Pre-tax profit leapt 69% to 11m on turnover up 23% to 42.8m. Chief executive Ian Dinwoodie said: "It was another strong year, the numbers speak for themselves."

He added that the firm's 10m new factory in Huntingdon was progressing well. The site will build the firm's third-generation hybrid side-shooter (HSS) print heads, which are currently being tested by undisclosed partners.

The new heads will extend Xaar's products from wide-format graphics into high-speed web and sheetfed commercial print applications.

Commercial shipments are expected to commence in 2007, with partners using the HSS heads announcing their plans towards the end of this year. Initial specification for the head at a "quality comparable to commercial print" will be 0.5m per second.

A video demonstration of the HSS will be at Ipex with live demonstrations expected in the third or fourth quarter.

Graphics, and in particular wide- and grand-format products, contribute the bulk of the firm's revenues, accounting for 77%. The sector grew 28% for the firm last year, and which financial director Nigel Berry expects to continue to grow strongly for another four or five years.

Packaging is predicted to be a major future market for the firm. It is in discussion with five of the largest packaging companies about projects covering cans, labels, cartons and bags, and expects some projects to be completed within a year.

"In the next two to three years, packaging will be a major area of growth for us," said finance director Nigel Berry. "This will possibly lead to a change where printing happens in the supply chain."

Printed electronics and other non-graphic markets also remain a focus for future developments. Berry added that many of these projects were at a very early stage and it was important not to underestimate the R&D required.

Applications include organic light emitting display (OLED) based screens, printed circuit boards, RFID tags, 3D modelling and biotechnology.

Xaar has sold its integration business Vivid Print Innovations to one of its integration partners Xennia Technology. It exchanged Vivid for a further 2.5% stake in the firm, taking its total holding to 12.5%.

Shares hit a new 52-week high of 339.75p before dropping back to 330p following the release of the results.