* Sees VAT, government cuts affecting volumes
* Cuts FY profit view on reduced rail spend, finance costs
* Sees H2 growth as new contracts kick in
* H1 pretax profit up 37.5 percent, revenue up 11.7 percent
* Shares drop 8.6 percent
(Adds CFO comments, detail, analyst, updates shares)
LONDON, Oct 20 (Reuters) - British freight company Stobart Group has cut its full-year profit forecast and warned that government spending cuts and tax rises could hit volumes in 2011.
"We have slightly reduced our full-year profit expectations as a result of reduced spend by Network Rail and increased overall finance costs. We are also cautious that 2011 may see volumes affected by the increase in VAT rate and the government spending review," said Chief Executive Andrew Tinkler.
Shares in the Carlisle-based company tumbled 13 percent when the market opened, and by 0915 GMT were down 8.6 percent, valuing the company at about 380 million pounds.
The company, whose Eddie Stobart trucks are a common sight on Britain's motorways and feature in a fly-in-the-cab TV documentary, said customers were demanding shorter lead times, as hard-pressed retailers ordered fewer items more often.
Tinkler said this was giving the company less time to plan deliveries, leading to a lower vehicle utilisation rate.
But Stobart said in the longer term it would benefit from the flexibility of its business model, which uses its own fleet and drivers, reducing the need to rely on subcontractors, and a pay-as-you-go system.
Ben Whawell, chief financial officer, said the company had not seen much direct effect on volumes from reduced government spending so far, but that the size of the cuts expected from the government spending review to be unveiled later on Wednesday might well have some impact.
"Two thirds of the goods we move are food and drink, where volumes don't really change much, making us quite resilient," he said.
However, the company's railway engineering unit has seen a big drop in spending from Network Rail, which halved in the first half year-on-year, with no big projects planned.
Stobart on Wednesday reported a 38.7 percent jump in pretax profit in its first half to Aug. 31 to 15.4 million pounds ($24.2 million), on revenue from continuing operations up 11.7 percent at 243.7 million pounds, with contract wins from Tesco and A.G. Barr adding volume and margin.
The company, which declined to say what its new profit expectations were, said new contracts such as a three-year deal with Britvic, which kicks in next April, would help drive growth in the second half.
Net debt rose to 162 million pounds from 97 million as the company renewed some of its fleet, developed its biomass business and spent to upgrade Southend Airport, which it bought in December 2008.
Ahead of Wednesday's announcement, analysts were expecting full-year pretax profit in a range from 32.9 million pounds to 35.6 million pounds, a Thomson Reuters I/B/E/S/ poll showed, compared with 29.3 million in the previous year.
"Given management's outlook statement, we expect consensus estimates to fall. However, it remains to be seen whether our already pessimistic estimates require revision," said Gerald Khoo, analyst at Arbuthnot Securities. ($1=.6360 Pound) (Reporting by Jon Loades-Carter; Editing by Mark Potter and Will Waterman)