting, the shareholders or their proxy holders must sign the attendance list, stating (i) the identity of the shareholder, (ii) ifapplicable, the identity of the proxy holder, and (iii) the number of shares they represent.d) The holders of profit-sharing certificates, non-voting shares, bonds, warrants, or other securities issued by the company may attend the general meeting ofshareholders insofar as the law grants them this right and, as applicable, the right to participate in the vote. If they wish to attend, they shall be bound by thesame formalities of admission, access, form and notification for proxies as those imposed on the shareholders.ARTICLE 28: Chairman—CommitteeEach general meeting is presided by the chairman of the Board of Directors or, in his absence, by the vice-chairman (if one has been appointed) or bythe oldest member of the Board of Directors.The chairman shall appoint a secretary and vote counter, who does not have to be a shareholder. Both roles may be performed by one person. Thechairman, secretary and vote counter shall together constitute the Committee.The chairman may form the Committee before opening the session and this Committee may verify the powers of the participants before the opening ofthe session. 12ARTICLE 29: Procedure of the meetinga) The deliberation and voting shall take place under the supervision of the chairman. The directors and any auditor(s) shall answer questions raised by theshareholders during the meeting or in writing in relation to their annual report or the agenda items, insofar as the communication of data or facts is not likelyto be detrimental to the company’s business interests or to the confidentiality to which the company or its directors are bound.As soon as the convocation notice has been published, the shareholders may ask the abovementioned questions in writing, provided that theseshareholders meet the conditions to be admitted to the meeting and that they have submitted their questions to the company at the latest on the third (3rd)business day prior to the date of the scheduled meeting as specified in the convocation notice.b) During the session, the Board of Directors has the right to postpone each general shareholders’ meeting by three weeks. This adjournment shall not affectthe other decisions that have been made, unless the general meeting decides otherwise. At the next meeting, the items on the agenda of the first meeting atwhich no final decision was made, will be discussed.c) The general meeting may not validly deliberate or decide on items which at are not included in the announced agenda or are not implicitly includedtherein. Items not included in the agenda may only be discussed at a meeting at which all shareholders are present or represented and on the condition thatthe decision is made unanimously. The required consent will be assumed if no objection is recorded in the minutes of the meeting.ARTICLE 30: Voting rightsa) Every voting share is entitled to one vote.b)If one or more shares belong to several persons or to a legal person with a collegiate body of representation, the exercise of the rights attached theretovis-à-vis the company may be exercised only by a single person designated for this purpose by all the persons entitled thereto in writing. Until this person isappointed, all rights attached to the shares shall remain suspended.c) If a share is encumbered with a usufruct, the exercise of the voting right attached to that share shall be exercised by the usufructuary, unless otherwiseagreed.d) The voting rights attached to shares pledged as a security shall be exercised by the owner-pledger.ARTICLE 31: Decision-making processa) The ordinary and extraordinary general meetings may validly deliberate and decide regardless of the number of shares present or represented. Decisionsshall be made by a simple majority of votes. Abstentions or blank votes and invalid votes are ignored in the calculation of the majority. In the case of a tie,the proposal is rejected.b) The extraordinary general meeting must be held before a notary public, who will draw up an authentic report. The general meeting may only validlydeliberate and decide on an amendment to the articles of association if the persons participating in the meeting represent at least half of the share capital. Ifthe abovementioned quorum is not reached, a new meeting must be convened in accordance with article 558 of the Belgian Company Code; the secondmeeting may validly deliberate and decide, regardless of the part of the capital present or represented. 13Any amendment to the articles of association shall only be adopted if it has received three quarters of the votes attached to the shares present orrepresented. For the calculation of the required majority, the votes of abstainers, blank votes and invalid votes shall be counted as votes against.c) Minutes shall be drawn up for each general meeting, and the attendance list and any reports and proxies shall be attached thereto.The minutes of the general meeting of shareholders are signed by the members of the Committee and by the shareholders requesting them.Copies and extracts shall be signed by two directors or by one managing director.d) The shareholders can make all decisions that fall within the competence of the general meeting by unanimous vote and in writing, with the exception ofdecisions that must be executed by an authentic deed. The holders of bonds, warrants or certificates as defined in Article 537 of the Belgian Company Codemay take note of these decisions.7. Inventory—financial statements—reserve—appropriation of profits.ARTICLE 32: Financial year—financial statements—annual reporta) The financial year of the company shall commence on one January and end on thirty one December of the same calendar year.At the end of each financial year, the accounts and records are closed and the Board of Directors draws up the inventory and the financial statements, inaccordance with the relevant legal requirements.The directors also draw up an annual report, if applicable, in which they justify their policies.b) Fifteen days before the ordinary general meeting, which shall meet within six months of the end of the financial year, the shareholders may examine theannual accounts and other documents mentioned in the Belgian Company Code at the company’s registered office.c) Following approval of the financial statements, the general meeting shall decide by separate vote on granting discharge to the directors and auditors.ARTICLE 33: Appropriation of profits—ReserveThe positive balance of the profit and loss account shall constitute the profits of the company.Of these profits, at least one twentieth is deducted in advance to constitute the legal reserve until it amounts to one tenth of the share capital.The general meeting shall decide freely on the further allocation of the balance of the profits by simple majority vote on a proposal from the Board ofDirectors.In accordance with Article 615 of the Belgian Company Code, the general meeting of shareholders may decide to allocate all or part of this balance tothe redemption of the capital by redeeming the shares drawn by lot at par.No distribution may be made if, as of the closing date of the previous financial year, the net assets of the company, as reported in the financialstatements, have fallen or would fall as a result of the distribution below the highest amount of the paid-up capital or the called capital, plus any reserveswhich may not be distributed based on a legal provision or on the Articles of Association, and Article 617 of the Company Code must be applied in this case. 14ARTICLE 34: Payment of dividends—interim dividendsa) The Board of Directors shall determine the place, time and manner in which dividends are paid.b) The Board of Directors has the authority to pay interim dividends on the profits of the financial year. Such a payment may be made only on the basis of theprofit of the current financial year, after deducting, as appropriate, the loss carried forward or after adding the profit carried forward, without deduction fromthe reserves constituted and taking into account the reserves which have to be constituted pursuant to any legal or statutory provision. The provisions ofArticle 618 of the Belgian Company Code shall continue to apply.8. Dissolution—liquidationARTICLE 35: DissolutionThe voluntary dissolution of the company may only be decided upon by an extraordinary general meeting of shareholders, in compliance with therelevant legal requirements.After its dissolution, the company shall continue to exist as a legal entity until the closure of its liquidation.ARTICLE 36: Appointment and powers of the liquidatorsa) If no liquidators have been appointed, the directors who are in office at the time of the dissolution shall be the liquidators, by operation of the law.b) If a legal person is appointed as a liquidator, the natural person representing the liquidator in the liquidation must be specified in the appointmentdecision. Any change to this appointment must be published in the Annex to the Belgian Official Gazette.c) The liquidators shall not assume their office before the Commercial Court has confirmed their appointment following the decision of the general meeting,in accordance with the provisions of the Belgian Company Code.d) The general meeting of the dissolved company may appoint and dismiss one or more liquidators at any time and by a simple majority vote. It shall decidewhether the liquidators, if there are several, shall represent the company alone, jointly or as a body.ARTICLE 37: Powers of the liquidatorsa) The liquidators are authorized to carry out all the transactions referred to in articles 186, 187 and 188 of the Belgian Company Code without requiringprior authorization from the general meeting, unless the general meeting decides otherwise by simple majority vote.b) In the seventh and thirteenth month after the start of the liquidation, the liquidators shall submit a detailed statement of the status of the liquidation, drawnup at the end of the sixth and twelfth month of the first year of liquidation, to the registrar’s office of the commercial court, in accordance with the provisionsof the Belgian Company Code. As from the second year of liquidation, the detailed statement must be submitted only once every year.c) Each year, the liquidators shall submit the results of the liquidation to the company’s annual general meeting, stating the reasons why the liquidationcould not be completed. They will also prepare the financial statements every year.d) The financial statements shall be published in accordance with the relevant legal provisions. 15ARTICLE 38: Liquidation methodAfter payment of all debts, charges and costs of the liquidation or after consignment of the necessary funds, the liquidators shall distribute the netassets in cash or in securities among the shareholders in proportion to the number of shares they own.9. General provisionARTICLE 39: Election of domicile:The directors, auditors and liquidators whose domicile is unknown shall be deemed to have elected their domicile at the registered office of thecompany, where all summons, writs and notices relating to the affairs of the company may be served.ARTICLE 40: Applicable lawThe provisions of the Belgian Company Code and other provisions of Belgian law shall apply to any matters which are not expressly specified in thesearticles of association, or to the legal provisions from which these articles of association do not include a valid derogation.Certified as a true restated text of the articles of association. 16EXHIBIT 8.1SUBSIDIARIES OF MATERIALISE NV Name Jurisdiction of IncorporationMaterialise France SAS FranceMaterialise GmbH GermanyMaterialise Japan K.K. JapanMaterialise Czech Republic SRO The Czech RepublicMaterialise USA, LLC United StatesMaterialise UK Limited United KingdomOBL SAS FranceMaterialise Austria GmbH AustriaMaterialise Malaysia SDN. Bhd. MalaysiaMaterialise Ukraine LLC UkraineRapidFit NV BelgiumMaterialise SA PolandMeridian Technique Limited United KingdomOrthoView Holdings Limited United KingdomMaterialise Colombia SAS ColombiaRSPRINT powered by Materialise NV BelgiumMaterialise Shanghai Co. Ltd. ChinaMaterialise Australia PTY Ltd AustraliaMaterialise S.R.L. ItalyACTech Holding GmbH GermanyACTech GmbH GermanyACTech North America Inc. United States EXHIBIT 12.1CERTIFICATIONI, Wilfried Vancraen, certify that: 1.I have reviewed this annual report on Form 20-F of MATERIALISE NV (the “company”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the company and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting.Date: April 30, 2019 By: /s/ Wilfried Vancraen Wilfried Vancraen Chief Executive OfficerEXHIBIT 12.2CERTIFICATIONI, Johan Albrecht, certify that: 1.I have reviewed this annual report on Form 20-F of MATERIALISE NV (the “company”); 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the company and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by theannual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to thecompany’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controlover financial reporting.Date: April 30, 2019 By: /s/ Johan Albrecht Johan Albrecht Alfinco BVBA Chief Financial OfficerEXHIBIT 13.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of MATERIALISE NV (the “Company”) on Form 20-F for the fiscal year ended December 31, 2018, as filed with theU.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Wilfried Vancraen, certify, pursuant to 18 U.S.C. section 1350, as adoptedpursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (i)the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as amended; and (ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: April 30, 2019 By: /s/ Wilfried Vancraen Wilfried Vancraen Chief Executive OfficerEXHIBIT 13.2CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of MATERIALISE NV (the “Company”) on Form 20-F for the fiscal year ended December 31, 2018, as filed with theU.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Johan Albrecht, certify, pursuant to 18 U.S.C. section 1350, as adoptedpursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (i)the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as amended; and (ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: April 30, 2019 By: /s/ Johan Albrecht Johan Albrecht Alfinco BVBA Chief Financial OfficerExhibit 23.1Consent of Independent Registered Public Accounting FirmMaterialise NVLeuven, BelgiumWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-197236 and No. 333-212445) and Form F-3 (No.333-213649 and No. 333-226006) of Materialise NV of our report dated April 29, 2019, relating to the consolidated financial statements which appears inthis Annual Report on Form 20-F.BDO Bedrijfsrevisoren CVBAOn behalf of it,/s/ Veerle CatryVeerle CatryZaventem, BelgiumApril 29, 2019 

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