Good day, ladies and gentlemen, and welcome to IMAX China's full year 2019 earnings conference call. All participants are currently in a listen-only mode. Following the presentation, we will conduct a question and answer session. To ask a question, please press star one on your telephone keypad. To remove your question from the queue, press star two. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Matthew Gold from investor relations. Please go ahead.
Good morning, everyone, and thank you for joining us on IMAX China's full year 2019 earnings conference call. Joining me today on the call is our Chairman, Rich Gelfond, CEO, Edwin Tan, and CFO and COO, Jim Athanasopoulos, who will have prepared remarks. Also joining us on the line is Karen Chan, Vice President of Investor Relations, who unfortunately couldn't be with us in person today. For the purpose of this call, all financial figures will be provided in U.S. dollars unless stated otherwise. Furthermore, the financials we provide to you today will follow IFRS accounting standards, which may differ in some respects to U.S. GAAP. I would also like to remind you of the following information regarding forward-looking statements. Our comments and answers to your questions on this call may include statements that are forward-looking and pertain to future results or outcomes.
Forward-looking statements involve a number of risks, uncertainties or other factors beyond our control. Actual future results or occurrences may differ materially from those forward-looking statements. We are under no obligation to and expressly disclaim any such obligation to update the forward-looking statements as a result of new information, future events, or otherwise. The full text of our full year 2019 earnings release, along with the supporting financial statements and slide presentation we have prepared for this call, are available on our website, imax.cn. Today's conference call is also being webcast in its entirety on our website. With that, let me now turn the call over to Rich Gelfond. Rich?
Thanks, Matthew, and good morning, everybody. In 2019, IMAX China hit new records across multiple metrics. Our industry-leading performance reflects our unrivaled position as the go-to cinematic experience. The success of our strategic initiatives, in particular local language programming and our rising commercial value to studio and exhibitor partners. In 2019, we achieved record revenue of $124 million, up 5.8%, and record adjusted net income of $45 million. An all-time box office high of $366 million, up 8.7%, or up 14% in local currency in mainland China, significantly outperforming industry growth of 5%. Stable same-store sales in local currency against network growth of 12% that included 717 total theaters by the end of 2019. Before I continue, however, let me first address the current situation of the coronavirus.
Our thoughts remain with the people of Wuhan and greater Hubei province, the medical personnel on the front lines in the rest of China, as great steps are taken and sacrifices continue in the all-out effort to contain the spread of the virus. We wish a swift resolution of this issue. As it pertains to our business, the safety of our employees and Chinese audiences remains our top priority. IMAX China and IMAX Corporation strongly supported the decision to postpone the release of the Chinese New Year film slate and closure of theaters across the country. Since January 24, more than 70,000 screens, including all of our IMAX screens in mainland China, have been temporarily closed. We believe it was the best course of action in an unfortunate situation.
We also believe this unfortunate black swan event, when it ultimately stabilizes, will not impact the long-term strength of the IMAX China business, given our strong franchise, proven offering in the market, and China's strong demand for quality content and social entertainment experiences. Our belief is that when it is safe to do so, Chinese consumers will be eager to get out of their homes and return to shopping malls and cinema complexes for out-of-home entertainment, driving a positive rebound in box office, similar to what was observed in Hong Kong post-SARS epidemic in 2003. The repercussions of this health crisis in China will have a material impact on the first quarter of 2020. Given the dynamic nature of the circumstances, it is difficult to predict when the impact of the coronavirus outbreak in future reporting periods for 2020 may also be material. This will depend on future developments.
However, assuming the resumption of business in the near future, we believe the four of the Chinese New Year titles we were slated to program over the holiday will ultimately be released later this year and possibly on separate dates to avoid direct competition with each other and optimize box office. As for installations, our schedule tends to show very strong seasonality towards the second half of the year, with the first quarter historically being our slowest quarter, contributing only single-digit percentage to our full-year installs. At this time, however, the ultimate financial impact on 2020 and duration of theater closures cannot be fully ascertained. When normalcy returns to the market, we believe some of the structural trends we witnessed in 2019 that gave us the ability to outgrow the industry throughout the year will continue.
These trends included bigger budget local productions that lend themselves to IMAX China, positive returns from our multi-release strategic initiative, and the unique value of IMAX China in the entertainment ecosystem. In 2019, we saw consolidation towards high-quality movies, with the top 10 grossing titles contributing close to half of the total industry box office in 2019. With IMAX China widely regarded as the destination for blockbusters in China, this plays to our advantage as Chinese consumers seek out premium content and entertainment experiences. On the supply side, we saw improved quality of local content and, more importantly, a gravitation towards genres that lend themselves to the IMAX experience. Rising production value also allows local filmmakers to embrace more audiovisual elements and the use of technology, both important to IMAX.
We are pleased with the success of the strategic measures taken over the past two years, focusing on local language and multi-film programming. This was reflected in 2019 by our high hit rate, with nine out of the top 10 grossing Chinese titles available in IMAX. We also set a new record of $109 million in local language IMAX China box office, up 15% year-over-year. Our strong relationships with filmmakers and studios, as well as our ability to introduce IMAX DNA into the filmmaking process through our cameras, has been a cornerstone of IMAX China's ability to program optimal content every week of the year.
In 2020, we anticipate releasing at least five titles that were filmed in IMAX, including local title, "Detective Chinatown 3," and Hollywood tentpoles, "No Time to Die," "Wonder Woman 1984," "Top Gun: Maverick," and Chris Nolan's latest sci-fi film, "Tenet." The early involvement of IMAX technology during filmmaking has provided studios a powerful marketing hook and a more immersive experience for audiences, which has typically translated into a greater share of box office for IMAX. A good example was the record-breaking performance of "Avengers: Endgame." Shot entirely with IMAX cameras, the film generated $83 million in IMAX China box office, representing 13% of the film's total box office on just 1% of the screens.
Looking out even further, 2021's Hollywood slate of blockbusters appears to be one of the biggest in years and includes the latest installments of "Spider-Man" and "Thor," the anticipated new "Batman" film, sequels of blockbuster franchises, including "Fast X," "Mission: Impossible," "Jurassic World," and of course, James Cameron's "Avatar: The Way of Water," succeeding "Avatar," which was a huge success in China. We also hit key milestones in our network expansion, reaching 717 total IMAX theaters by the end of 2019, along with 64 signings, an increase over the prior year. Our contractual backlog of 253 theaters remains robust and provides visibility into our future installation pipeline. Our focus on driving network expansion in the most capital-efficient way has not changed.
We continue to grow our network across tier one to five cities while working to optimize the install mix between full sales and revenue-sharing arrangements, and in certain cases, with minimum box office requirements. This helps to minimize our risk while maximizing our monetization upside. In a time when audiences have nearly infinite entertainment choices, we believe innovation and a differentiated social experience will continue to keep us at the forefront of our industry. Since our IMAX with Laser rollout in late 2018, we have seen strong demand from exhibitors driving both new installations and upgrades, including our 40-theater deal with CJ CGV. As of year-end, and a little more than one year after we started to roll out the new technology in China, we have installed a total of 40 laser systems in China.
The strength of our brand, technology, and distribution work also allows us to create new global experiences of content consumption across a wider spectrum of genres beyond movies. In China, the largest fan-based economy in the world, we are looking into vast alternative content opportunities to drive utilization and extract even greater value from existing infrastructure and global platform. Our industry-leading position, financial strength, and strong debt-free balance sheet provides us financial stability to withstand short-term volatility. On behalf of the board, IMAX China announces a proposed annual dividend of USD 0.02 per share, or the equivalent of HK$0.156 per share, representing a payout ratio of 33%, consistent with prior years. Lastly, I would like to take the opportunity to thank Jiande Chen, our first and long-standing CEO of IMAX China, for his contributions in growing IMAX China into the nation's largest premium entertainment network.
Under Jiande's continued support as vice chairman and the leadership of our new CEO, Mr. Edwin Tan, who has brought with him wealth of experience across the entertainment, exhibition, and event service industries, we are confident that IMAX China remains well-positioned for sustainable, profitable growth, building on our most formidable assets, our premium brand, our people, our industry-leading technology, financial strength, and most importantly, our strong commitment to operational excellence. With that, I would like to now pass the call to Edwin for his first public remarks since assuming the role of IMAX CEO.
Thanks, Rich. A very good morning to everyone. I am excited to join IMAX China as its new CEO at a point when we reach a 717-theater network and a 366 million box office milestone, an achievement that proves the power of IMAX as a leader in immersive entertainment. Our outperformance versus the industry in 2019 reflects our market share gains across both Hollywood and local titles. With a gross box office market share of 4%, we are punching above our weight considering that IMAX China accounts for only 1% of all screens. The success of "Ne Zha" and "The Wandering Earth," which are now the second and third highest grossing titles in China's film history, illustrates how IMAX can evangelize a local movie, laying a strong foundation for improving our indexing on local films.
We achieved close to 10% of the box office indexing of "The Wandering Earth" and accounted for approximately 8% of the box office of "Ne Zha" in their respective opening weekends. Local filmmakers are beginning to better understand how they can leverage IMAX technology to differentiate their films, unlock their creative talents in diversifying genres, as well as access our global network in 81 countries. We are seizing this opportunity to inject more IMAX DNA into our film slate, creating a tangibly different experience that is exclusive in IMAX theaters. We believe this will ultimately translate into higher indexing, including "Detective Chinatown 3," shot entirely with IMAX cameras. Another local language title, "The Rescue," was also exhibited in special aspect ratio exclusive to IMAX theaters. As Rich mentioned, we believe these highly anticipated titles will be rescheduled later this year at a time that will optimize box office.
Like what has happened in Hollywood, as China local IP franchises develop and as film slates become increasingly empowered with IMAX DNA, we believe our value proposition to consumers, filmmakers, and exhibitors in China will be further strengthened, putting us in an advantageous position to maximize box office growth and increase market share for the foreseeable future. Our record-breaking National Day holiday performance, with both box office and attendance more than doubled, speaks not only to the strength of the IMAX brand, but also consumer demand for high-quality content and the differentiated cinematic experience, be it Hollywood or a local movie, the latter of which we view as an attractive opportunity with local language representing only 31% of our total box office. IMAX China already owns the nation's largest premium entertainment network with a much more diversified customer and geographic representation than when we first started.
I look forward to leading the company, building on and beyond what we have accomplished, and delivering sustainable, profitable growth for our shareholders. Again, on behalf of all IMAX China employees, I want to extend our thoughts to the people of Wuhan and greater Hubei province and throughout China during this difficult time, and our support in their brave fight against this outbreak. With this, I would now like to pass the call to Jim for a review of our financial results. Jim?
Thanks, Edwin, and good morning, everyone. Sharpening our focus on the core business through operational improvements in 2019, we generated record revenue of $124 million, up 5.8%, or up 10% in mainland China on a constant currency basis. Record adjusted EBITDA of $68.8 million and adjusted net income of $45 million. Record box office of $366 million, up 8.7% year-over-year, or 14% in RMB terms in mainland China. While our network continued to expand by 12% in 2019, same store sales remained stable in local currency.
Looking at our full year results in more detail, let's begin with our network. We signed agreements for 64 new theaters in 2019, exceeding prior year signings of 60. Broken up by deal type, 21 of our signings were sales, including one sales upgrade, and the remaining 43 signings were under our hybrid revenue sharing model, many of which include a minimum box office requirement. We ended the year with a contractual backlog of 253 systems, providing visibility to future installations. Turning now to our installations, we installed 95 theaters in 2019, including 83 new installations and 12 laser upgrades. Of these new installations, 27 were for sales, 16 were for hybrid revenue share, and 40 were for full revenue share. In addition to these new installations, we installed one sale laser upgrade, bringing our total sale installations to 28 compared to 27 in 2018.
We saw a balanced mix of representation by tier of cities and currently expect an increase in contribution of new installs from tier 1 cities in 2020 compared to 2019, subject to the outbreak. We also saw strong customer demand for our new laser technology, with 12 laser upgrades and 16 of our new installs being IMAX with Laser. We exited the year with a total of 40 laser systems in China. Moving to our new business segments. Our network business revenue reached $53 million, up 11% year-over-year, and was driven by our 8% increase in gross box office and 30 basis point improvement in net take rate. We programmed 44 films in mainland China during 2019, 30 Hollywood and 14 local language.
Our network take rate was up 30 basis points, 14.5%, mainly driven by increased box office contribution from our revenue sharing network and local language titles. We expect our take rate to see further upside in the long term as local titles account for a rising mix of our box office. Network business margin of 66% was up 60 basis points from the prior year, benefiting from the inherent operating leverage of our network business. Our theater business revenue was up 2% year-over-year to $71 million. The revenue increase was the result of higher maintenance revenue from a larger network of theaters and two incremental hybrid installations, partially offset by lower sales revenue due to a higher revenue but lower margin GT Laser system installed in 2018 and one sales install using a redeployed system in 2019.
Excluding the GT Laser and redeployed system, average revenue per system increased to $1.4 million in 2019, up from $1.3 million in 2018, due to eight additional IMAX with Laser installs during the year. Theater business margin of 59% declined primarily due to increased equipment costs related to 15 IMAX with Laser sale installations. As with any new technology, we expect cost to scale down in the future as we continue to roll out more laser theaters. In addition, we intend to recoup higher recurring economics, including increased box office take rates and maintenance fees over contract terms. Maintenance margin was 60%, mainly due to the timing of certain higher cost replacements for parts during the period. As we gain market share box office with continued network expansion, we saw a rise in contribution from recurring revenue, predominantly box office and maintenance base up 61%.
The higher recurring revenue mix enhances our business visibility and speaks to an increasingly well-balanced revenue structure. Our total gross profit was $77 million, up 2% year-over-year with a gross margin of 62%. Moving to operating expenses, SG&A excluding stock-based comp was largely flattish at $14 million, accounting for 12% of total revenue. Adjusted EBITDA was up 6% year-over-year to $69 million, representing a stable EBITDA margin at 55%. We remain committed to cost discipline to enhance the inherent operating leverage of our model. Adjusted net income came in at $45 million, up 1% from last year with net income margin of 36%. We ended the year with a cash balance of $89 million, which reflects the investment in Malian of $15 million, share repurchases of $19 million and dividends paid of $14 million.
Our business is becoming less CapEx driven on the back of rising scalability, with network expansion CapEx down to $19 million in fiscal 2019 from $24 million in 2018. Consistent with prior periods, we are pleased to announce the recommendation of a final dividend payment of approximately $7 million or $0.02 per share, or the equivalent of HKD 0.156 per share, representing a stable payout ratio of 33%. Between buybacks and dividends, we returned approximately $33 million to shareholders in 2019. We intend to continue to review our policy in 2020 in the context of the ongoing business environment. As Rich indicated, the ultimate financial impact on 2020 of the coronavirus and duration of the theater closures cannot be fully ascertained.
While we will continue to work closely with our partners in preparation for when the outbreak subsides and theaters reopen, given the situation is still evolving, we cannot provide guidance at this time for 2020. We intend to provide more information related to installation guidance when the situation has further stabilized. That said, we expect any impact to our business to be a one-time temporary event, and we remain optimistic and committed to the long-term growth potential in China. In summary, while we face challenges in early 2020, we look forward to building on our 2019 performance and remain confident in the underlying strength and long-term health of our business. With that, I will now turn it back to the operator for Q&A.
Thank you. At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad. If you are calling from a speakerphone, please make sure your mute function is off to ensure your signal can reach our equipment. Again, star one to ask a question, and I will pause for just a moment to give everyone a chance to signal. It looks like first we will go to Timothy Lee from CLSA Limited. Your line is open.
Hi. Can you hear me?
Yes.
Hello? Yep. French Management for-
Yes
The call. Just one quick question for Rich. During the Chinese New Year, of course, most of the movies which planned to exhibit during the period are actually delayed. But just one movie actually chose to show on an online video app. I am not sure whether this will show as a new distribution channel in the future, and that could be a potential disruption to the traditional channel of movie disruption in the future. I am not sure where the management went and if you want that. Thanks.
Yeah, I do not think that is a significant risk, Timothy. Pretty much what happened, as you know, are no movies could open in theaters, and that particular movie had a lot of money out on the line and could not really take the risk of waiting for when this all opened up. The director had a relationship with a nascent streaming service in this area, and they reached an agreement to do that. But, as I understand it, both China Film and the exhibition community in China reacted quite negatively to that, to the point where I think he is going to have difficulty playing some of his other movies in the future. We have been told that that is certainly not government policy, so we do not see that as a significant risk.
Okay, that is more like a one-off issue?
Yes. I mean, the combination of the coronavirus, every theater being closed, there were fairly unique circumstances.
All right. Understood. Thanks so much.
Next, we'll take Xueqing Zhang from CICC. Your line is open.
Thank you, management, for taking my question. I saw that the gross profit as well as the GP margin for theater business was lower in 2019, compared with 2018. Could you please address more on those numbers? Thank you.
Jim?
Sure. We installed 15 laser systems this year that have a higher cost base, versus seven laser systems last year. That was one of the main reasons why you saw gross profit margins down in our theater business, and then ultimately going down to our bottom line. Overall, though, everything still remains stable. But that is the main reason why.
Over time, it was a new product. Those costs of goods will go down, and you should see them closer to what our margins were on the previous system.
Thank you. Actually, I have got a second question. Before the coronavirus epidemic, people were talking about a slowdown of the new cinema construction in China. Do you think this will impact our new screen installations going forward?
I will start, and then you fill in, Jim. We have a fairly significant backlog in China. Number one, what is the number, Jim?
250.
250. We have things going on for the next couple of years. A short-term fluctuation is not going to have a material impact. The other thing is that we have a lot of prospects going on, people we have been talking to, lots of new developments going up. The final thing is, we revised our addressable market statistics towards the end of last year. Just trying to get the number. Do you have.
1,400.
1,400. Including the backlog, we have just shy of 1,000
That is correct.
theaters. We believe we have a fairly long runway still to go.
Okay. Thank you very much.
It looks like next we will go to Ken Chong from Jefferies. Your line is open. Ken, your line is open. You may want to pick up the handset or unmute the phone.
Oh, hi. Thanks for taking my question. Can you hear me now?
Yes.
Hello? All right. Okay. I just wanted to ask about the installation. I understand now it's hard to give a firm guidance, but I'm just wondering, do we have any internal assumptions? For example, if the virus can be controlled in May, then how many installations can we do? What about other scenarios? Also, I just want to get a sense on how many more laser systems do we want to install in the next few years, and how would that impact our gross margin going forward? Thanks.
On your first question, the answer is yes, we do have internal forecasts. Those forecasts are dependent on when the theaters reopen and how fast people go back. Since we don't know the answer to that and we can't control it, we made the decision that it doesn't make any sense, since we don't know any more than you do, to disclose those at this time. We have significant planning and we have efforts, when the situation gets back to normal, of how to reopen the theaters, and plans, but it's not appropriate to disclose them at this time. Jim, the second question.
Yeah. Taking your second question. Our laser system has been well-received. We signed 64 theaters this year in total, those laser roll. Overall, we mentioned, while our costs may be up, we expect those costs to come down about more theaters, and we get some scalability with it. Also, what we reported is our average revenue per system so far is $2.3 million. In the past, to kind of recover the additional costs, either upfront take rates or other mechanisms that may have some short-term issues on gross profit. Overall, as I said, between how us achieving higher upfronts or higher take rates in the long term, we're really excited about it. I think that's evident. It's better than the theater got in backlog as Rich described.
All right. Got it. Thank you.
Thank you.
Next, we'll go to Ellie Jiang from Macquarie. Your line is open.
Thank you, management, for taking my question. I just have a quick one on your comment regards the more revenue contribution later on to tier 1 cities. I just wonder, what would be your comments in regard of the potential addressable market in tier 1 cities and in terms of the densities of the theaters? Do you have any comments regarding that? Thank you.
Yeah. Our comment was based on looking at our backlog and looking at the number of theaters that were slated to go into tier 1 cities. We've actually seen, right now about 15% of our network is in tier 1 cities, and we just thought it was important to kind of identify that there is still opportunities in those markets. We talked about same-store sales stability. We talked about having a record year in terms of box office. Average ticket prices are up. There's lots of opportunities to continue to grow in those particular markets. A lot of it is content-driven. As we kind of grow our content portfolio and perform even better on local language films like we did last year, I think you're going to see that translate into more box office and more theaters, and in particular in tier 1 cities. We're seeing continued growth there.
Again, that's sort of evidenced by our backlog and our activity to date.
What percentage of the backlog is in tier 1 cities? Just wondering.
Right now it's about, I think it's a little bit more than 15%, Ellie.
Okay, thank you.
Again, if you would like to ask a question, please press star followed by the number 1 on your telephone keypad. Next, we will go to Eric Yu from CCB International. Your line is open.
Hey, good morning. I have a question. I know right now it is difficult to give a guidance about the box office. Regarding to the new screen installation, I want to ask what a view towards this year's and/or next year's installation, and will it change from previous trend about the same as last year? Or will it lower as cinema operators may see that some risk from certain movies turning to the online platforms or maybe few people will come to cinemas due to the relatively weaker pipeline comparing to last year? Thanks.
Well, first of all, we are not going to give guidance on that because we do not know when the theaters are going to reopen and when people will be allowed back in to do construction and things like that. As I said in my remarks, our installations are typically back-end loaded in the second half of this year, so it is premature for us to see whether there is any impact. As with the other question, we have detailed schedules, and we will just have to see once this all lifts off what that means, and we will get back to you. We will disclose exactly what we think when we are in a position to do that. In terms of movies going online, there is virtually no history in China of blockbuster movies going online. It just does not exist.
There was one movie, which during the worst health scare in years in China, went online for a lot of nuanced reasons I went into before. But it's pretty clear that at this point, the government certainly doesn't support that policy, so we don't think it's going to have any impact on our pipeline. Do you want to add anything, Jim?
Yeah. I think online opportunities have always existed. At the end of the day, audiences go to the cinema to sort of experience something different. This year was a perfect year, even with all the screens out there, even with all the streaming services out there. We are hitting, as I said, record box office. We are performing exceptionally well in the biggest titles of the year. "Avengers," "Ne Zha," "The Wandering Earth," whatever else that may be. Going to the cinemas is a social entertainment. It's an experience, and I think that hasn't changed at all. As Rich indicated, this situation was very unique. The film was very unique, and it was a unique period. Chinese New Year catered very well to that period, which is probably one of the other driving forces to it getting released online.
I don't think the fact that it got released has changed anything. We felt very confident going into this year as to how we've performed with all of the streaming things that have been going on. We feel that the content that's going to get created is going to cater to us in the future and will perform well when we get out of this issue with the virus.
Okay. Thank you. Just one further question, because this coronavirus is kind of temporary, but do you think it will impact the financial condition of certain cinemas to let them to defer or shrink their purchasing even after the virus thing's finished? Do you have some view on that?
Again, we do not want to pretend to be experts on Chinese cinema. On the other hand, it is our understanding that the government is going to go out of its way to be supportive to businesses that have been affected by the virus. We have read different things like, in terms of dealing with things like tax rebates or different taxes, all kinds of things to make sure that this temporary situation does not affect the Chinese economy. Unless it is a one-off situation that you are referring to, we do not think that is part of a trend.
Okay. Thank you.
Again, if you have a question, please press star, followed by the number one on your telephone keypad. Star one, and I will pause for just a moment to give everyone a chance to signal. Next, we will go to Sarah Wang from Morgan Stanley. Your line is open.
Thank you. Thank you for taking the question. I just want to ask management's view maybe on second half box office. Industry-wise for the IMAX films. We have seen that several blockbusters were originally scheduled to release during Chinese New Year, but now were withdrawn. If we assume those films are released in second half, what is the box office assumption we make? Will it be lower than if it was released during Chinese New Year? Also in second half, maybe based on our past experience, how do we think the rebound of box office in second half, especially after people have been staying at home for almost first quarter or even first half of 2020? Thank you.
There really aren't a lot of analogies. But if you look at Hong Kong after the SARS epidemic, the first half of the year was down, and then the second half of the year was up in a fairly significant way. Whether that happens or not, and you can argue that people have been staying alone in their homes and cooped up, and there are good reasons for them to want to get out, and obviously we don't know, but the parallels in Hong Kong suggest that people may want to get out of their homes. The second point about the slate, you've got a lot of films that were supposed to be released early in the year, both Hollywood films and Chinese films, and they're going to be released later in the year.
On the one hand, they may earn less because they may have shorter play periods and more competition. But if you're showing those films, there'll be a lot more opportunities at that point. And you could see a situation depending when they open, where every week or two there's a blockbuster of some kind. I think, there's reason to think the second half box office will rebound. But again, we're not giving guidance because we just don't know.
I see. Thank you.
Next, we'll go to John Choi from Daiwa. Your line is open.
Hey, thanks for taking my question, guys. Just a couple of questions here. Just follow up on the gross profit margin. I know we are in a difficult time, but I think, Jim, you mentioned from the laser installment was one of the key reasons why it was down last year. But looking ahead, excluding that impact, and I know that box office essentially, it is correlated to profitability, but let us assume it is normalized in the second half, how should we think about the profitability apart from some of the factors I just mentioned? That is number one. Second is about your slate with the Chinese films. Last year in 2019, we had a few successes, "Queen Wonder World" and "Ne Zha." With your relationship with the movie producers, have you guys have a better visibility?
In terms of the slate, what kind of efforts are you putting into in order to maximize the box office with these Chinese partners? How much do you think that will contribute in the remaining part of the year in terms of box office? Thank you.
The second part of your question about the films, we were extremely optimistic about Chinese New Year, and our tracking for that period was significantly above what our internal budget was. We thought there were a lot of good films there, and as we said earlier, those films will release later in the year. The second thing is, given our success on local language last year with "Ne Zha" and "The Wandering Earth" and other things, the studios have really sought after us in the last period of time wanting to premiere their blockbusters in IMAX. Again, we do not know when they are going to resume production. That is out of our control of knowledge. But just looking at what we do know, I think there is reason to think there would be some very good movies coming out the second half of the year.
Then you have the Hollywood movies, including the ones that will be pushed back. So I think we feel pretty good about the slate. As we said in our remarks earlier, the box office was up 5% in China. In local currency, we were up 14%. So I think there is lots of reasons to feel good about it once we are out of the current situation.
And just jumping into the margin question again. So overall, our margins were 61.7% in 2019. Again, we installed more laser systems. We expect to continue to install more laser systems going forward. As we mentioned earlier, recoup some of the additional costs associated with that via other upfront, whether recurring revenue in a percentage rent and so forth. So, we are taking a balanced approach to this. For instance, we have deals in place where it is a combination of laser systems in certain cities and xenon systems in other cities. So we are just continuing to review that overall. But overall, nothing has changed in our business. The long-term trend market expansion remains intact. Again, in terms of how it works and in terms of our fixed cost structure with respect to the film side of the business, the scalability of our maintenance side of our business.
Again, overall, the laser side of the business, as we mentioned earlier, we have a higher revenue per system that we had in 2019, and we are hoping that is going to continue in the future as we continue to roll it out and we get some more scalability from it.
Again, if you have a question, please press star, followed by the number one on your telephone keypad. I will pause again to give everyone another chance to signal. All right. It looks like we have a question from Javier Lao from Goldman Sachs. Your line is open.
Hi. Congratulations, management, on the good results in 2019, and I hope that the current difficulty will pass soon. I have a question about the dividend as you announced for the fiscal year 2019. You will pay roughly 33% of the earnings, and that would be roughly HKD 7 million. So may I know what is the usual guidance of the payout ratio in the next couple of years?
Yeah. So at IPO, we have had a consistent payout ratio of 33%. We bought back a lot of stock earlier in the year as well. So we returned a lot of capital to our shareholders in 2019. This is sort of a unique time in terms of what is going on. We are going to continue to review. First and foremost, the important thing is to kind of expand our network to focus on business opportunities that could complement our network that may make sense from a return perspective. We are going to continue to review our capital deployment strategy, including everything in terms of dividends and buybacks and other things like that. But right now, it is consistent at 33%, and we thought it was a prudent way of continuing going forward, and we will sort of see how things go. It gives us some flexibility as we go forward.
At this time, I would like to turn the call back to Rich Gelfond for closing remarks.
Thank you, operator, and thank you, everybody, for joining us. It is obviously a mixed time for us. The results in 2019 were extremely positive, and I really want to credit IMAX China's management team with engineering outstanding results in 2019. Like many of you on this call, we went into 2020 feeling very excited about this year. Unfortunately, the circumstances around the coronavirus forced the shutdown of all cinemas in China, including ours. Long-term, we could not be more excited about our business. We think we have a unique place showing blockbuster movies. We think our brand is incredible. We have a loyal fanboy/fan girl following in China, and we just have to get through this period of time. So, we are trying to be patient.
As I said at the beginning, our priority is the health and safety of our workers and colleagues and employees and customers, and thank you for your support.
And that concludes our call for today. Thank you for your participation. You may now disconnect.