MTU Aero Engines AG (OTCPK:MTUAF) Q2 2021 Earnings Conference Call July 30, 2021 5:00 AM ET
Company Participants
Thomas Franz – Vice President, Investor Relations
Reiner Winkler – Chief Executive Officer
Peter Kameritsch – Chief Financial Officer
Conference Call Participants
Robert Stallard – Vertical Research
Andrew Gollan – Berenberg
George Zhao – Bernstein
Chris Hallam – Goldman Sachs
Ben Heelan – Bank of America
Chloe Lemarie – Exane BNP Paribas
Andrew Humphrey – Morgan Stanley
Christophe Menard – Deutsche Bank
Sean Stewart – JPMorgan
Milene Kerner – Barclays
Thomas Franz
Good morning, ladies and gentlemen. Welcome to our Conference Call for MTU's H1 2021 Results. We will start with a business review presented by Reiner. Peter will provide the financial overview and a more detailed look into our OEM and MRO segment. After that Reiner will share our view on the remainder of 2021. After that, we will open the call for questions.
Let me now hand over to Reiner for the review.
Reiner Winkler
Yes. Thank you, Thomas, and also welcome from my side. Let me start with a brief overview, the review of the first half year 2021. The global passenger traffic in the second quarter shows a positive trend overall, maybe driven by improvements in domestic travel. In June, the global RPKs were down 60% versus June 2019. This was a moderate increase compared to May, resulting from a stronger domestic traffic being down 22%, but international traffic was still down 80%. For the year 2020, passenger traffic is expected to reach 52% of 2019 levels.
Domestic traffic will be the main driver of recovery, but international traffic is expected to stay roughly flat versus 2020. However, the recovery will depend on the ability to control coming COVID waves and then harmonization of travel restrictions and rules. In this recovery, the GTF engine remains one of the engine types with the highest utilization and ongoing deliveries to airlines around the globe. Since the GTF engine entered service in 2016, 1,000 GTF powered aircrafts have been handed over to airline customers. The customers are very satisfied with the engine, especially with its fuel efficiency.
According to Pratt & Whitney, the GTF engine has reduced fuel consumption of up to 20% compared to the previous engine degeneration. This equals 500 billion gallons of kerosene, saving 5 million tons of CO2 emissions since entry into service. In May 2021, MTU delivered its 500 assemble GTF engine. For the year 2021 alone, over 150 new engines are scheduled to leave the Munich plant. For our MRO segment reached another milestone in the expansion of our network. The construction of our new parts repair shop in Serbia has started in July.
The shop will have a capacity of 400,000 repair hours per year and will be operational by end of 2022. MTU Serbia will be an essential part of our ability to offer highly competitive MRO services worldwide. MTU's position in MRO market is also reflected in the latest order wins. The first six months of this year, new contracts were US$3 billion were signed, mainly for CF34 for CFM56 and CS680 engines. In the same period last year, US$1.7 billion in new contracts were collected. This increase compared to last year gives us confidence that the recovery of the aftermarket actually translates into increasing MRO activity.
Good news also for the military segment. The German parliament has cleared the way for the next steps in the development of the future combat air system and its engine. The German budget of €4.5 billion covers the research and demonstrator phase between 2021 and 2027. And last but not least for our Munich site, we are accelerating actions to make operations climate neutral by year end. This target will be reached through a variety of sustainable operational measures and high quality carbon offset certificates. Similar projects are being planned for our other German sites and will follow at our international sites.
So let me now hand over to Peter for the financials.
Peter Kameritsch
Yes. Thank you, Reiner, and also a warm welcome come from my side. Before having a look at the key financials of the first half of 2021, let me remind you that the first quarter 2020 was a normal quarter without any corona impacts. For six months, total group revenues decreased slightly to €2 billion, but the average U.S. dollar exchange rate in H1 2021 of 121 compared to 110 in H1 2020 was a considerable headwind for our sales. In U.S. dollar terms, revenues were up 7% instead of minus 2% on a reported level.
EBIT adjusted was down 15% to €190 million, resulting in an EBIT adjusted margin of 9.5%. In the second quarter of 2021, we saw the expected sequential improvement from 8.7% in Q1 and to 10.2% in Q2. In the second half of 2021, further improvements are expected and will support our margin guidance for the full year. Net income adjusted was down 16% to €135 million.
For calculating net income adjusted, we applied a reduced normalized tax rate with effect from January 1, 2021 onwards. The expected rate is now 26%, down from 29% before. We reviewed our actual and expected profit generation within our global network and came to the conclusion that this reduced level reflects the expected tax rate for the next years going forward. Our free cash flow numbers significantly improved in the first half with €187 million, and the main driver for that was improvement in the working capital position.
So now let me turn the page and provide some details on our business segments and starting with our OEM division. Total OEM revenues decreased by 14% to €700 million. Military revenues increased by 2% to €187 million. Commercial business revenues declined by 18% to €515 million. And within that, organic OE sales in U.S. dollar decreased in the 20% range. On a quarterly basis, Q2 OE sales remained almost stable compared to Q2 2020. Organic spare part sales in U.S. dollars were down by a high single-digit number. Q2 2021 spare parts revenues were up in the 50% range compared to Q2 of last year, which was heavily affected obviously by corona. EBIT adjusted came out at €113 million, resulting in a margin of 16%.
So let's move to the commercial MRO segment. Reported MRO revenues in euros increased by 6% to €1.3 billion. In U.S. dollar terms MRO revenues were up 14%. The mix between core MRO and GTFs remains roughly stable in the range of 60%, 40% in Q1 and also in Q2. EBIT adjusted decreased by 20% to €77 million, resulting in a margin of 5.7%. The lower EBIT adjusted margin results from a higher share of GTF work compared to 2020, as already mentioned in previous calls.
At this point, I would like to hand back to Reiner for some words on our guidance 2021.
Reiner Winkler
Thank you, Peter.
Based on the results of the first half year and the current outlook on air traffic and MRO activities, we can specify our guidance for 2021. We now expect total group revenues to reach between €4.3 billion and €4.5 billion. You remember, our previous expectation was in the range of €4 billion to €4.6 billion. Our outlook on the military and commercial OE sales is slightly improving. Military revenues are now expected to be up mid- to high single digit and commercial OE sales will be up low to mid-single digit. Previously we had expected them to increase only slightly.
Expectations for commercial spare parts remain unchanged. They are expected to grow low to mid-single digits. We have slightly lowered our revenue expectation for the commercial MRO business to growth of 15% to 20%. Previously, it was 15% to 25%. This results from lower volume expectations from the GTF as well as partially smaller work scopes for other engine types. Based on the above business mix, the EBIT adjusted margin should be 10% to 10.5%. Net income will grow in line with EBIT. And based on the strong free cash flow in the first half year, we have increased our expectations for the cash conversion rate to mid- to high double percentage. The expectations presented must be seen in the context of necessary containment of new COVID waves and harmonization of travel restrictions and rules. In any case, we will closely monitor the development and update our outlook if necessary during the second half of the year.
So this ends the presentation, and we can move to the Q&A session.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] And we are taking our first question and the first question comes from Robert Stallard from Vertical Research. Please ask your question. Your line is now open.
Robert Stallard
Thanks so much and good morning.
Reiner Winkler
Good morning.
Robert Stallard
I have two questions. I think the first one is probably for Peter. I was wondering if you could comment on what the sequential aftermarket revenue growth was in the second quarter versus the first quarter and how do you expect that to progress for the second half of the year? And then maybe for Reiner, looking to the second half of the year as well. Airbus is ramping up the A320, of course. And I was wondering what sort of implications this has for your staffing in the second half of the year? And also what your views are on the ability of your supply chain to keep up with the ramp? Thank you.
Peter Kameritsch
I mean, the sequential growth in Q2 versus Q1 was in the 20% range for the – for the stators in the commercial division and we expect a sequential growth Q3 versus Q2, Q4 versus Q3 again, but probably in a lower number, in the range of maybe 10% to 50% or so.
Reiner Winkler
And regarding the ramp up of the A320 family, we expect in the second half a slight increase to a rate of 40%, 43% to 44%, 45% something like that. And then in the following years step-by-step to come to the previous rates we have seen before the crisis, so something around rate 60%, rate 63%, something like that. Our supply chain is prepared for that. So we do not see any hurdles on that, any problems on that. As I said, we have seen these rates already in the past, and it should not be a problem to get it back to that rate, come back to the rates.
Robert Stallard
And staffing, can you comment on your plans of headcount in the second half?
Reiner Winkler
I think we have already ready, let's say, started with it, but as I said, it's – for this year it's a small increase and for the next year we have already – let's prepare ourselves and also the supply chain to make this happen, so no issues on that.
Robert Stallard
Okay, that's great. Thank you.
Operator
Thank you. And the next question comes from the line of Andrew Gollan from Berenberg. Please ask your question. Your line is now open.
Andrew Gollan
Yes. Hi, morning everybody.
Reiner Winkler
Good morning.
Andrew Gollan
A couple for me please. So, firstly, what was the organic decline in the core MRO activity, please? And Peter, I think you mentioned the mix of core GTF in the script. So how do you see that sort of balancing out over the next couple of years? Second question is on free cash flow, which is strong. Obviously, there was a positive adjustment in the program investments. I think it was $26 million. Could you just explain what that relates to please? And secondly, maybe if you could discuss as you do regularly the organic growth rates in spare parts by engine program in Q2 and how that trended from Q1, please?
Peter Kameritsch
So a lot of questions, Andrew. So, let me start with the MRO. So, as I said, I mean, H1 2021 versus H1 2020 total MRO organic growth was 16% and in between that that you have the organic MRO being down high single digits of 7%, 8% or so and compensated obviously by a good growth in PW1100 or GTF MRO work. Regarding spare parts sale, I mean, as I said, H1 was down something like high single digit. So the V2500 was down say mid to high 40s. The CF6 PW2000 combined only slightly down, so low to mid single digit. And obviously the GTF and others were significantly up in the something like 30% ratio, driven by obviously the first value of the spare parts, not only warranty for the GTF platform on the spare parts side. CF34 the adjustment…
Reiner Winkler
The adjustment on the free cash flow, in the second quarter we signed an agreement and combined agreements with GE and this agreement is a long-term expansion of our maintenance license, but also includes an agreement of shop visit volume for a specific engine, the CF34 engine. And therefore, it's like an entry fee, like a payment – one-time payment, and that's the reason for the adjustment.
Andrew Gollan
Okay, great. Thank you. It's very clear. Thank you.
Operator
Thank you. And the next question comes from the line of George Zhao from Bernstein. Please ask your question. Your line is now open.
George Zhao
Hi, good morning everyone.
Reiner Winkler
Good morning.
George Zhao
On the implied H2 guide, I guess, we're looking at about mid-teens incremental margins compared to about 25% this quarter and 30% to 40% in recent prior quarter. So I guess what's driving these lower incremental at a time when you're expecting a solid recovery in the high merging spares? And second question is you talked about the supply chain being prepared for the Airbus ramp up. But I guess what ramp up have you firmly committed to so far? Thanks.
Reiner Winkler
So, I mean, regarding the margin development, obviously, after H1, we have an EBIT margin of 9.5%, so we guide for 10% to 10.5%. So that implies that we are stronger than 10% in the second half of year and that the main drivers are twofold for the one – on the one hand side, we expect obviously a significantly stronger military business in the second half year. I mean, we are roughly at 190 in H1 and expect for the full year. So, I mean, if you do the math something north of 500, so the second half will be more than €300 million in military revenue, so contributing obviously good EBIT. Having a good EBIT contribution, the second thing is that we obviously expect also sequential improvement in the spare parts business. And so – and I mean more or less a flat OE business. So maybe at the end of the year, a slight increase then driven by a slightly higher rates on the PW1100, but the main reason is sequential improvement in the commercial spare parts business. So, these two are the main drivers for our higher margin expectation in the second half of the year.
Peter Kameritsch
Regarding the ramp up and commitment to Airbus, I think, I'm not 100% sure, but I think the extra commitment also is regarding the 2021 numbers. Therefore, we have a fixed purchase order. But as I said before, once they will increase the production rates until a rate of whatever 60%, 63%, we are in principle committed. The only thing is we need to a firm purchase order for that, but that's typically done in the last quarter of the year. So we expect that to be agreed then in, let's say, October, November latest this year. So – but I think for 2022, we are very much aligned between what we expect to produce and what they expect. So it's – I think that should be not any problems arising from that.
George Zhao
Thanks.
Operator
Thank you. And the next question comes from the line of Chris Hallam from Goldman Sachs. Please ask your question. Your line is now open.
Chris Hallam
Yes. Good morning, everybody.
Reiner Winkler
Good morning.
Chris Hallam
So on – more on spare parts, you mentioned the growing contribution from GTF revenue shop visits. Is there a way of scaling that for us? So sort of how much of that should that represent of total spares revenue for the year as a whole? Because I suppose the percentage growth rates are quite difficult year-over-year given the low starting point. And then second on cash conversion, it was over 100% in the first half. So could you just elaborate on some of the cash flow dynamics, which cause that to drop back significantly in H2?
Peter Kameritsch
I mean, now – what we see is now something like a high double-digit, mid to high double-digit number in absolute terms regarding spare parts growth from the GTF. So that is – that will be growing obviously in the second half year. Regarding cash flow dynamics, I mean, we are at 190, obviously in the first half year and there will be some improvement obviously in the second half year. But that means that we are going to see two headwinds, I would say, so the cash flow won't be double the H1. And obviously if you read our guidance, so, I mean, we are going to have significantly higher CapEx in the second half year. For example, we sold in the – in MLS, we sold engine. So we are in a negative CapEx position, and we think that in the second half year that we are going to see some opportunities to buy green time engines or engines, which we will tear down and extract used materials and use diffused material in our MRO division. So that purchase of engines will absorb cash.
Also as you might have read that we started our – the construction of our Serbian facility. So we're going to have – so the main portion of CapEx that will be in the second half of 2021. And we think that also working capital will move up towards the end of the year when – so MRO activities should improve, so the shops will get fuller with engines in the shop. And so, these are, I would say, the main reasons for headwinds in the second half year. But overall, I think, we can – we are quite happy with the performance in the first half year. We really were also able to collect receivables from MRO customers, so that was a good success now.
Chris Hallam
Follow up on that CapEx point. Does that sort of mean that 2021 CapEx might be elevated relative to 2022 if you got sort of some one-offs in 2021 CapEx?
Peter Kameritsch
I mean 2021 – I mean if you look at our Serbian facility, for example, then, I mean, roughly half of that – I mean, it is sort of something like €100 million investment in Serbia and €50 million will be in H2 2021, and roughly €50 million will be – I mean, that depends obviously on the exact milestones from the construction, but €50 million in H2 and €50 million in H1 in 2022 roughly. And the shop will be up and running at the end of 2022. So that is not a one-off, I would say, so that is – in 2021 and 2022.
Chris Hallam
Okay. Thank you.
Peter Kameritsch
Thanks.
Operator
Thank you. And our next question comes from the line of Ben Heelan from Bank of America. Please ask your question. Your line is now open.
Ben Heelan
Yes, good morning guys.
Reiner Winkler
Good morning.
Ben Heelan
Could you talk a little bit about the declining guidance or the decrease in guidance for MRO? I know you said lower GTFs and lower, I think, work scope on some engines. Could you just talk a little bit about what's driving the lower GTF and the lower work scope? And then second question would be, how do you see visibility in your MRO business as you're moving into the second half of the year? Thank you.
Reiner Winkler
First on the GTF volume, I mean, it's always a little bit difficult in the beginning of the year to give an exact guidance what we expect. So therefore we guided for that range of 15% to 25%. What we see actually the GTF is one of the engine highly used in the market. So the analysts preferred to use actually the modern and more fuel saving aircraft and engines. So, therefore, we see the GTF flying very intensively and in consequence we see some less shop visits, as we might have expected. At the same time, we have some warranty work to do with on the GTF. And also we see that the engine is performing a little bit better than originally expected. So not every shop visit we expected has now to happen. That is one of the reason for that.
And on the other shop visits for the, let's say, the Rafale MRO engines we serve, we see that work scope is a little bit lower than it was expected and it's mainly been less spare parts, so material. And I think that's also not an unusual situation in times like that. The airlines like to minimize the maintenance costs and they try to do as less as possible work scope in these overhauls. That's what we saw in previous, let's say, crisis as well. But it's not the potential. I mean, it's, it's, let's say instead of 25% at the upper range, it's – let's say instead of 25% at the upper range, it's now 20%. I mean, it's not a dramatic.
Ben Heelan
Okay. And then on visibility?
Reiner Winkler
I think we have a high visibility for the second half. We expect the, I would say, not in tremendous, but heavy increase in the second half, a lot of request for shop visits have been – which already in the last couple of weeks and months. So we think especially in our – for example, in our [indiscernible] facility, it will be heavily utilized in the second half of this year. That's also the reason why we stopped the short-term work in all the German facilities in summertime. So it's also done now.
Ben Heelan
Okay, great. Thank you.
Operator
Thank you. And the next question comes from the line of Chloe Lemarie from Exane BNP Paribas. Please ask your question. Your line is now open.
Chloe Lemarie
Yes. Good morning, everyone and thank you for taking my question. I have two, if I could. The first one would be on the EBIT bridge in Q2 and in particular in OEM if you could help us understand the driver for the performance. So where OE sales actually a positive year-on-year on better fixed cost absorption? Did you see significant cost saving benefits? Or does it all come down to having better spares of volume versus Q2 last year? And the second question is on Q3 trends. So I understand that on the guidance you're seeing slightly lower work scope for spares, but do you anticipate actually a sequential improvements going forward in that respect? Do you see a work scope essentially dropping in Q2? Or is it remaining pretty low for the rest of the year? Thank you.
Peter Kameritsch
Well, I mean, regarding EBIT bridge, as the main drivers definitely were – I mean, if you compare Q2 versus Q1, so the margin increase in the OEM division that we have sequentially. In Q2, the military business was stronger compared to Q1 and we have a sequential improvement in spare parts as pointed out. So in the 20% range, Q2 versus Q1, and obviously we have also a better – I mean, if you compare it to last year, at least a better cost absorption, I mean, on the cost side, nothing really happened from Q2 to Q1, but I mean, we did our – we reduced the working hours and the number of workers and so on. So our cost position is better compared to last year at least.
And now obviously when volumes are rising we have also a better cost absorption in general. But I mean, not Q2 versus Q1, so that effect is minor. So Q2 versus Q1, really the main drivers are sequentially better military business and sequentially better spare parts business. I mean Q3 trends, difficult to say. I mean we have, as Reiner pointed out, our visibility in MRO is quite good. We have also the induction pipeline is longer compared to several months ago. So there are a lot of engines waiting in front of the shop, but what you're finally going to do on the engine, you know when you open the engine and do a workscope review. So there is still some – I think the number of shop visits is quite clear what will happen in the second half, but the work scope or the material content per shop visit that is not exactly defined. So now we have a range for the full year of 15% to 20% growth. And I think that reflects more or less the uncertainty on the work scope level.
Reiner Winkler
And you have to say, again, it's not significantly smaller, the work scope. It's a little bit smaller, but not significantly.
Chloe Lemarie
Alright. Thank you very much.
Operator
Thank you. [Operator Instructions] And the next question comes from the line of Andrew Humphrey with Morgan Stanley. Please ask your question. Your line is now open.
Andrew Humphrey
Hi. Good morning and thanks. Just a couple more follow-ups on the mix and the change in guidance on MRO if I may. I think you've been pretty clear about the dynamics on PW1100, both with regard to the work scope and with regards to the big loan intensively and maybe not coming in for as many shop visits. Clearly, there's a – there had been a level of spares revenue associated with those that anticipated MRO work that had also factored into your guidance. And yet the spares guidance has been nudged up. So I wanted to ask about what is the offset to that? Are you seeing higher spares consumption than maybe you had anticipated in the earlier part of the year on V2500 or PW2000 or some of the other platforms? So that is question one.
And question two, I think you highlighted, in response to I think Chris' question, some potential opportunities to buy engines with green time on in the second half of this year. Could that indicate that we're kind of moving from a phase where planes have been grounded, that official retirements have been very low, but there are a lot of planes on the ground that probably won't fly again. Could we be moving into where we see airlines having a much better idea on what their midterm capacity requirements are and maybe we do see a bit of a tick-up in return in the second half?
Peter Kameritsch
Regarding green time engines, we do that opportunistically. So that depends on very individual plans from individual airlines on how to use their assets. Do they bring their aircraft back into service? Or do they maybe sell the aircraft or the respective engine? And so if an airline is in a financial difficult situation, we might be in a position to buy green time engines or engines at a very attractive price. And I mean, we – and what we then do is, I mean, we use these green time engine as a spare engine, let's say, for – especially smaller or midsized airlines which do not have their own spare pool or directly tear down this engine, extract the used material and use that used material for – and offer for other customers. So what I said is, I mean in H2, we're going to have maybe a market situation where we are – will be in a position to buy them. But we don't buy them at any price. So if we get the opportunity to do so, we will do that. And if not, then we don't do it. So we don't try that. We wouldn't buy engines at a very high price, obviously.
Andrew Humphrey
So it sounds like there are a couple of situations you've got your eye on rather than an expectation [indiscernible] any structural changes…
Reiner Winkler
Sure. Sure. Exactly.
Andrew Humphrey
Okay. Okay.
Reiner Winkler
On the first question, I think – I'm not sure if we get it right, but you asked about the – if you have reduced volume on GTF MRO, would that translate into less reduced volume on spare parts? No, the guidance for the spare part remains unchanged. There is no change. And as I said before, we are not talking about tremendous changes. It's some – a little bit less work scoping, a little bit less GTF overhauls, but not in a big number, that does not change our view on the spare parts guidance.
Andrew Humphrey
On spares, sorry, it was a more question of if GTF works to is a little bit lighter, what's better within the mix of kind of unchanged guidance on spares if the part of that is going better than you expected than the part the start of the year?
Peter Kameritsch
No. I mean we have – I mean that the view on the portfolio. I mean we have the PW2000, for example, performing better in the military spot, but also in the commercial spot. So some customers in the U.S. are obviously preparing for the summer and autumn season and doing shop visits on the PW2000 for the757. CF6 is also a little bit better. So it's with its big footprint, especially coming from the freighter market still. So – and if you look on the portfolio, then it's more or less stable. So we have a slightly lower number on the PW1100, but compensated by other engine programs. So – but as Reiner said, these are really small, small movements. And so overall, we come to the same final – to the same range, let's say, of outcome for the 2021.
Andrew Humphrey
Great. I think I got it. Thanks.
Operator
Thank you. And our next question comes from the line of Christophe Menard from Deutsche Bank. Please ask your question. Your line is now open.
Christophe Menard
Yes. Good morning for taking my question.
Reiner Winkler
Good morning, Christophe.
Christophe Menard
Good morning. I have three quick ones. The first one is on the guidance, change in military, the fact that you're increasing a little bit the sales. What is the reason for this? Because I would think military sales are quite predictable. So if you change this in the course of the year, it means that there may have been something new happening, more utilization of planes or I don't know. I mean that's the question?
The second is on the free cash flow. You said on the prepared remarks that working capital was better. I understand, you talked about the receivables. Is it also the consequence of inventory turns being better? Or I mean, you remember in the past, you were talking about flying hours agreements, but I'm not sure you're getting more of them at the moment. So it's a question about the component of that working capital improvement in H1?
And the last question is on the MRO, the €3 billion contract intake. It's actually – I mean, in 2019, you did €4.5 billion, so it's still a difference, but it's still – I mean, it's a nice performance, I would think, in this H1, can you comment on pricing on mix? I mean, what is different versus 2019 in terms of the contract negotiations at the moment?
Reiner Winkler
So maybe I'll start with the military question, regarding the military business. The main driver for that is the approval now of the German government of that FCAS program, Future Combat Air System. When you make your budget in your first forecast, you do not know exactly when it will be approved and what is then the impact on the prepayment – on the revenues for the first couple of months. And that's now cleared. It has been approved in, I think, June. And therefore, we have no clarity that the first revenues will be done also in 2021, and that's the reason for the slight increase of the guidance in the military business.
In the MRO contract wins, yes, you are right. 2019 was a better one. But you have to remind that we are still not – the crisis is not behind us. I mean we are still in that. And for – in this situation, I think €3 billion contract wins is a good result. And 2019 was also a record year regarding new contract wins in MRO. Pricing and terms and conditions, I would say it's quite similar to what we have seen in the campaigns in the past Working Capital...
Peter Kameritsch
Working Capital, I mean I would say it's twofold. On the one hand side, in the OEM division, we will continue to see falling inventories that has to do with the supply chain. So it takes quite a long time to adjust the supply chain coming from the rate 63% in Q1 2020 to a rate, let's say, 40% to 45%. So we're going to be regarding inventories there at the end of 2021. So you can expect in the OEM division further falling inventories, probably compensated by rising inventories in the MRO division. So when we see and that is the expectation, a rising volume of MRO when you have more – a higher number of engines in the shop. So that is obviously inventories and also a higher level of spare parts on stock because you have to prepare for these shop visits. So that is in the MRO. Inventories will rise in the second half of the year. And so overall, what will be the impact in 2021 is that we're going to see falling receivables, so a collection of receivables, which were there at the end of 2020 and probably not there in 2021 at the end. So that overall working capital should be a small tailwind in this year.
Christophe Menard
Okay. That’s very clear. Yes. So for the answer on the MRO contract. I was meaning it was an impressive performance, actually, not because €1.7 billion last year and €3 billion this year, is actually a nice improvement. And that's really in asking about pricing. May I just ask another question on repairs. Are you seeing a lot of repairs at the moment or more repairs, more demand from repairs on shop visits? Or is it stable?
Peter Kameritsch
Now it's very similar. I mean the level of repairs you do on an engine is rather depending on the engine platform. So for newer engines, let's say, for the PW1100, you don't have a lot of repair. So you rather exchange parts. So you get the engine in the shop, you disassemble it and exchange parts and then you test it – assemble it, test it and send it back to the customer. On older engines, especially when a customer, let's say, wants to have an engine to operate only for two more years, you rather build in, let's say, used material, if available, or you do repairs. So that was also the reason or the case before the crisis. That has not changed significantly, I would say.
Christophe Menard
Okay. Thank you very much. Thank you.
Operator
Thank you. And the next question comes from the line of Sean Stewart from JPMorgan. Please ask your question. Your line is now open.
Sean Stewart
Hi. Good morning, Reiner, good morning, Peter and Thomas. I just had one question on tax, please. Could you just tell us what was driving the reduction in the normalized rate to 26% in H1? And did you say earlier on the call that you expect that 26% normalized rate to persist in the coming years, please?
Peter Kameritsch
Exactly. I mean that is the expected – I mean you have all this deviation from the expected tax rate. If you have, let's say, deferred tax assets up or down or so. But – so if you don't have, let's say, special items on the tax line, then there is the expected tax rate. I mean we did a review on the global, let's say, EBIT generation. And as you know, we have some earnings coming from the U.S. region where you have a lower tax rate in the, let's say, 20% region you have in Germany, a rather high tax environment like 32%, 33%. We have also EBIT generation out of our Polish facility, where you have 19% tax rate. And where we have, for example, the up share of the V2500 is allocated in Poland. We have added the lease core, the leasing company from PW1100 being allocated in the U.S. And so if you look on the EBIT generation in the worldwide network, then for the 26% is going forward for the next, let's say, two, three, four years is the expected tax rate going forward there. So that will, if nothing big happens, that will persist for the next year or so.
Sean Stewart
And just as a point of comparison, that's – I mean, historically, it's been around 29%.
Peter Kameritsch
19%, exactly. So it was two, three years at 29%. And before that, we were at 30% or 31% even. So it's it comes – it goes down slightly.
Sean Stewart
Okay. Thank you very much.
Peter Kameritsch
Thanks.
Operator
Thank you. And the next question comes from the line of Milene Kerner from Barclays. Please ask your question. Your line is now open.
Milene Kerner
Yes. Hello. Thank you for taking my question. Hello Reiner, Peter and Thomas.
Peter Kameritsch
Hello.
Milene Kerner
So the first question is on the trend for the commercial new engine sales. Could you comment on the sequential trend you saw in Q2 compared to Q2? Then my second question is on the sequential impact that had on your profit in Q2 versus Q1. And then my last question is on the outlook for the rest of the year in terms of the profit impact given that you have upgraded your commercial OE full year outlook? Thank you.
Peter Kameritsch
I mean Q2 versus Q1 was relatively stable. So I mean we had the downward adjustment of the rate, obviously, as you know. So since Q2 2020, Q3 2020, we are at a relatively stable output level on the PW1100, and that is also true up till now on the GEnx engines for the Boeing 787, which are the main contributors to our OE sales. And sequentially, yes, maybe we're going to see a slight increase in Q4, reflecting the higher output number on the Airbus side. That has obviously a small negative impact. But that is all baked into our guidance. So we still expect for the full year the 10.5%, obviously, EBIT margin. And sequentially in H2 for the OEM division, also a better margin.
Milene Kerner
Thank you, Peter for all the comments. And also just to come back on to GEnx. I mean, compared to the current rates at Boeing, what level are you producing right now under GEnx?
Peter Kameritsch
I mean, we are supporting something like a rate 5 or 6 at Boeing. And let's see, I mean, what could obviously happen is that there are going to be some delivery problems at Boeing to the customer, due to the technical problems they have. That would mean – that is – that could mean a slightly higher working capital level, but not meaningful. If engines are not shipped to the customer or the aircraft with the engines are not shipped to the customer in due time, so you don't get the money in 2021. But that is one of a lot of moving items in the working capital line, so nothing significant.
Milene Kerner
Okay. Thank you.
Peter Kameritsch
Thanks.
Operator
Thank you. This was our last question. May I hand over for closing remarks?
Thomas Franz
Thank you, Anette, and thanks for all – to all for joining this call and for all your questions. If you have further interest contact the IR team, we are there. And yes, despite that, have a good remaining day and already a good weekend. Bye-bye.
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