Dyson profits double thanks to R&D investment

The vacuum cleaner giant is hiring another 350 engineers as sales boom worldwide

Dyson is already an icon of British inventiveness, and the company says its latest soaring financial results vindicate a strategy committed, above everything else, to research and development (R&D).

The vacuum giant yesterday reported that operating profits doubled to £190m in 2009 and turnover shot up by 23 per cent to £770m. The secret of the success is all about investment, according to Dyson's chief executive, Martin McCourt.

"We have kept investment in research, design and development running very high all the way through both the good economic times and the bad," Mr McCourt said. "The results are a clear recognition that people do want machines that incorporate new ideas and new technologies."

Dyson's latest show-stopper is the Air Multiplier – a futuristic desk fan with no blades and, according to the company, no buffeting. It went on sale in Australia last October and within six weeks accounted for a whopping 60 per cent of the market. It is now available in the US, the UK, Japan, France and Germany, and the company has high hopes it will do similarly well.

Another big seller is the Air Blade – described by Mr McCourt as "the first electric hand-drier that actually dries your hands". After two years, the Air Blade is on sale in 20 markets and turning a healthy profit.

"It has gone down really well – not least because facility managers can see that not only does it dry your hands better, but it is also lower your costs because it doesn't have a heater in it and you don't have reams of paper piling up," Mr McCourt said.

But Dyson's staple product – the vacuum cleaner – is also selling well, albeit in new guises. The financial results saw a major boost from the City, a handheld cleaner launched in Japan early last year that quickly became the country's best-selling vacuum. And there is also the DC25 Ball Vacuum – much like the traditional bag-less model through which the company shot to fame, but with a ball instead of wheels. The Ball already represents more than half of the company's US and UK sales after just one full year on the market.

Dyson is the poster child of British engineering, and a beacon for efforts to rebalance the economy away from an undue reliance on financial services. Although the actual manufacturing was moved to Malaysia in 2002, all the company's R&D is done in the UK, and the group's founder – the high-profile inventor Sir James Dyson – was asked by the Conservative Party last year to lead a taskforce aimed at making Britain a leading hi-tech exporter.

The company bats away critics' claims that the company has betrayed its allegiance to British industry by shifting production to Malaysia. The move made sense for the company, partly because of cost factors, partly because of the strong supply chain for components in the Far East. And, according to the Dyson model, it is the intellectual property that is important, not the production.

"It is not about where you manufacture something, it's about where the ideas are created," Mr McCourt said. "The ideas happen here, at our invention centre in Malmsbury."

Dyson certainly puts its money where its mouth is. The company invested £42m in R&D last year, and will spend more still in 2010. The strong financial results prove it is a strategy that works, says Mr McCourt. And the company is recruiting another 350 engineers this year, doubling its engineering headcount to 700.

The model is at the heart of Sir James's recommendations in his Ingenious Britain report, published with Tory support shortly before the election. With the Conservatives now in government – and an emergency Budget due on 22 June – there is the the hope of action, notwithstanding the parlous public finances.

Much needs to be done to make Dyson the norm rather than the exception. Part of the problem is culture. Companies need to be ready to back up their ideas with research, design and development. But there is also much the state can do.

One big ask is on tax credits. The report calls on the Government to refocus the R&D tax credit on hi-tech, small businesses and new start-ups, and says the rate should go up to 200 per cent once the public finances allow. The other major piece is education. Britain churns out a fraction of the science and engineering graduates of a fast-growing economy like China.

"There needs to be a culture change, with higher value placed on science and engineering. And there needs to be more and better teaching available.

"We need people not just dreaming of becoming bankers and advertisers," Mr McCourt said. "We need children wanting to make things."

Dyson's hits and misses

Sir James Dyson is one of Britain's best-known inventors, and his highly profitable vacuum cleaner empire has produced a net worth estimated at more than £500m.

His first success was the DC01, the first Dyson machine, bag-less and incorporating patented "Dual Cyclone" technology. The DC01 was launched in 1993 and quickly became a best-seller. Since then, dual cyclone has been superceded by "root cyclone", which has also proved highly successful. But Sir James was not content to stick to vacuum cleaners. The Air Blade hand drier is proving a hit. And the group has high hopes for the futuristic Air Multiplier bladeless fan, launched in Australia last year and quickly the market leader. But there have been some major hiccups along the way. Sir James himself is almost proud of how long the original DC01 design took to perfect. He made some 5,127 prototypes of his original vacuum before he hit on the solution – evidence, he says, that failure helps to hone the creativity.

But there were also some blind alleys once the company had become a worldwide success. In 2000, Dyson launched the world's first "dual drum, counter rotating" washing machine. But consumers' response was lukewarm and after three, unprofitable, models, the lines were discontinued. Meanwhile, Dyson's first robotic vacuum cleaner never made it beyond the trial stage. Billed as "the vacuum cleaning system of the future", the DC06 was too heavy and too expensive for production without further development.