Royal Mail has not yet won the North-East business community's confidence, despite delivering profits of more than £200m, business leaders said last night.

Figures released yesterday by Royal Mail showed the organisation was making £1m a day and delivering more than nine out of ten first class letters on time.

The company said a massive modernisation programme was transforming the service, which reported profits of £217m in the first half of the financial year.

However, the Federation of Small Businesses (FSB) said signs of improvement had not gone far enough to restoring confidence in the service, which has been beset by problems since the introduction of a single daily delivery earlier this year.

Peter Troy, Darlington branch chairman of the FSB, said: "For small businesses, an efficient Royal Mail service is absolutely essential. At the moment, there are signs of improvement, but there is still a long way to go.

"Feedback from our members suggests deliveries are still somewhat erratic. The results from the group are very good news, but although business needs a profitable Royal Mail, it also needs a reliable one."

Royal Mail said figures for the region showed a marked improvement in service from the start of the year.

Deliveries in Teesside showed the biggest improvement, with the number of first class letters delivered a day after posting up to 91.1 per cent, a rise of 6.2 per cent on the three months at the start of the year.

However, only three postal areas in the North-East reached the target of 92.5 per cent, with households and businesses in Durham experiencing a poorer service.

Nationally, the number of first class letters delivered a day after posting was 92.1 per cent in the three months to September, nearly four per cent better than the quarter to June and one of the best performances of the past decade.

The company is on course to make profits of £400m for the year, which will trigger payments of at least £800 to each postal worker in the UK.

Royal Mail chairman Allan Leighton said: "No-one should doubt or underestimate the scale of the task we have tackled.

"We are delivering a massive modernisation programme, restoring profitability and driving up service to customers. Royal Mail is being transformed."